0001545654-13-000020.txt : 20130510 0001545654-13-000020.hdr.sgml : 20130510 20130510094019 ACCESSION NUMBER: 0001545654-13-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20130331 FILED AS OF DATE: 20130510 DATE AS OF CHANGE: 20130510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Alexander & Baldwin, Inc. CENTRAL INDEX KEY: 0001545654 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 454849780 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35492 FILM NUMBER: 13831382 BUSINESS ADDRESS: STREET 1: 822 BISHOP STREET, P.O. BOX 3440 CITY: HONOLULU STATE: HI ZIP: 96801 BUSINESS PHONE: (808) 525-6611 MAIL ADDRESS: STREET 1: 822 BISHOP STREET, P.O. BOX 3440 CITY: HONOLULU STATE: HI ZIP: 96801 FORMER COMPANY: FORMER CONFORMED NAME: A & B II, Inc. DATE OF NAME CHANGE: 20120502 FORMER COMPANY: FORMER CONFORMED NAME: & B II, Inc. DATE OF NAME CHANGE: 20120326 FORMER COMPANY: FORMER CONFORMED NAME: A&B II, Inc. DATE OF NAME CHANGE: 20120326 10-Q 1 form10q.htm ALEX Q1 FORM 10-Q form10q.htm



 
 
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 March 31, 2013
 
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)

Hawaii
45-4849780
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
   
P. O. Box 3440, Honolulu, Hawaii
822 Bishop Street, Honolulu, Hawaii
(Address of principal executive offices)
9680l
96813
(Zip Code)

 
(808) 525-6611
 
(Registrant’s telephone number, including area code)

 
N/A
 
(Former name, former address, and former
 
fiscal year, if changed since last report)

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 and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o No x
 

 
 
Number of shares of common stock outstanding as of March 31, 2013:     43,048,713

 


 
 

 


 
PART I. FINANCIAL INFORMATION
 
 

 
 
ITEM 1. FINANCIAL STATEMENTS
 

ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In millions, except per share amounts) (Unaudited)

   
            Three Months Ended
 
   
March 31,
 
   
2013
 
2012
 
Operating Revenue:
             
Real estate leasing
 
$
26.3
 
$
25.1
 
Real estate development and sales
   
0.5
   
2.5
 
Agribusiness
   
14.7
   
13.6
 
Total operating revenue
   
41.5
   
41.2
 
               
Operating Costs and Expenses:
             
Cost of real estate leasing
   
15.0
   
14.2
 
Cost of real estate development and sales
   
0.1
   
1.0
 
Costs of agribusiness revenues
   
10.8
   
10.1
 
Selling, general and administrative
   
8.6
   
8.0
 
Separation costs
   
--
   
1.7
 
Total operating costs and expenses
   
34.5
   
35.0
 
               
Operating Income
   
7.0
   
6.2
 
Other Income and (Expense):
             
Income (loss) related to real estate joint ventures
   
0.5
   
(1.6
)
Interest expense
   
(3.6
)
 
(4.1
)
Income From Continuing Operations Before Income Taxes
   
3.9
   
0.5
 
Income tax expense
   
1.6
   
0.2
 
Income From Continuing Operations
   
2.3
   
0.3
 
Income From Discontinued Operations (net of income taxes)
   
2.7
   
2.5
 
               
Net Income
 
$
5.0
 
$
2.8
 
               
Basic Earnings Per Share:
             
Continuing operations
 
$
0.05
 
$
0.01
 
Discontinued operations
   
0.07
   
0.06
 
Net income
 
$
0.12
 
$
0.07
 
               
Diluted Earnings Per Share:
             
Continuing operations
 
$
0.05
 
$
0.01
 
Discontinued operations
   
0.07
   
0.06
 
Net income
 
$
0.12
 
$
0.07
 
               
Weighted Average Number of Shares Outstanding:
             
Basic
   
43.0
   
42.4
 
Diluted
   
43.6
   
42.4
 

See Notes to Condensed Consolidated Financial Statements.

 
 

 




ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In millions) (Unaudited)

   
               Three Months Ended
 
   
March 31,
 
   
2013
 
2012
 
Net Income
 
$
5.0
 
$
2.8
 
Other Comprehensive Income:
             
Defined benefit pension plans:
             
Amortization of prior service cost (credit) included in net periodic pension cost
   
(0.3
)
 
0.1
 
Amortization of net loss included in net periodic pension cost
   
2.0
   
1.2
 
Income taxes
   
(0.7
)
 
(0.5
)
Other Comprehensive Income
   
1.0
   
0.8
 
Comprehensive Income
 
$
6.0
 
$
3.6
 


See Notes to Condensed Consolidated Financial Statements.

 
 

 

 ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
   
March 31,
   
December 31,
 
   
2013
   
2012
 
ASSETS
               
Current Assets:
               
Cash and cash equivalents
 
$
1.2
   
$
1.1
 
    Accounts receivable, net
   
9.5
     
8.2
 
Inventories
   
47.8
     
23.5
 
Real estate held for sale
   
1.5
     
11.5
 
Deferred income taxes
   
7.8
     
7.8
 
Prepaid expenses and other assets
   
6.8
     
11.3
 
Total current assets
   
74.6
     
63.4
 
Investments in Affiliates
   
324.4
     
319.9
 
Real Estate Developments
   
147.7
     
144.0
 
Property – net
   
862.6
     
838.7
 
Other Assets
   
80.7
     
71.3
 
Total assets
 
$
1,490.0
   
$
1,437.3
 
                 
LIABILITIES AND EQUITY
               
Current Liabilities:
               
Notes payable and current portion of long-term debt
 
$
20.3
   
$
15.5
 
    Accounts payable
   
24.2
     
26.2
 
Accrued interest
   
1.7
     
5.2
 
Accrued and other liabilities
   
22.8
     
22.7
 
Total current liabilities
   
69.0
     
69.6
 
Long-term Liabilities:
               
Long-term debt
   
270.0
     
220.0
 
Deferred income taxes
   
148.1
     
152.9
 
Accrued pension and postretirement benefits
   
58.8
     
58.9
 
Other non-current liabilities
   
23.0
     
21.5
 
Total long-term liabilities
   
499.9
     
453.3
 
Commitments and Contingencies (Note 3)
               
Equity:
               
Common stock
   
940.4
     
939.8
 
    Preferred stock
   
--
     
--
 
    Accumulated other comprehensive loss
   
(46.2
)
   
(47.2
)
    Retained earnings
   
26.9
     
21.8
 
Total equity
   
921.1
     
914.4
 
Total liabilities and equity
 
$
1,490.0
   
$
1,437.3
 



See Notes to Condensed Consolidated Financial Statements.

 
 

 

ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)


   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
                 
Cash Flows used in Operating Activities:
   
(25.2
)
   
(26.9
)
                 
Cash Flows from Investing Activities:
               
Capital expenditures for properties and developments
   
(6.5
)
   
(4.9
)
Proceeds from disposal of income-producing properties and other assets
   
0.1
     
0.8
 
Payments for purchases of investments in affiliates
   
(4.7
)
   
(6.9
)
Proceeds from investments in affiliates
   
0.6
     
0.1
 
Net cash used in investing activities
   
(10.5
)
   
(10.9
)
                 
Cash Flows from Financing Activities:
               
Proceeds from issuances of long-term debt
   
35.0
     
44.0
 
Payments of long-term debt and deferred financing costs
   
(5.2
)
   
(13.1
)
Proceeds from  line-of-credit agreements, net
   
4.5
     
3.9
 
Contributions from Alexander & Baldwin Holdings, Inc., net
   
--
     
0.3
 
    Proceeds from stock option exercises, including excess tax benefit
   
1.5
     
--
 
Net cash provided by financing activities
   
35.8
     
35.1
 
                 
Cash and Cash Equivalents:
               
Net increase (decrease) for the period
   
0.1
     
(2.7
)
Balance, beginning of period
   
1.1
     
11.7
 
Balance, end of period
 
$
1.2
   
$
9.0
 
                 
Other Cash Flow Information:
               
Interest paid
 
$
(7.2
)
 
$
(5.4
)
Income taxes paid
 
$
(0.8
)
 
$
(1.5
)
                 
Other Non-cash Information:
               
Depreciation and amortization expense
 
$
9.0
   
$
8.6
 
Tax-deferred property sales
 
$
14.7
   
$
8.9
 
Tax-deferred property purchases
 
$
(9.8
)
 
$
--
 
Note payable assumed in connection with acquisition of Waianae Mall
 
$
19.7
   
$
--
 
Capital expenditures included in accounts payable and accrued expenses
 
$
6.5
   
$
9.5
 




See Notes to Condensed Consolidated Financial Statements.

 
 

 

 Alexander & Baldwin, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(1)
Description of Business.  Prior to June 29, 2012, A&B’s businesses included Matson Navigation Company Inc., a wholly owned subsidiary that provided ocean transportation, truck brokerage and intermodal services. As part of a strategic initiative designed to allow A&B to independently execute its strategies and to best enhance and maximize its earnings, growth prospects and shareholder value, A&B made a decision to separate the transportation businesses from the Hawaii real estate and agriculture businesses. In preparation for the separation, A&B modified its legal-entity structure and became a wholly owned subsidiary of a newly created entity, Alexander & Baldwin Holdings, Inc. (“Holdings”). On June 29, 2012, Holdings distributed to its shareholders all of the common stock of A&B stock in a tax-free distribution (the “Separation”). Holders of Holdings common stock continued to own the transportation businesses, but also received one share of A&B common stock for each share of Holdings common stock held at the close of business on June 18, 2012, the record date. Following the Separation, Holdings changed its name to Matson, Inc. On July 2, 2012, A&B began regular trading on the New York Stock Exchange under the ticker symbol “ALEX” as an independent, public company. A&B is headquartered in Honolulu and conducts business in three operating segments in two industries—Real Estate and Agribusiness. These industries are described below:
 
 
Real Estate:  Real Estate consists of two segments, both of which have operations in Hawaii and on the Mainland. The Real Estate Development and Sales segment generates its revenues through the development and sale of land and commercial and residential properties. The Real Estate Leasing segment owns, operates, and manages retail, office, and industrial properties. Real estate activities are conducted through A&B Properties, Inc. and various other wholly owned subsidiaries of A&B.
 
 
Agribusiness:  Agribusiness, which contains one segment, produces bulk raw sugar, specialty food grade sugars, and molasses; markets and distributes specialty food-grade sugars; provides general trucking services, mobile equipment maintenance, and repair services in Hawaii; leases agricultural land to third parties; and generates and sells electricity, to the extent not used in the Company’s Agribusiness operations.

(2)
Basis of Presentation.  The financial statements and related financial information pertaining to the period preceding the Separation have been presented on a combined basis and reflect the financial position, results of operations and cash flows of the real estate and agriculture businesses and corporate functions of Alexander & Baldwin, Inc., all of which were under common ownership and common management prior to the Separation. The financial statements and related financial information pertaining to the period subsequent to the Separation have been presented on a consolidated basis. The financial statements for periods prior to the Separation included herein may not necessarily reflect A&B’s results of operations, financial position and cash flows in the future or what its results of operations, financial position and cash flows would have been had A&B been a stand-alone company during the periods presented.
 
 
The condensed consolidated financial statements are unaudited. Because of the nature of the Company’s operations, the results for interim periods are not necessarily indicative of results to be expected for the year. While these condensed consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2012 and the notes thereto included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2012.

 
Rounding:. Amounts in the consolidated financial statement and Notes are rounded to the nearest tenth of a million, but per-share calculations and percentages were determined based on amounts before rounding. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may be slightly different.

(3)
Commitments, Guarantees and Contingencies:  Commitments and financial arrangements, excluding lease commitments that are disclosed in Note 8 of the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2012, included the following (in millions):

 
Standby letters of credit related to real estate development projects
$12.2
 
 
Performance bonds related to real estate construction
$21.7
 

These amounts are not recorded on the Company’s condensed consolidated balance sheet and it is not expected that the Company or its subsidiaries will be called upon to advance funds under these commitments.

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 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.
 
Other Obligations:  Certain of the real estate businesses in which the Company holds a non-controlling interest have long-term debt obligations. One of the Company’s joint ventures has a $10 million loan that matures in August 2015. As a condition to providing the loan to the joint venture, the lender required that the Company and its joint venture partner guarantee certain obligations of the joint venture under a maintenance agreement. The maintenance agreement specifies that the Company and its joint venture partner make payments to the lender to the extent that the loan-to-value measure or debt service ratio of the property held by the joint venture is below pre-determined thresholds. The Company has determined that the fair value of its obligation under this maintenance agreement is not material, and as of March 31, 2013, the Company had not paid any amounts under the guaranty.
 
Other than obligations described above, 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 that supply a significant portion of the irrigation water used by Hawaiian Commercial & Sugar Company (“HC&S”), a division of A&B that produces raw sugar. A&B also held four water licenses to another 30,000 acres owned by the State of Hawaii in East Maui which, over the last ten years, have supplied approximately 58 percent of the irrigation water used by HC&S. 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 renewed the existing permits on a holdover basis. If the Company is not permitted to utilize sufficient quantities of stream waters from State lands in East Maui, it could have a material adverse effect on the Company’s sugar-growing operations.
 
In addition, on May 24, 2001, petitions were filed by a third party, requesting that the Commission on Water Resource Management of the State of Hawaii (“Water Commission”) establish interim instream flow standards (“IIFS”) in 27 East Maui streams that feed the Company’s irrigation system. On September 25, 2008, the Water Commission took action on eight of the petitions, resulting in some quantity of water being returned to the streams rather than being utilized for irrigation purposes. In May 2010, the Water Commission took action on the remaining 19 petitions resulting in additional water being returned to the streams. A petition requesting a contested case hearing to challenge the Water Commission’s decisions was filed with the Commission by the opposing third party. On October 18, 2010, the Water Commission denied the petitioner’s request for a contested case hearing. On November 17, 2010, the petitioner filed an appeal of the Water Commission’s denial to the Hawaii Intermediate Court of Appeals. On August 31, 2011, the Intermediate Court of Appeals dismissed the petitioner’s appeal. On November 29, 2011, the petitioner appealed the Intermediate Court of Appeals’ dismissal to the Hawaii Supreme Court. On January 11, 2012, the Hawaii Supreme Court vacated the Intermediate Court of Appeals’ dismissal of the petitioner’s appeal and remanded the appeal back to the Intermediate Court of Appeals. On November 30, 2012, the Intermediate Court of Appeals remanded the case back to the Water Commission, ordering the Commission to grant the petitioner’s request for a contested case hearing.
 
On June 25, 2004, two organizations filed a petition with the Water Commission to establish IIFS for four streams in West Maui to increase the amount of water to be returned to these streams. The West Maui irrigation system provided approximately 15 percent of the irrigation water used by HC&S over the last ten years. The Water Commission issued a decision in June 2010, which required the return of water in two of the four streams. In July 2010, the two organizations appealed the Water Commission’s decision to the Hawaii Intermediate Court of Appeals. On June 23, 2011, the case was transferred to the Hawaii Supreme Court.  On August 15, 2012, the Hawaii Supreme Court overturned the Water Commission's decision and remanded the case to the Water Commission for further consideration in connection with the establishment of the IIFS.
 
The loss of East Maui and West Maui water as a result of the Water Commission’s decisions imposes challenges to the Company’s sugar growing operations. While the resulting water loss does not immediately threaten near-term sugar production, it will result in a future suppression of sugar yields and will have an impact on the Company that will only be quantifiable over time. Accordingly, the Company is unable to predict, at this time, the outcome or financial impact of the water proceedings.
 
In March 2011, the Environmental Protection Agency (“EPA”) published nationwide standards for controlling hazardous air pollutant emissions from industrial, commercial, institutional boilers and process heaters (the “Boiler MACT” rule), which would apply to Hawaiian Commercial & Sugar Company’s three boilers at the Puunene Sugar Mill. The EPA subsequently reconsidered the March 2011 rule, and on December 21, 2012, EPA announced that it had finalized a revised Boiler MACT rule; the final rule was published in the Federal Register on January 31, 2013. The effective date of the rule is April 1, 2013, with compliance required by April 1, 2016.
 
The Company is currently evaluating the final rule and assessing its compliance options.  Based on our review, the EPA has made significant revisions from the March 2011 final rule addressing industry concerns. The Company, along with the Florida Sugar Industry, has submitted a petition for reconsideration of certain issues in the final Boiler MACT rule.
 
The Puunene Mill boilers are capable of meeting most of the emissions limits specified in the final rule and the Company does not expect that expensive upgrades to the existing particulate matter controls will be required.  However, the boilers are not currently able to consistently meet new limits on carbon monoxide emissions during bagasse firing. This is due in large part to the highly variable nature of bagasse fuel. As a result, at a minimum, improvements to combustion controls and monitoring will be required on all three boilers even if the carbon monoxide limit is adjusted in response to the pending petition. 
 
The Company has begun the process of assessing current carbon monoxide emissions during bagasse firing, and will need to complete an engineering evaluation in order to develop a plan for coming into compliance with the new rule.  The compliance deadline for this rule will be three years from the date of publication of the final rule in the Federal Register (i.e., April 1, 2016), with the option for states to grant a one-year extension.  A preliminary estimate of anticipated compliance costs is less than $5 million based on currently available information. This estimate will be refined as the engineering evaluation proceeds.
 
In June 2011, the Equal Employment Opportunity Commission (“EEOC”) served McBryde Resources, Inc., formerly known as Kauai Coffee Company, Inc. (“McBryde Resources”) with a lawsuit, which alleged that McBryde Resources and five other farms were complicit in illegal acts by Global Horizons Inc., a company that had hired Thai workers for the farms. The lawsuit was filed in the U.S. District Court for the District of Hawaii. In July 2011, the EEOC amended the lawsuit to name Alexander & Baldwin, LLC (formerly known as Alexander & Baldwin, Inc.), a wholly owned subsidiary of the Company, as a defendant. After motions to dismiss the complaint, and amended complaints, certain claims against the defendants remain and McBryde Resources and Alexander & Baldwin, LLC are defending the lawsuit. Discovery is pending while the parties discuss possible settlement of this matter. The Company is unable to predict, at this time, the outcome or financial impact, if any, of the lawsuit.
 
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 condensed consolidated financial statements as a whole.

(4)
Earnings Per Share (“EPS”). The computation of basic and diluted earnings per common share for all periods prior to Separation is calculated using the number of shares of A&B common stock outstanding on July 2, 2012, the first day of trading following the June 29, 2012 distribution of A&B common stock to Holdings shareholders, as if those shares were outstanding for those periods. Additionally, for all periods prior to Separation, there were no dilutive shares because no actual A&B shares or share-based awards were outstanding prior to the Separation.

 
Earnings Per Share (“EPS”): The number of shares used to compute basic and diluted earnings per share is as follows (in millions):

   
 
Quarter Ended
March 31,
   
   
2013
 
2012
   
Denominator for basic EPS – weighted average shares
 
43.0
 
42.4
   
Effect of dilutive securities:
           
Employee/director stock options and restricted stock units
 
0.6
 
--
   
Denominator for diluted EPS – weighted average shares
 
43.6
 
42.4
   

Basic earnings per share is computed based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares, if any, that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive shares of common stock include non-qualified stock options, time-based restricted stock units and performance share units. The vesting of performance share units is contingent upon the achievement of relative total shareholder return metrics. Prior to vesting, if all necessary conditions would have been satisfied by the end of the reporting period (as if the end of the reporting period were deemed to be the end of the performance measurement period), the dilutive effect of the performance share units, if any, is included in the computation of diluted EPS using the treasury stock method.

During the three month periods ended March 31, 2013 and 2012, there were no anti-dilutive securities outstanding.

(5)
Fair Value of Financial Instruments.  The fair values of receivables and short-term borrowings approximate their carrying values due to the short-term nature of the instruments. The Company’s cash and cash equivalents, consisting principally of cash on deposit, may from time to time include short-term money markets funds. The fair values of these money market funds, based on market prices (level 2), approximate their carrying values due to their short-maturities. The carrying amount and fair value of the Company’s long-term debt at March 31, 2013 was $270.0 million and $297.0 million, respectively, and $220.0 million and $249.0 million at December 31, 2012, respectively. The fair value of long-term debt is calculated by discounting the future cash flows of the debt at rates based on instruments with similar risk, terms and maturities as compared to the Company’s existing debt arrangements (level 2).
 
 
(6)
Share-Based Compensation.  Under the 2012 Plan, 4.3 million shares of common stock were initially reserved for issuance, and as of March 31, 2013, 1,509,274 shares of the Company’s common stock remained available for future issuance. 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 in private transactions.

Activity in the Company’s stock option plans in 2013 was as follows (in thousands, except weighted average exercise price and weighted average contractual life):


         
Weighted
 
Weighted
     
         
Average
 
Average
 
Aggregate
 
   
2012
   
Exercise
 
Contractual
 
Intrinsic
 
   
Plan
   
Price
 
Life
 
Value
 
                     
 
Outstanding, January 1, 2013
1,722.7
   
$19.41
         
 
Exercised
(44.3
)
 
$20.01
         
 
Forfeited and expired
(1.2
)
 
$19.80
         
 
Outstanding, March 31, 2013
1,677.2
   
$19.39
 
5.6
 
$27,124
 
                     
 
Exercisable, March 31, 2013
1,481.3
   
$19.15
 
5.2
 
$24,319
 

The following table summarizes non-vested restricted stock unit activity through March 31, 2013 (in thousands, except weighted average grant-date fair value amounts):

               
     
2012
       
     
Plan
   
Weighted
 
     
Restricted
   
Average
 
     
Stock
   
Grant-Date
 
     
Units
   
Fair Value
 
               
 
Outstanding, January 1, 2013
 
330.0
   
$20.43
 
 
Granted
 
99.9
   
$34.13
 
 
Vested
 
(140.3
)
 
$18.01
 
 
Canceled
 
(49.4
)
 
$22.53
 
 
Outstanding, March 31, 2013
 
240.2
   
$27.11
 

A portion of the restricted stock unit awards are time-based awards that vest ratably over three years. The remaining portion of the awards represents market-based awards that cliff vest after two years, provided that the total shareholder return of the Company’s common stock over the two year measurement period meets or exceeds pre-defined levels of relative total shareholder returns of the Standard & Poor’s MidCap 400 index.
 
 
A summary of compensation cost related to share-based payments is as follows (in millions):

     
Quarter Ended
   
     
March 31,
   
     
2013
   
2012
   
 
Share-based expense (net of estimated forfeitures):
                 
 
Stock options
 
$
0.4
   
$
0.3
   
 
Restricted stock units
   
0.7
     
1.0
   
 
Total share-based expense
   
1.1
     
1.3
   
 
Total recognized tax benefit
   
(0.3
)
   
(0.4
)
 
 
Share-based expense (net of tax)
 
$
0.8
   
$
0.9
   


(7)
 
Discontinued Operations.  The revenues and expenses of Northpoint Industrial, an industrial property in California that was sold in the first quarter of 2013, have been classified as discontinued operations. In 2012, the revenues and expenses of two leased fee properties on Maui and Firestone Boulevard Building, a California office property, were classified as discontinued operations due to the sale of the properties.

The results of operations from these properties in prior periods were reclassified from continuing operations to discontinued operations to conform to the current period’s accounting presentation. Consistent with the Company’s intention to reinvest the sales proceeds into new investment property, the proceeds from the sales of property treated as discontinued operations were deposited in escrow accounts for tax-deferred reinvestment in accordance with Section 1031 of the Internal Revenue Code.
 
The revenue, operating profit, income tax expense and after-tax effects of these transactions were as follows (in millions):
 
 
Quarter Ended
   
 
March 31,
   
 
2013
   
2012
   
                 
Proceeds from the sale of income-producing properties
$
14.9
   
$
8.9
   
Real estate leasing revenue
 
--
     
0.4
   
                 
Gain on sale of income-producing properties
 
4.2
     
3.9
   
Real estate leasing operating profit
 
--
     
0.2
   
Total operating profit before taxes
 
4.2
     
4.1
   
Income tax expense
 
(1.5
)
   
(1.6
)
 
Income from discontinued operations
$
2.7
   
$
2.5
   

(8)
Pension and Post-retirement Plans.  The Company has defined benefit pension plans that cover substantially all non-bargaining unit and certain bargaining unit employees. The Company also has unfunded non-qualified plans that provide benefits in excess of the amounts permitted to be paid under the provisions of the tax law to participants in qualified plans.

 
In 2007, the Company changed the traditional defined benefit pension plan formula for new non-bargaining unit employees hired after January 1, 2008 and replaced it with a cash balance defined benefit pension plan formula. Subsequently, effective January 1, 2012, the Company changed the benefits under its traditional defined benefit plans for non-bargaining unit employees hired before January 1, 2008 and replaced the benefit with the same cash balance defined benefit pension plan formula provided to those employees hired after January 1, 2008. Retirement benefits under the cash balance pension plan formula are based on a fixed percentage of employee eligible compensation, plus interest. The plan interest credit rate will vary from year-to-year based on the ten-year U.S. Treasury rate.

 
The assumptions related to discount rates, expected long-term rates of return on invested plan assets, salary increases, age, mortality and health care cost trend rates, along with other factors, are used in determining the assets, liabilities and expenses associated with pension benefits. Management reviews the assumptions annually with its independent actuaries, taking into consideration existing and future economic conditions and the Company’s intentions with respect to these plans. Management believes that its assumptions and estimates are reasonable. Different assumptions, however, could result in material changes to the assets, obligations and costs associated with benefit plans.

The components of net periodic benefit cost recorded for the first quarters of 2013 and 2012 were as follows (in millions):

   
Pension Benefits
 
Post-retirement Benefits
   
2013
 
2012
 
2013
 
2012
Service cost
 
$
0.6
   
$
0.9
   
$
0.1
   
$
0.1
 
Interest cost
   
2.1
     
2.4
     
0.2
     
0.2
 
Expected return on plan assets
   
(2.6
)
   
(2.8
)
   
--
     
--
 
Amortization of prior service cost (credit)
   
(0.2
)
   
0.1
     
--
     
--
 
Amortization of net loss
   
2.0
     
1.6
     
--
     
--
 
Net periodic benefit cost
 
$
1.9
   
$
2.2
   
$
0.3
   
$
0.3
 


(9)
New Accounting Pronouncements. In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). This update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, ASU 2013-02 requires presentation, either on the face of the income statement or in the notes, of significant amounts reclassified out of accumulated other comprehensive income by respective line items of net income, but only if the amounts reclassified are required to be reclassified in their entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about these amounts. The amendments in ASU 2013-02 are to be applied prospectively and are effective for fiscal years and interim periods within those years, beginning after December 15, 2012. The Company adopted the standard effective January 1, 2013 with prospective application. The adoption of ASU 2013-02 changed the presentation of the Company’s financial statements and related footnotes, but did not affect the calculation of net income, comprehensive income or earnings per share.

 (10)
Accumulated Other Comprehensive Income. The changes in accumulated other comprehensive income by component for the three months ended March 31, 2013 were as follows (in millions, net of tax):


       
Pension and postretirement plans
 
 
Beginning balance, January 1, 2013
 
$
47.2
 
 
Amounts reclassified from accumulated other comprehensive income, net of tax
   
(1.0
)
 
Ending balance, March 31, 2013
 
$
46.2
 


 
The reclassifications of other comprehensive income components out of accumulated other comprehensive income for the three months ended March 31, 2013 were as follows (in millions):

   
Amounts Reclassified from Accumulated Other Comprehensive Income for the Three Months Ended
 
Details about Accumulated Other Comprehensive Income Components
 
March 31, 2013
 
Amortization of defined benefit pension items reclassified to net periodic pension cost:
         
Actuarial loss*
 
$
2.0
   
Prior service credit*
   
(0.3
)
 
Total before income tax
   
1.7
   
Income taxes
   
(0.7
)
 
Other comprehensive income net of tax
 
$
1.0
   

 
*
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 8 for additional details).

(11)
Income Taxes.  The Company is included in the consolidated tax return of Matson, Inc. (formerly Alexander & Baldwin Holdings, Inc.) for results occurring prior to June 30, 2012. Subsequent to June 30, 2012, the Company will report as a separate taxpayer. The current and deferred income tax expense recorded in the condensed consolidated financial statements has been determined by applying the provisions of ASC 740 as if the Company were a separate taxpayer.
 
 
The Company makes certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are applied in the calculation of tax credits, tax benefits and deductions, and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Deferred tax assets and deferred tax liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when the temporary differences reverse. Adjustments may be required to deferred tax assets and deferred tax liabilities due to changes in tax laws and audit adjustments by tax authorities. To the extent adjustments are required in any given period, the adjustments would be included within the tax provision in the condensed consolidated statements of income or balance sheets.
 
(12)
Notes Payable and Long-Term Debt. On January 22, 2013, A&B completed the purchase of Waianae Mall, a 170,300 square-foot, 10-building retail center in Leeward Oahu, for $10.1 million in cash and the assumption of a $19.7 million loan (the “Loan”). The Promissory Note for the Loan is secured by a Mortgage, Assignment of Leases and Rents and Security Agreement, bears interest at 5.39 percent, and requires monthly payments of principal and interest totaling $124,552. A final balloon payment of $18.5 million is due on October 5, 2015. In connection with the loan assumption, the Company has also provided a limited guaranty for the payment of all obligations under the Loan. The guaranty is limited to 10 percent of the outstanding principal balance of the Loan upon the occurrence of an event of default, plus any cost incurred by the lender.
 

 

 
 

 


(13)
Segment Results. Segment results for the three months ended March 31, 2013 and 2012 were as follows (in millions):
 


   
Three Months Ended
 
   
March 31,
 
   
2013
 
2012
 
Revenue:
             
Real Estate1:
             
Leasing
 
$
26.3
 
$
25.5
 
Development and Sales
   
15.4
   
11.4
 
Less amounts reported in discontinued operations
   
(14.9
)
 
(9.3
)
   Agribusiness
   
14.7
   
13.6
 
Total revenue
 
$
41.5
 
$
41.2
 
               
Operating Profit, Net Income:
             
Real Estate1:
             
Leasing
 
$
10.9
 
$
10.7
 
Development and Sales
   
2.4
   
0.9
 
Less amounts reported in discontinued operations
   
(4.2
)
 
(4.1
)
   Agribusiness
   
3.8
   
3.5
 
Total operating profit
   
12.9
   
11.0
 
Interest Expense
   
(3.6
)
 
(4.1
)
General Corporate Expenses
   
(5.4
)
 
(4.7
)
Separation Costs
   
--
   
(1.7
)
Income From Continuing Operations Before
Income Taxes
   
3.9
   
0.5
 
Income Tax Expense
   
1.6
   
0.2
 
Income From Continuing Operations
   
2.3
   
0.3
 
Income From Discontinued Operations (net of income taxes)
   
2.7
   
2.5
 
Net Income
 
$
5.0
 
$
2.8
 

1   Prior year amounts restated for amounts treated as discontinued operations.

 
 

 


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 (collectively, the “Company”) should be read in conjunction with the condensed consolidated financial statements and related notes thereto included in Item 1 of this Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the U.S. Securities and Exchange Commission.
 

FORWARD-LOOKING STATEMENTS

Alexander & Baldwin, Inc. (“A&B” or the “Company”), from time to time, may make or may have made certain forward-looking statements, whether orally or in writing, such as forecasts and projections of the Company’s future performance or statements of management’s plans and objectives. These statements are “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be contained in, among other things, Securities and Exchange Commission (“SEC”) filings, such as the Forms 10-K, 10-Q and 8-K, the Annual Report to Shareholders, press releases made by the Company, the Company’s Internet Web sites (including Web sites of its subsidiaries), and oral statements made by the officers of the Company. Except for historical information contained in these written or oral communications, such communications contain forward-looking statements. New risk factors emerge from time to time and it is not possible for the Company to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including, but not limited to the factors that are described in “Risk Factors” of the Company’s 2012 Annual Report on Form 10-K. The Company is not required, and undertakes no obligation, to revise or update forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, or circumstances occurring after the date of this report.

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 the Company believes are important in understanding its results of operations and financial condition or in understanding anticipated future trends.
 
 
Consolidated Results of Operations: This section provides an analysis of A&B’s consolidated results of operations for the three months ended March 31, 2013 and 2012.
 
 
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 three months ended March 31, 2013 and 2012, as well as a discussion of A&B’s ability to fund the its future commitments and ongoing operating activities through internal and external sources of capital.
 
 
Outlook: This section provides a discussion of management’s general outlook about the Hawaii economy and the Company’s markets.
 
 
Other Matters: This section provides a summary of other matters, such as officer and management changes.
 

BUSINESS OVERVIEW

Alexander & Baldwin, with a history that dates back to 1870, is a land and real estate corporation headquartered in Honolulu that conducts business in three operating segments in two industries—Real Estate and Agribusiness.

Real Estate: The Real Estate Industry consists of two segments, both of which have operations in Hawaii and on the Mainland. The Real Estate Development and Sales segment generates its revenues through the development and sale of land and commercial and residential properties. The Real Estate Leasing segment owns, operates, and manages retail, office, and industrial properties. Real estate activities are conducted through A&B Properties, Inc. and various other wholly owned subsidiaries of A&B.

Agribusiness: Agribusiness, which contains one segment, produces bulk raw sugar, specialty food grade sugars, and molasses; markets and distributes specialty food-grade sugars; provides general trucking services, mobile equipment maintenance, and repair services in Hawaii; leases agricultural land to third parties; and generates and sells electricity to the extent not used in A&B’s Agribusiness operations.
 
 


 
 

 


CONSOLIDATED RESULTS OF OPERATIONS

Consolidated – First quarter of 2013 compared with 2012

   
Quarter Ended March 31,
(dollars in millions)
 
2013
 
2012
Change
Operating revenue
 
$
41.5
   
$
41.2
 
1
%
Operating costs and expenses
   
34.5
     
35.0
 
-1
%
Operating income
   
7.0
     
6.2
 
13
%
Other income and (expense)
   
(3.1
)
   
(5.7
)
-46
%
Income from continuing operations before income taxes
   
3.9
     
0.5
 
8
X
Income tax expense
   
1.6
     
0.2
 
8
X
Discontinued operations (net of income taxes)
   
2.7
     
2.5
 
8
%
Net income
 
$
5.0
   
$
2.8
 
79
%
                     
Basic earnings per share
 
$
0.12
   
$
0.07
 
71
%
Diluted earnings per share
 
$
0.12
   
$
0.07
 
71
%

Consolidated operating revenue for the first quarter of 2013 increased $0.3 million, or 1 percent, compared to the first quarter of 2012. This increase was principally due to $1.2 million in higher Real Estate Leasing revenue (excluding revenue from discontinued operations) and $1.1 million in higher Agribusiness revenue, partially offset by $2.0 million in lower Real Estate Development and Sales revenue (excluding revenue from discontinued operations). The reasons for the revenue changes are described below, by business segment, in the Analysis of Operating Revenue and Profit by Segment.

Consolidated operating costs and expenses for the first quarter of 2013 decreased $0.5 million, or 1 percent, compared to the first quarter of 2012, due principally to $1.7 million in selling, general and administrative costs in 2012 related to the Separation, $0.9 million lower Real Estate Development and Sales costs (after subtracting costs from assets classified as discontinued operations), partially offset by $0.7 million in higher Agribusiness costs and $0.8 million higher Real Estate Leasing Costs (after subtracting costs from assets classified as discontinued operations). The reasons for the operating cost and expense changes are described below, by business segment, in the Analysis of Operating Revenue and Profit by Segment.

Other income (expense) was ($3.1) million in the first quarter of 2013 compared to ($5.7) million in the first quarter of 2012, primarily due to a $2.1 million improvement in joint venture results and $0.5 million in lower interest expense.

Income taxes for the first quarter of 2013 were higher compared to the first quarter of 2012 due principally to higher income from continuing operations. The effective tax rate for the first quarter of 2013 increased modestly relative to 2012 due to the recognition of tax credits associated with the Port Allen solar facility placed in service in 2012, partially offset by the effect of non-deductible facilitative costs incurred in 2012 related to the Separation.


 
 

 

ANALYSIS OF OPERATING REVENUE AND PROFIT BY SEGMENT

REAL ESTATE INDUSTRY

Real Estate Development and Sales and Real Estate Leasing revenue and operating profit are analyzed before subtracting amounts related to discontinued operations. This is consistent with how A&B generates earnings and how A&B’s management evaluates performance and makes decisions regarding capital allocation for A&B’s real estate businesses. A discussion of discontinued operations for the real estate business is included separately.
 
Effect of Property Sales Mix on Operating Results: Direct year-over-year comparison of the real estate development and sales 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 episodic. Earnings from joint venture investments are not included in segment revenue, but are included in operating profit. The mix of real estate sales in any year or quarter can be diverse and can include developed residential real estate, commercial properties, developable subdivision lots, undeveloped land, and property sold under threat of condemnation. The sale of undeveloped land and vacant parcels in Hawaii generally provides higher margins than does the sale of developed and commercial property, due to the low historical-cost basis of A&B’s Hawaii land. Consequently, real estate sales revenue trends, cash flows from the sales of real estate, and the amount of real estate held for sale on the balance sheets do not necessarily indicate future profitability trends for this segment. Additionally, the operating profit reported in each quarter does not necessarily follow a percentage of sales trend because the cost basis of property sold can differ significantly between transactions.
 
Real Estate Leasing – First quarter of 2013 compared with 2012

   
Quarter Ended March 31,
(dollars in millions)
 
2013
 
2012
Change
Real estate leasing segment revenue
 
$
26.3
   
$
25.5
 
3
%
Real estate leasing segment operating costs and expenses
   
(15.0
)
   
(14.4
)
4
%
Selling, general and administrative
   
(0.5
)
   
(0.5
)
--
 
Other income
   
0.1
     
0.1
 
--
 
Real estate leasing operating profit
 
$
10.9
   
$
10.7
 
2
%
Operating profit margin
   
41.4
%
   
42.0
%
   
Average Occupancy Rates:
                   
Mainland
   
95
%
   
93
%
   
Hawaii
   
92
%
   
91
%
   
Leasable Space (million sq. ft.) — Improved
                   
Mainland
   
6.3
     
6.5
     
Hawaii
   
1.6
     
1.4
     

Real Estate Leasing revenue for the first quarter of 2013, before subtracting amounts presented as discontinued operations, was 3 percent higher than 2012, primarily due to sales and acquisitions activity (shown in the table that follows) and higher overall portfolio occupancies.

Operating profit for the first quarter of 2013, before subtracting amounts presented as discontinued operations, was 2 percent higher than 2012 for the reasons previously cited for the revenue increase.

Leasable space increased in the first quarter of 2013 compared with the first quarter of 2012, principally due to the following activity between January 1, 2012 and March 31, 2013:


Dispositions
 
Acquisitions
Date
Property
Leasable sq. ft
 
Date
Property
Leasable sq. ft
1-13
Northpoint Industrial
119,400
 
6-12
Gateway at Mililani Mauka South
18,700
       
1-13
Waianae Mall
170,300
 
  Total Dispositions
119,400
   
Total Acquisitions
189,000



Real Estate Development and Sales – First quarter of 2013 compared with 2012

   
Quarter Ended March 31,
(dollars in millions)
 
2013
   
2012
 
Change
Improved property sales revenue
 
$
14.9
   
$
5.0
 
3
X
Development sales revenue
   
--
     
1.4
 
N
M
Unimproved/other property sales revenue
   
0.5
     
5.0
 
-90
%
Total real estate development and sales segment revenue
   
15.4
     
11.4
 
35
%
Cost of real estate development and sales
   
(10.7
)
   
(6.0
)
78
%
Operating expenses
   
(2.8
)
   
(3.0
)
-7
%
Earnings (loss) from joint ventures
   
0.5
     
(1.6
)
N
M
Other income (loss)
   
--
     
0.1
 
N
M
Total real estate development and sales operating profit
 
$
2.4
   
$
0.9
 
3
X
Real estate development and sales operating profit margin
   
15.6
%
   
7.9
%
   



2013 First Quarter: Real Estate Sales revenue and operating profit, before subtracting amounts presented as discontinued operations, were $15.4 million and $2.4 million, respectively, and was principally related to the sale of a California industrial property. Operating profit also included the sales of joint venture resort residential units, including two on the Big Island, two on Maui and one on Kauai, partially offset by joint venture expenses.

2012 First Quarter: Real Estate Sales revenue and operating profit, before subtracting amounts presented as discontinued operations, were $11.4 million and $0.9 million, respectively, and included the sales of two leased fee parcels on Maui, two residential units on Oahu, a California office property, and a 70-acre non-core land parcel on Maui. Operating profit also included joint venture expenses.



 
 

 


Real Estate Discontinued Operations – 2013 compared with 2012

Income from discontinued operations consisted of the following (in millions):
 
 
Quarter Ended
   
 
March 31,
   
 
2013
   
2012
   
                 
Proceeds from the Sale of Income-Producing Properties
$
14.9
   
$
8.9
   
Real Estate Leasing Revenue
$
--
   
$
0.4
   
                 
Gain on Sale of Income-Producing Properties
$
4.2
   
$
3.9
   
Real Estate Leasing Operating Profit
 
--
     
0.2
   
Total Operating Profit Before Taxes
 
4.2
     
4.1
   
Income Tax Expense
 
(1.5
)
   
(1.6
)
 
Income from Discontinued Operations
$
2.7
   
$
2.5
   


2013:  The revenue and expenses related to the sale and operations of Northpoint Industrial, an industrial property in California, have been classified as discontinued operations.

2012: The revenue and expenses related to the sale and operations of the Firestone Boulevard Building, an office property in California, and two leased fee properties in Maui were classified as discontinued operations.

The results of operations from these properties in prior periods were reclassified from continuing operations to discontinued operations to conform to the current period’s accounting presentation. Consistent with the Company’s intention to reinvest the sales proceeds into new investment property, the proceeds from the sales of property treated as discontinued operations were deposited in escrow accounts for tax-deferred reinvestment in accordance with Section 1031 of the Internal Revenue Code.


 
 

 

AGRIBUSINESS

The quarterly results of the Agribusiness segment are subject to fluctuations from a number of factors, including the timing of sugar deliveries, which typically commence after the first quarter of each year. Additionally, each delivery is generally priced independently, which could result in significant variations in margins between deliveries. Accordingly, quarterly results are not indicative of the results that may be achieved for a full year.

Agribusiness – First quarter of 2013 compared with 2012

   
Quarter Ended March 31,
(dollars in millions)
 
2013
 
2012
Change
Revenue
 
$
14.7
   
$
13.6
 
8
%
Operating profit
 
$
3.8
   
$
3.5
 
9
%
Operating profit margin
   
25.9
%
   
25.7
%
   
Tons sugar produced
   
8,200
     
1,900
 
4
X
Tons sugar sold
   
2,700
     
2,200
 
23
%

Agribusiness revenue for the first quarter of 2013 increased $1.1 million, or 8 percent, compared to the first quarter of 2012. The increase was primarily due to $1.6 million in higher power sales revenue due to higher power deliveries on Maui and revenue from the Company’s solar farm on Kauai, which was placed into service in the fourth quarter of 2012. The revenue increase was partially offset by lower molasses revenue of $0.6 million in the first quarter of 2013 as compared to the first quarter of 2012, due to the timing of molasses shipments and sales, and $0.6 million lower charter revenue due to the absence of charter activity in the first quarter of 2013.

Operating profit for the first quarter of 2013 increased $0.3 million, or 9 percent, compared to the first quarter of 2012. The increase was principally due to higher power deliveries in the first quarter of 2013 previously referenced, partially offset by $0.8 million lower raw sugar margin due to higher sugar vessel expenses in the quarter, and $0.4 million in lower molasses margins, primarily due to the timing of molasses sales.

Sugar production was higher in 2013 due to an earlier start to the harvest as compared to 2012.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary liquidity needs have historically been to support working capital requirements and fund capital expenditures 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 is generated by its subsidiaries. There are no restrictions on the ability of A&B’s subsidiaries to pay dividends or make other distributions to A&B. A&B regularly evaluates investment opportunities, including development projects, joint venture investments, share repurchases, business acquisitions and other strategic transactions to increase shareholder value. A&B cannot predict whether or when it may enter into acquisitions or joint ventures or what impact any such transactions could have on A&B’s results of operations, cash flows or financial condition. A&B’s cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section entitled “Risk Factors” of the Company’s 2012 Annual Report on Form 10-K.
 
Cash Flows:  Cash flows used in operating activities totaled $25.2 million for the first three months of 2013, compared with $26.9 million for the first three months of 2012. This decrease in cash used in operating activities was due principally to $3.9 million in lower real estate development inventory capital expenditures in 2012 as compared to 2013.

Cash flows used in investing activities totaled $10.5 million for the first three months of 2013, compared with $10.9 million in the first three months of 2012. The decrease in net cash used in investing activities was due primarily to $2.8 million lower investment in Company’s Kukui’ula joint venture in 2013, partially offset by a $1.6 million increase in capital expenditures and $0.7 million in lower proceeds from property disposals compared to 2012.

Capital expenditures for the first three months of 2013 totaled $6.5 million compared with $4.9 million for the first three months of 2012. Capital expenditures for the first three months of 2013 included $2.3 million for commercial real estate related acquisitions, development and property improvements and $4.2 million related to agricultural operations. The $6.5 million reported in capital expenditures on the condensed consolidated statement of cash flows for 2013 excludes $9.8 million of tax-deferred real estate purchases under Section 1031 of the IRS code since the Company did not actually take control of the cash during the exchange period. The 2012 expenditures included $1.7 million related to capital improvements to commercial properties, $0.2 million related to real estate developments, and $3.0 million related to Agribusiness operations.

Cash flows provided by financing activities were $35.8 million for the first three months of 2013, compared with $35.1 million during the first three months of 2012. The increase in cash flows from financing activities was principally due to $1.5 million in proceeds related to 2013 capital stock transactions, partially offset by $0.5 million in lower net borrowings in 2013 as compared to 2012.

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, and potential acquisitions and stock repurchases. There can be no assurance, however, that the Company will continue to generate cash flows at or above current levels or that it will be able to maintain its ability to borrow under its available credit facilities.

Sources of Liquidity: Additional sources of liquidity for the Company, consisting of cash and cash equivalents, receivables, and sugar inventory, totaled $41.2 million at March 31, 2013, an increase of $28.2 million from December 31, 2012. The increase was due primarily to a $26.7 million increase in sugar inventory and a $1.3 million increase in receivables.

The Company also has various revolving credit and term facilities that provide additional sources of liquidity for working capital requirements or investment opportunities on a short-term as well as longer-term basis. The total debt as of March 31, 2013 was $290.3 million compared to $235.5 million at the end of 2012. As of March 31, 2013, available capacity under the Company’s revolving credit facility and its Prudential shelf facility totaled $305.8 million. The increase in debt during the first three months of 2013 was principally due to the assumption of $19.7 million of mortgage debt associated with the Company’s acquisition of Waianae Mall, a retail shopping center on Oahu, in January 2013, as well as investments in various real estate development projects.

Balance Sheet:  The Company had a working capital balance of $5.6 million at March 31, 2013, compared to a working capital deficit of $6.2 million at the end of 2012. The improvement in working capital is principally due to an increase in sugar inventory.

Property-net increased by $23.9 million, principally due to the acquisition of Waianae Mall in January 2013 for $10.1 million in cash and the assumption of a $19.7 million loan. The promissory note bears interest at 5.39 percent and requires monthly payments of principal and interest totaling $124,552. A final balloon payment of $18.5 million is due on October 5, 2015. In connection with the loan assumption, the Company has also provided a limited guaranty equal to 10 percent of the outstanding principal balance of the loan upon the occurrence of default, plus any cost incurred by the lender.

At March 31, 2013, the Company believes it was in compliance with all of its covenants under its credit facilities. While there can be no assurance that the Company will remain in compliance with its covenants, the Company expects that it will remain in compliance.

Tax-Deferred Real Estate Exchanges:  Sales – During the first quarter of 2013, approximately $14.7 million of proceeds from the sale of Northpoint Industrial, an industrial facility in California, qualified for tax-deferral treatment under Internal Revenue Code Section 1031.  During the first quarter of 2012, approximately $8.9 million of proceeds from the sale of an industrial property in California, two leased fee parcels on Maui and a non-core land parcel on Maui qualified for tax-deferral treatment under Internal Revenue Code Section 1031.

Purchases – During the first quarter of 2013, the Company utilized approximately $9.8 million in proceeds from tax-deferred sales to purchase Waianae Mall. During the first quarter of 2012, the Company made no acquisitions.

The proceeds from 1031 tax-deferred sales are held in escrow pending future use to purchase new real estate assets. The proceeds from 1033 condemnations are held by the Company until the funds are redeployed. As of March 31, 2013, there were $14.7 million in proceeds from tax-deferred sales that had not been reinvested and are included in other assets on the condensed consolidated balance sheet.

The funds related to 1031 transactions are not included in cash flows from investing activities in the condensed consolidated statement of cash flows but are disclosed as non-cash activities. For “reverse 1031” transactions, the Company purchases a property in anticipation of receiving funds from a future property sale. Funds used for reverse 1031 purchases are included as capital expenditures on the condensed consolidated statement of cash flows, and the related sales of property, for which the proceeds are linked, are included as property sales in the Statement.

Commitments, Contingencies and Off-balance Sheet Arrangements:  A description of other  commitments, contingencies, and off-balance sheet arrangements at March 31, 2013, and herein incorporated by reference, is included in Note 3 to the condensed consolidated financial statements of Item 1 in this Form 10-Q.


 
 

 

OUTLOOK
 
All of the forward-looking statements made herein are qualified by the inherent risks of the Company’s operations and the markets it serves, as more fully described on pages 18 to 28 of the Company’s 2012 Form 10-K and other filings with the SEC.

There are two primary sources of periodic economic forecasts and data for the State of Hawaii:  The University of Hawaii Economic Research Organization (UHERO) and the State’s Department of Business, Economic Development and Tourism (DBEDT). Much of the economic information included herein has been derived from economic reports available on UHERO’s and DBEDT’s websites that provide more complete information about the status of, and forecast for, the Hawaii economy. Information below on Oahu residential re-sales is published by the Honolulu Board of Realtors and Title Guaranty of Hawaii, Incorporated. Information below on the Oahu commercial industrial and office real estate market is provided by Colliers International (Hawaii). Oahu commercial retail information is from CBRE. Bankruptcy filing information cited below is published by the U.S. Bankruptcy Court District of Hawaii.
The Company’s overall outlook continues to assume modest growth for the U.S. and Hawaii economies. The Hawaii economy is projected to produce real growth of 2.6 percent in 2013, and is expected to continue to grow at a moderate pace for the next several years. The primary driver of growth is tourism, which set the state’s all-time record for visitor expenditures and arrivals in 2012. Through February 2013, visitor expenditures were up 7.6 percent compared to last year, and visitor arrivals were up by 6.9 percent.

The state is beginning to see positive trends in other economic indicators. Unemployment at the end of March was 5.1 percent, down from 6.2 percent in March 2012, and well below the national March unemployment rate of 7.6 percent. Bankruptcy filings for the first quarter of 2013 were down by 25 percent compared to last year. The median resale price for a home on Oahu in March 2013 was $640,000, up 2.4 percent compared to March 2012, and the median resale price of an Oahu condominium was up 9.1 percent at $340,000. At the end of March 2013, months of available inventory remained low—2.4 months for Oahu homes and 2.7 months for Oahu condos—which is lower than the 2012 full-year average of 3.6 months for homes and 4.1 months for condos. While sales on Oahu have improved, sales on the neighbor islands remain modest.

Oahu industrial and office vacancy and rents have remained relatively stable. Retail vacancies were slightly higher as new retail space was added to the market. Retail rents, however, have increased. Current vacancies and rents are as follows:

Property Type
First Quarter 2013
Vacancy Rate
Average Asking Rent Per Square Foot Per Month (NNN)
at March 31, 2013
Retail
5.1%
$4.36
Industrial
3.6%
$0.99
Office
12.9%
$1.54

Hawaii’s construction industry grew modestly in 2012 following five consecutive years of contraction. Through March 2013, the value of construction permits has increased by 13 percent compared to last year primarily due significant increases in residential permits on Oahu. Construction jobs grew 9 percent in the first quarter and UHERO projects annual growth in construction jobs and income in the 7- to 11-percent range between 2013 and 2015.

Agribusiness operating profit is dependent upon a variety of factors, including total sugar production, which is affected by the availability of water and weather; prices in effect at the time sugar is priced; the volume, price and timing of molasses sales; and the volume and prices at which the Company sells power to the local electric utilities. Sugar prices have been locked in for 98 percent of the 2013 crop at favorable prices, but below 2012 levels, and the Company expects moderately higher sugar production in 2013 than 2012. Based on this pricing and production outlook, the Agribusiness segment’s 2013 operating profit is projected to be about half of 2012’s operating profit. This outlook will be updated as the year progresses.

The Company expects that continued growth in the Hawaii economy will generally provide a stable or improving environment for primary housing and commercial properties in the state. However, sales of resort residential real estate and the performance of the Company’s Mainland commercial property portfolio are influenced by the health of the U.S. economy and the particular markets in which those properties are located.
 

OTHER MATTERS

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 2012 Form 10-K.

Critical Accounting Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, upon which the Management’s Discussion and Analysis is based, requires that management exercise judgment when making estimates and assumptions about future events that may affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty and actual results will, inevitably, differ from those critical accounting estimates. These differences could be material. The most significant accounting estimates inherent in the preparation of A&B’s financial statements were described in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s 2012 Form 10-K.



 
 

 

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, 2012. There has been no material change in the quantitative and qualitative disclosures about market risk since December 31, 2012.

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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

 
(b)
Internal Control Over Financial Reporting.  There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 

 
 

 

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

 
 
 
 
Period
 
 
 
Total Number of
Shares Purchased
 
 
 
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
Jan 1 - 31, 2013
 58,045 (1)
$33.30
--
--
Feb 1 - 28, 2013
 937 (1)
$35.22
--
--
Mar 1 - 31, 2013
 2,844 (1)
$36.56
--
--

 
(1)
Represents shares accepted for the exercise of options and/or in satisfaction of tax withholding obligations arising upon option exercises or the vesting of restricted stock units.

ITEM 6.  EXHIBITS

 
31.1
Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
31.2
Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
101
The following information from Alexander & Baldwin, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three months ended March 31, 2013, and March 31, 2012, (ii) Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2013, and March 31, 2012, (iii) Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012, (iv) Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2013, and March 31, 2012, and (v) the Notes to the Condensed Consolidated Financial Statements.

10.b.1(xxiii)
Amendment No. 1 to the Alexander & Baldwin, Inc. Excess Benefits Plan, effective as of March 1, 2013.
 
10.b.1.(xxvi)
Amendment No. 1 to Alexander & Baldwin, Inc. Retirement Plan for Outside Directors, effective as of March 1, 2013.
 

 
 

 

SIGNATURES


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)
     
     
     
Date:  May 10, 2013
 
/s/ Paul K. Ito
   
Paul K. Ito
   
Senior Vice President,
   
Chief Financial Officer, Treasurer
   
and Controller
     
     


 
 

 

EXHIBIT INDEX



 
31.1
Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
31.2
Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
101
The following information from Alexander & Baldwin, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three months ended March 31, 2013, and March 31, 2012, (ii) Condensed Consolidated Statement of Comprehensive Income for the three  months ended March 31, 2013, and March 31, 2012, (iii) Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012, (iv) Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2013, and March 31, 2012, and (v) the Notes to the Condensed Consolidated Financial Statements.

10.b.1(xxiii)
Amendment No. 1 to the Alexander & Baldwin, Inc. Excess Benefits Plan, effective as of March 1, 2013.
 
10.b.1.(xxvi)
Amendment No. 1 to Alexander & Baldwin, Inc. Retirement Plan for Outside Directors, effective as of March 1, 2013.
 







EX-31.1 2 exh31_1.htm EXHIBIT 31.1 exh31_1.htm

EXHIBIT 31.1
CERTIFICATION

I, Stanley M. Kuriyama, 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/ Stanley M. Kuriyama
Stanley M. Kuriyama, President and
Chief Executive Officer
Date:  May 10, 2013


EX-31.2 3 exh31_2.htm EXHIBIT 31.2 exh31_2.htm

EXHIBIT 31.2
CERTIFICATION

I, Paul K. Ito, 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/ Paul K. Ito                                                      
Paul K. Ito, Senior Vice President,
Chief Financial Officer, Treasurer
And Controller
Date: May 10, 2013
EX-32 4 exh32.htm EXHIBIT 32 exh32.htm

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 March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Stanley M. Kuriyama, as President and Chief Executive Officer of the Company, and Paul K. Ito, as Senior Vice President, Chief Financial Officer, Controller and Treasurer 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/ Stanley M. Kuriyama
Name:
Stanley M. Kuriyama
Title:
President and Chief Executive Officer
Date:
May 10, 2013


/s/ Joel M. Wine
Name:
Paul K. Ito
Title:
Senior Vice President, Chief Financial Officer, Controler and Treasurer
Date:
May 10, 2013



EX-10.B.1(XXIII) 5 exh10b1_xxiii.htm EXHIBIT 10.B.1(XXIII) exh10b1_xxiii.htm

ALEXANDER & BALDWIN, INC. EXCESS BENEFITS PLAN

AMENDMENT NO. 1


The Alexander & Baldwin, Inc. Excess Benefits Plan, effective June 29, 2012, hereinafter referred to as the “Plan”, is hereby amended effective March 1, 2013, as follows:

1.           Section 2.14 shall be deleted in its entirety and replaced with the following:

“2.14  “Participant” means an eligible employee selected by the Chief Executive Officer of A&B (except, that with respect to the Chief Executive Officer of A&B, the Committee shall make the determination).

2.           Section 3.02 shall be deleted in its entirety and replaced with the following:

Participation.  The Chief Executive Officer of A&B shall have the exclusive and unfettered discretion to select Plan Participants from among eligible employees; provided, however, that the Committee shall make the determination of whether the Chief Executive Officer of A&B is a Plan Participant.  A Participant in this Plan shall remain as such until the date he ceases to satisfy the participation requirements in the first sentence of this Section 3.02, until the date upon which the Participant experiences a Separation from Service for any reason or until such earlier time as may be specified by the Chief Executive Officer of A&B (except, that with respect to the Chief Executive Officer of A&B, that determination is made by the Committee).

3.           The last sentence in Appendix A, item #2, shall be deleted and replaced with the following:

“The after-tax equivalent rate shall be determined by multiplying the discount rate in use by the A&B Retirement Plan by the excess of 100% over the effective marginal tax rate declared by the Administrative Committee.”

4.           Item #3 in Appendix A shall be deleted in its entirety and replaced with the following:

“The Administrative Committee shall declare the effective marginal tax rate at the beginning of each year.”


IN WITNESS WHEREOF, Alexander & Baldwin, Inc. has caused this Amendment to be executed on its behalf by its duly authorized officers on this 26th day of     February, 2013.

ALEXANDER & BALDWIN, INC.


By: /s/ Son-Jai Paik______________
       Its Vice President

By: /s/ Alyson Nakamura__________
                                                                                                                       Its Secretary


EX-10.B.1(XXVI) 6 exh10b1_xxvi.htm EXHIBIT 10.B.1(XXVI) exh10b1_xxvi.htm

ALEXANDER & BALDWIN, INC. RETIREMENT PLAN FOR
OUTSIDE DIRECTORS

AMENDMENT NO. 1



The Alexander & Baldwin, Inc. Retirement Plan for Outside Directors, effective June 29, 2012, hereinafter referred to as the “Plan”, is hereby amended effective March 1, 2013, as follows:

1.           The last sentence in Appendix A, item #2, shall be deleted and replaced with the following:

“The after-tax equivalent rate shall be determined by multiplying the discount rate in use by the A&B Retirement Plan for Salaried Employees of A&B, LLC by the excess of 100% over the effective marginal tax rate declared by the Administrative Committee.”

2.           Item #3 in Appendix A shall be deleted in its entirety and replaced with the following:

“The Administrative Committee shall declare the effective marginal tax rate at the beginning of each year.”


IN WITNESS WHEREOF, Alexander & Baldwin, Inc. has caused this Amendment to be executed on its behalf by its duly authorized officers on this 26th day of February, 2013.

ALEXANDER & BALDWIN, INC.



By: /s/ Son-Jai Paik______________
       Its Vice President


By: /s/ Alyson Nakamura__________
                                                                                                                       Its Secretary



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The financial statements and related financial information pertaining to the period subsequent to the Separation have been presented on a consolidated basis. 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On July 2, 2012, A&amp;B began regular trading on the New York Stock Exchange under the ticker symbol "ALEX" as an independent, public company. A&amp;B is headquartered in Honolulu and conducts business in three operating segments in two industries&#8212;Real Estate and Agribusiness. 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These indemnities are designed to protect the surety in exchange for the issuance of surety bonds that cover 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.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;"><font style="font-style: italic; display: inline;">Other Obligations:</font>&#160;&#160;Certain of the real estate businesses in which the Company holds a non-controlling interest have long-term debt obligations. One of the Company's joint ventures has a $10&#160;million loan that matures in August 2015. As a condition to providing the loan to the joint venture, the lender required that the Company and its joint venture partner guarantee certain obligations of the joint venture under a maintenance agreement. The maintenance agreement specifies that the Company and its joint venture partner make payments to the lender to the extent that the loan-to-value measure or debt service ratio of the property held by the joint venture is below pre-determined thresholds. The Company has determined that the fair value of its obligation under this maintenance agreement is not material, and as of March 31, 2013, the Company had not paid any amounts under the guaranty.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">Other than obligations described above, 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.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;"><font style="font-style: italic; display: inline;">Legal Proceedings and Other Contingencies:</font> A&amp;B owns 16,000 acres of watershed lands in East Maui that supply a significant portion of the irrigation water used by Hawaiian Commercial &amp; Sugar Company ("HC&amp;S"), a division of A&amp;B that produces raw sugar. A&amp;B also held four water licenses to another 30,000 acres owned by the State of Hawaii in East Maui which, over the last ten years, have supplied approximately 58&#160;percent of the irrigation water used by HC&amp;S. 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 renewed the existing permits on a holdover basis. If the Company is not permitted to utilize sufficient quantities of stream waters from State lands in East Maui, it could have a material adverse effect on the Company's sugar-growing operations.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">In addition, on May&#160;24, 2001, petitions were filed by a third party, requesting that the Commission on Water Resource Management of the State of Hawaii ("Water Commission") establish interim instream flow standards ("IIFS") in 27 East Maui streams that feed the Company's irrigation system. On September&#160;25, 2008, the Water Commission took action on eight of the petitions, resulting in some quantity of water being returned to the streams rather than being utilized for irrigation purposes. In May 2010, the Water Commission took action on the remaining 19 petitions resulting in additional water being returned to the streams. A petition requesting a contested case hearing to challenge the Water Commission's decisions was filed with the Commission by the opposing third party. On October&#160;18, 2010, the Water Commission denied the petitioner's request for a contested case hearing. On November&#160;17, 2010, the petitioner filed an appeal of the Water Commission's denial to the Hawaii Intermediate Court of Appeals. On August&#160;31, 2011, the Intermediate Court of Appeals dismissed the petitioner's appeal. On November&#160;29, 2011, the petitioner appealed the Intermediate Court of Appeals' dismissal to the Hawaii Supreme Court. On January&#160;11, 2012, the Hawaii Supreme Court vacated the Intermediate Court of Appeals' dismissal of the petitioner's appeal and remanded the appeal back to the Intermediate Court of Appeals. On November 30, 2012, the Intermediate Court of Appeals remanded the case back to the Water Commission, ordering the Commission to grant the petitioner's request for a contested case hearing.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">On June 25, 2004, two organizations filed a petition with the Water Commission to establish IIFS for four streams in West Maui to increase the amount of water to be returned to these streams. The West Maui irrigation system provided approximately 15 percent of the irrigation water used by HC&amp;S over the last ten years. The Water Commission issued a decision in June 2010, which required the return of water in two of the four streams. In July 2010, the two organizations appealed the Water Commission's decision to the Hawaii Intermediate Court of Appeals. On June 23, 2011, the case was transferred to the Hawaii Supreme Court.&#160;&#160;On August 15, 2012, the Hawaii Supreme Court overturned the Water Commission's decision and remanded the case to the Water Commission for further consideration in connection with the establishment of the IIFS.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">The loss of East Maui and West Maui water as a result of the Water Commission's decisions imposes challenges to the Company's sugar growing operations. While the resulting water loss does not immediately threaten near-term sugar production, it will result in a future suppression of sugar yields and will have an impact on the Company that will only be quantifiable over time. Accordingly, the Company is unable to predict, at this time, the outcome or financial impact of the water proceedings.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">In March 2011, the Environmental Protection Agency ("EPA") published nationwide standards for controlling hazardous air pollutant emissions from industrial, commercial, institutional boilers and process heaters (the "Boiler MACT" rule), which would apply to Hawaiian Commercial&#160;&amp; Sugar Company's three boilers at the Puunene Sugar Mill.&#160;The EPA subsequently reconsidered the March 2011 rule, and on December 21, 2012, EPA announced that it had finalized a revised Boiler MACT rule; the final rule was published in the Federal Register on January 31, 2013. The effective date of the rule is April 1, 2013, with compliance required by April 1, 2016.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">The Company is currently evaluating the final rule and assessing its compliance options.&#160; Based on our review, the EPA has made significant revisions from the March 2011 final rule addressing industry concerns. The Company, along with the Florida Sugar Industry, has submitted a petition for reconsideration of certain issues in the final Boiler MACT rule.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">The Puunene Mill boilers are capable of meeting most of the emissions limits specified in the final rule and the Company does not expect that expensive upgrades to the existing particulate matter controls will be required.&#160; However, the boilers are not currently able to consistently meet new limits on carbon monoxide emissions during bagasse firing. This is due in large part to the highly variable nature of bagasse fuel.&#160;As a result, at a minimum, improvements to combustion controls and monitoring will be required on all three boilers even if the carbon monoxide limit is adjusted in response to the pending petition.&#160;</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">The Company has begun the process of assessing current carbon monoxide emissions during bagasse firing, and will need to complete an engineering evaluation in order to develop a plan for coming into compliance with the new rule.&#160; The compliance deadline for this rule will be three years from the date of publication of the final rule in the Federal Register (i.e., April 1, 2016), with the option for states to grant a one-year extension.&#160; A preliminary estimate of anticipated compliance costs is less than $5 million based on currently available information.&#160;This estimate will be refined as the engineering evaluation proceeds.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 36pt; font-size: 10pt; margin-right: 0pt;">In June 2011, the Equal Employment Opportunity Commission ("EEOC") served McBryde Resources, Inc., formerly known as Kauai Coffee Company, Inc. 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font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td><td colspan="3" valign="middle" style="border-bottom: black 2px solid; width: 15%;"><div style="text-indent: 0pt; display: block;">&#160;</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Quarter Ended</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">March 31,</div></td><td valign="bottom" style="width: 2%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td></tr><tr><td valign="middle" style="width: 46%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; 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margin-right: 0pt;">--</div></td><td valign="bottom" style="width: 2%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td></tr><tr><td align="left" valign="middle" style="width: 46%;"><div style="text-align: left; text-indent: -18pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Denominator for diluted EPS &#8211; weighted average shares</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="middle" style="border-bottom: black 4px double; text-align: center; width: 7%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">43.6</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; 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display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td><td align="right" valign="bottom" style="width: 6%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4.1</div></td><td valign="bottom" style="width: 3%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="top" style="width: 8%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td></tr><tr><td align="left" valign="bottom" style="width: 65%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Income tax expense</div></td><td valign="bottom" style="border-bottom: black 2px solid; width: 2%; font-family: times new roman; font-size: 10pt;">&#160; </td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 6%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(1.5</div></td><td align="left" valign="top" style="width: 3%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">)</div></td><td valign="top" style="width: 5%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="bottom" style="border-bottom: black 2px solid; width: 2%; font-family: times new roman; font-size: 10pt;">&#160; </td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 6%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(1.6</div></td><td align="left" valign="top" style="width: 3%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td valign="top" style="width: 8%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td></tr><tr><td align="left" valign="bottom" style="width: 65%;"><div style="text-align: left; text-indent: -18pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Income from discontinued operations</div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 2%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 6%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">2.7</div></td><td valign="bottom" style="width: 3%; display: inline; font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="top" style="width: 5%; display: