0001545654-15-000018.txt : 20150508 0001545654-15-000018.hdr.sgml : 20150508 20150508061605 ACCESSION NUMBER: 0001545654-15-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20150331 FILED AS OF DATE: 20150508 DATE AS OF CHANGE: 20150508 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: 15844362 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 a2015q110qdoc.htm 10-Q 2015 Q1 10Q Doc


 

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, 2015

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, 2015:     48,853,198
 


1



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,
 
 
 
 
2015
 
2014
 
Operating Revenue:
 
 
 
 
Real estate leasing
$
32.7

 
$
31.0

 
Real estate development and sales
32.2

 
0.8

 
Materials and construction
56.9

 
50.1

 
Agribusiness
28.9

 
12.9

 
Total operating revenue
150.7

 
94.8

 
Operating Costs and Expenses:
 
 
 
 
Cost of real estate leasing
19.6

 
19.6

 
Cost of real estate development and sales
21.3

 
(0.1
)
 
Cost of construction contracts and materials
45.8

 
42.1

 
Costs of agribusiness revenues
26.8

 
9.8

 
Selling, general and administrative
14.6

 
13.4

 
Gain on the sale of improved property
(1.9
)
 

 
Total operating costs and expenses
126.2

 
84.8

 
Operating Income
24.5

 
10.0

 
Other Income and (Expense):
 
 
 
 
Income related to joint ventures
24.0

 
(1.6
)
 
Reduction in KRS II carrying value
(0.1
)
 

 
Interest income and other
0.2

 
0.7

 
Interest expense
(7.1
)
 
(7.2
)
 
Income From Continuing Operations Before Income Taxes
41.5

 
1.9

 
Income tax expense
15.6

 
0.8

 
Income From Continuing Operations
25.9

 
1.1

 
Income From Discontinued Operations (net of income taxes)

 
34.3

 
Net Income
25.9

 
35.4

 
Income attributable to noncontrolling interest
(0.6
)
 
(0.4
)
 
Net Income Attributable to A&B Shareholders
$
25.3

 
$
35.0

 
 
 
 
 
 
Basic Earnings Per Share:
 
 
 
 
Continuing operations attributable to A&B shareholders
$
0.52

 
$
0.01

 
Discontinued operations attributable to A&B shareholders

 
0.71

 
Net income attributable to A&B shareholders
$
0.52

 
$
0.72

 
Diluted Earnings Per Share:
 
 
 
 
Continuing operations attributable to A&B shareholders
$
0.51

 
$
0.01

 
Discontinued operations attributable to A&B shareholders

 
0.70

 
Net income attributable to A&B shareholders
$
0.51

 
$
0.71

 
Weighted Average Number of Shares Outstanding:
 
 
 
 
Basic
48.8

 
48.7

 
Diluted
49.3

 
49.2

 
Amounts Attributable to A&B Shareholders:
 
 
 
 
Income from continuing operations, net of tax
$
25.3

 
$
0.7

 
Discontinued operations, net of tax

 
34.3

 
Net income
$
25.3

 
$
35.0

 
 
 
 
 
 
Cash dividends declared per share
$
0.05

 
$
0.04

 
See Notes to Condensed Consolidated Financial Statements.

1



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

 
Three Months Ended March 31,
 
 
 
 
2015
 
2014
 
Net Income
$
25.9

 
$
35.4

 
Other Comprehensive Income:
 
 
 
 
Defined benefit pension plans:
 
 
 
 
Amortization of prior service credit included in net periodic pension cost
(0.3
)
 
(0.3
)
 
Amortization of net loss included in net periodic pension cost
1.1

 
1.9

 
Income taxes related to other comprehensive income
(0.3
)
 
(0.6
)
 
Other Comprehensive Income
0.5

 
1.0

 
Comprehensive Income
$
26.4

 
$
36.4

 
Comprehensive income attributable to noncontrolling interest
(0.6
)
 
(0.4
)
 
Comprehensive income attributable to A&B
$
25.8

 
$
36.0

 

See Notes to Condensed Consolidated Financial Statements.

2



ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
 
March 31,
2015
 
December 31, 2014
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
3.4

 
$
2.8

Accounts and other notes receivable, net
35.4

 
33.1

Contracts retention
9.3

 
9.1

Costs and estimated earnings in excess of billings on uncompleted contracts
14.1

 
15.9

Inventories
85.1

 
81.9

Real estate held for sale

 
2.5

Deferred income taxes
8.3

 
8.3

Income tax receivable
2.8

 
6.7

Prepaid expenses and other assets
20.8

 
15.6

Total current assets
179.2

 
175.9

Investments in Affiliates
403.4

 
418.6

Real Estate Developments
199.1

 
224.0

Property – net
1,296.0

 
1,301.7

Intangible Assets - net
61.7

 
63.9

Goodwill
102.3

 
102.3

Other Assets
46.5

 
43.5

Total assets
$
2,288.2

 
$
2,329.9

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Notes payable and current portion of long-term debt
$
71.1

 
$
74.5

Accounts payable
32.4

 
37.6

Billings in excess of costs and estimated earnings on uncompleted contracts
2.1

 
3.6

Accrued interest
3.3

 
5.7

Deferred revenue
1.7

 
16.5

Indemnity holdback related to Grace acquisition
9.3

 
9.3

Accrued and other liabilities
28.6

 
35.8

Total current liabilities
148.5

 
183.0

Long-term Liabilities:
 
 
 
Long-term debt
589.7

 
631.5

Deferred income taxes
205.8

 
194.0

Accrued pension and postretirement benefits
54.7

 
54.8

Other non-current liabilities
50.5

 
51.8

Total long-term liabilities
900.7

 
932.1

Commitments and Contingencies (Note 3)

 

Equity:

 
 
Common stock
1,147.7

 
1,147.3

Accumulated other comprehensive loss
(43.9
)
 
(44.4
)
     Retained earnings
123.7

 
101.0

Total A&B Shareholders' equity
1,227.5

 
1,203.9

Noncontrolling interest
11.5

 
10.9

Total equity
1,239.0

 
1,214.8

Total liabilities and equity
$
2,288.2

 
$
2,329.9


See Notes to Condensed Consolidated Financial Statements.

3



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

 
Three Months Ended
 
March 31,
 
2015
 
2014
Cash Flows from (used in) Operating Activities:
$
26.8

 
$
(29.4
)
Cash Flows from Investing Activities:
 
 
 
Capital expenditures for property, plant and equipment
(8.6
)
 
(8.5
)
Proceeds from investment tax credits and grants related to Port Allen Solar Farm

 
3.5

Proceeds from disposal of property and other assets
5.1

 
0.4

Proceeds from disposals related to 1031 commercial property transactions
4.6

 
69.4

Payments for purchases of investments in affiliates
(11.1
)
 
(5.0
)
Proceeds from investments in affiliates
33.4

 
0.5

Change in restricted cash associated with 1031 transactions

 
(2.8
)
Net cash provided by investing activities
23.4

 
57.5

Cash Flows from Financing Activities:
 
 
 
Proceeds from issuances of long-term debt
20.0

 
45.0

Payments of long-term debt and deferred financing costs
(68.5
)
 
(11.0
)
Proceeds (payments) from line-of-credit agreements, net
3.3

 
(58.0
)
Dividends paid
(3.6
)
 
(1.9
)
Proceeds from issuance (repurchase) of capital stock and other, net
(0.8
)
 

  Net cash used in financing activities
(49.6
)
 
(25.9
)
Cash and Cash Equivalents:
 
 
 
  Net increase for the period
0.6

 
2.2

  Balance, beginning of period
2.8

 
3.3

  Balance, end of period
$
3.4

 
$
5.5

 
 
 
 
Other Cash Flow Information:
 
 
 
Interest paid
$
(9.7
)
 
$
(9.8
)
Income taxes paid
$

 
$
(3.5
)
Other Non-cash Information:
 
 
 
Capital expenditures included in accounts payable and accrued expenses
$
4.2

 
$
1.2


See Notes to Condensed Consolidated Financial Statements.

4



ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the three months ended March 31, 2015 and 2014
(In millions) (Unaudited)
 
 
March 31, 2015
 
March 31, 2014
 
 
A&B Share-
holders' Equity
 
Non-
controlling interest
 
Total
 
A&B Share-
holders' Equity
 
Non-
controlling interest
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
1,203.9

 
$
10.9

 
$
1,214.8

 
$
1,159.8

 
$
8.9

 
$
1,168.7

Net income
 
25.3

 
0.6

 
25.9

 
35.0

 
0.4

 
35.4

Other comprehensive income, net of tax
 
0.5

 

 
0.5

 
1.0

 

 
1.0

Dividends paid on common stock
 
(2.5
)
 

 
(2.5
)
 
(1.9
)
 

 
(1.9
)
Share-based compensation
 
1.2

 

 
1.2

 
1.2

 

 
1.2

Shares issued or repurchased, net
 
(1.1
)
 

 
(1.1
)
 
(1.3
)
 

 
(1.3
)
Excess tax benefit from share-based awards
 
0.2

 

 
0.2

 
1.2

 

 
1.2

Ending balance
 
$
1,227.5

 
$
11.5

 
$
1,239.0

 
$
1,195.0

 
$
9.3

 
$
1,204.3


See Notes to Condensed Consolidated Financial Statements.


5



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

(1)
Description of Business.  A&B is headquartered in Honolulu and operates four segments: Real Estate Development and Sales; Real Estate Leasing; Agribusiness; and Materials and Construction.

Real Estate Development and Sales: The Real Estate Development and Sales segment generates its revenues through the investment in and development and sale of land and commercial and residential properties in Hawaii and through the sale of properties in the Company's Leasing portfolio.

Real Estate Leasing:  The Real Estate Leasing segment owns, operates and manages retail, office and industrial properties in Hawaii and on the Mainland. The Real Estate Leasing segment also leases urban land in Hawaii to third-party lessees.
Agribusiness:  The Agribusiness segment produces bulk raw sugar, specialty food grade sugars and molasses; produces and sells specialty food-grade sugars; provides general trucking services, equipment maintenance and repair services; leases agricultural land to third parties; and generates and sells electricity to the extent not used in A&B’s Agribusiness operations.
Materials and Construction: The Materials and Construction segment performs asphalt paving as prime contractor and subcontractor; imports and sells liquid asphalt; mines, processes and sells basalt aggregate; produces and sells construction materials; provides and sells various construction- and traffic-control-related products.

(2)
Basis of Presentation.  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, 2014 and 2013, 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, 2014 and the notes thereto included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2014, and other subsequent filings with the SEC.

Revisions of prior period financial statements: In the first quarter of 2014, the Company recorded an out-of-period 2013 adjustment to income taxes, which had the effect of increasing income tax expense and reducing net income and income from continuing operations by $1.6 million, or approximately $0.03 per diluted share. In the course of preparing the Company’s financial statements for the year ended December 31, 2014, the Company identified immaterial misstatements in certain deferred tax accounts related to prior periods. In connection with the correction of these misstatements, which were reflected in the Company's 2014 Form 10-K, the Company also corrected for the 2013 out-of-period income tax adjustment by retroactively adjusting income taxes for the first quarter of 2014, which increased net income and income from continuing operations by $1.6 million, or approximately $0.03 per diluted share, from the results previously reported in the Company's Form 10-Q for the quarter ended March 31, 2014. The impact of the adjustments had no impact on pre-tax income or cash flows from operating, investing or financing activities.
Rounding: Amounts in the condensed 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.


6



(3)
Commitments, Guarantees and Contingencies:  Commitments and financial arrangements not recorded on the Company's condensed consolidated balance sheet, excluding lease commitments that are disclosed in Note 10 of the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2014, included the following (in millions) as of March 31, 2015:
Standby letters of credit
$
12.0

Bonds related to real estate and construction*
$
339.1


*
Represents bonds related to construction and real estate activities in Hawaii, and include construction bonds issued by third party sureties (bid, performance, and payment bonds) and commercial bonds issued by third party sureties (permit, subdivision, license, and notary bonds). In the event the bonds are drawn upon, the Company would be obligated to reimburse the surety that issued the bond. None of the bonds have been drawn upon to date, and the Company believes it is unlikely that any of these bonds will be drawn upon.
    
Indemnity Agreements:  For certain real estate joint ventures, the Company may be obligated under bond indemnities to complete construction of the real estate development if the joint venture does not perform. These indemnities are designed to protect the surety in exchange for the issuance of surety bonds that cover joint venture construction activities, such as project amenities, roads, utilities, and other infrastructure, at its joint ventures. Under the indemnities, the Company and its joint venture partners agree to indemnify the surety bond issuer from all losses and expenses arising from the failure of the joint venture to complete the specified bonded construction. The maximum potential amount of aggregate future payments is a function of the amount covered by outstanding bonds at the time of default by the joint venture, reduced by the amount of work completed to date. The recorded amounts of the indemnity liabilities were not material individually or in the aggregate.
 
Other Obligations:  In the first quarter of 2015, The Company's Club Villas joint venture (Kauai) amended its construction loan to increase the maximum commitment to $21 million to finance the construction of up to ten units, seven of which have been pre-sold under binding sales contracts. The Company and its joint venture partner each provided a separate limited loan guaranty of $7 million on a several basis, and a completion guaranty. The Company has determined that the fair value of its obligation under the guaranties is not material, and as of March 31, 2015, the Company had not paid or accrued any amounts under the guaranties.

Other than the obligation described above and those described in the Company's 2014 Form 10-K, obligations of the Company’s non-consolidated 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 56 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 kept the existing permits on a holdover basis. A third party filed a lawsuit on April 10, 2015 alleging that the BLNR has been renewing the revocable permits annually rather than keeping them in holdover status, and that the BLNR unlawfully failed to conduct an environmental assessment for the renewals. The lawsuit seeks a court order voiding the revocable permits and requiring preparation of an environmental assessment of the renewals. 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 streams 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 Hawaii Intermediate Court of Appeals dismissed the petitioner’s appeal. On

7



November 29, 2011, the petitioner appealed the Hawaii Intermediate Court of Appeals’ dismissal to the Hawaii Supreme Court. On January 11, 2012, the Hawaii Supreme Court vacated the Hawaii 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 July 17, 2013, the Commission authorized the appointment of a hearings officer for the contested case hearing.  On August 20, 2014, the Commission expanded the scope of the contested case hearing to encompass all 27 petitions for amendment of the IIFS for East Maui streams, including the eight petitions that the Commission previously acted upon in 2008. The evidentiary phase of the hearing before the Commission-appointed hearings officer was completed on April 2, 2015, and the final decision of the Commission is not expected until 2016.

Water loss that may result from the Water Commission’s future decisions will impose challenges to the Company’s sugar growing operations. Water loss will result in a combination of future suppression of sugar yields and negative financial impacts on the Company that will only be quantifiable over time. Accordingly, the Company is unable to predict, at this time, the total impact of the water proceedings.

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 14 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. On April 4, 2014, the parties entered into a settlement on the amount of water to be returned to the four streams, and the Water Commission approved the settlement on April 17, 2014.

In January 2013, the Environmental Protection Agency (“EPA”) finalized nationwide standards for controlling hazardous air pollutant emissions from industrial, commercial, institutional boilers and process heaters (the “Boiler MACT” rule), which apply to Hawaiian Commercial & Sugar Company's (“HC&S”) three boilers at the Puunene Sugar Mill. Compliance with the Boiler MACT rule is required by January 2016. The Company anticipates that the Puunene Mill boilers will be able to meet the new emissions limits without significant modifications and that compliance costs will be less than $1 million, based on currently available information. The Company is currently developing strategies for achieving compliance with the new regulations, including identifying required upgrades to boiler and air pollution control instrumentation and developing the complex compliance monitoring approaches necessary to accommodate the facility’s multi-fuel operations. There remains significant uncertainty as to the final requirements of the Boiler MACT rule, pending an EPA response to various petitions for reconsideration and ongoing litigation. Any resulting changes to the Boiler MACT rule could adversely impact the Company’s compliance schedule or cost of compliance.
 
On June 24, 2014, the Hawaii State Department of Health (“DOH”) Clean Air Branch issued a Notice and Finding of Violation and Order (“NFVO”) to HC&S alleging various violations relating to the operation of HC&S’s three boilers at its sugar mill. The DOH reviewed a five-year period (2009-2013) and alleged violations relating primarily to periods of excess visible emissions and operation of the wet scrubbers installed to control particulate matter emissions from the boiler stacks. All incidents were self-reported by HC&S to the DOH prior to the DOH’s review, and there is no indication that these deviations resulted in any violation of health-based air quality standards. The NFVO includes an administrative penalty of $1.3 million, which HC&S has contested. The Company is unable to predict, at this time, the outcome or financial impact of the NFVO, but does not believe that the financial impact of the NFVO will be material to its financial position, cash flows or results of operations.
 
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.

8




(4)
Earnings Per Share (“EPS”): The following table provides a reconciliation of income from continuing operations to income from continuing operations attributable to A&B (in millions):
 
Quarter Ended
 
March 31,
 
2015
 
2014
Income from continuing operations, net of tax
$
25.9

 
$
1.1

Noncontrolling interest
(0.6
)
 
(0.4
)
Income from continuing operations attributable to A&B shareholders, net of tax
$
25.3

 
$
0.7

The number of shares used to compute basic and diluted earnings per share is as follows (in millions):
 
Quarter Ended
 
March 31,
 
2015
 
2014
Denominator for basic EPS – weighted average shares
48.8

 
48.7

Effect of dilutive securities:
 

 
 

Employee/director stock options and restricted stock units
0.5

 
0.5

Denominator for diluted EPS – weighted average shares
49.3

 
49.2


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 period ended March 31, 2015 and 2014, 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, 2015 was $660.8 million and $681.5 million, respectively, and $706.0 million and $729.6 million at December 31, 2014, 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)
Inventories.  Sugar inventories are stated at the lower of cost (first-in, first-out basis) or market value. Materials and supplies and Materials and Construction segment inventory are stated at the lower of cost (principally average cost, first-in, first-out basis) or market value.


9



Inventories at March 31, 2015 and December 31, 2014 were as follows (in millions):
 
March 31, 2015
 
December 31, 2014
Sugar inventories
$
6.3

 
$
23.3

Work in process - sugar
24.6

 

Asphalt
20.4

 
21.3

Processed rock, portland cement, and sand
14.6

 
15.7

Work in process
3.0

 
2.8

Retail merchandise
1.6

 
1.5

Parts, materials and supplies inventories
14.6

 
17.3

Total
$
85.1

 
$
81.9


(7)
Share-Based Compensation.  Under the 2012 Plan, which provides for grants of equity-based incentive compensation, 4.3 million shares of common stock were initially reserved for issuance, and as of March 31, 2015, 1,292,362 shares of the Company’s common stock remained available for future issuance, which is reflective of a 2.7 million share reduction for outstanding equity awards replaced in the separation transaction from Matson, Inc. in 2012. 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 2015 was as follows (in thousands, except weighted average exercise price and weighted average contractual life):
 
2012
Plan
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Life
 
Aggregate
Intrinsic
Value
Outstanding, January 1, 2015
1,124.6

 
$
18.84

 
 
 
 
Exercised
(23.9
)
 
$
20.16

 
 
 
 
Outstanding, March 31, 2015
1,100.7

 
$
18.81

 
4.3
 
$
26,600

Exercisable, March 31, 2015
1,100.7

 
$
18.81

 
4.3
 
$
26,600


The following table summarizes non-vested restricted stock unit activity through March 31, 2015 (in thousands, except weighted average grant-date fair value amounts):
 
2012
Plan
Restricted
Stock
Units
 
Weighted
Average
Grant-Date
Fair Value
Outstanding, January 1, 2015
279.0

 
$
33.76

Granted
109.5

 
$
40.76

Vested
(111.6
)
 
$
32.34

Canceled
(0.3
)
 
$
39.59

Outstanding, March 31, 2015
276.6

 
$
37.10


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 or three years, provided that the total shareholder return of the Company’s common stock over the relevant measurement period meets or exceeds pre-defined levels of relative total shareholder returns of the Standard & Poor’s MidCap 400 index and the Russell 2000 index.

The fair value of the Company’s time-based awards is determined using the Company’s stock price on the date of grant. The fair value of the Company’s market-based awards is estimated using the Company’s stock price on

10



the date of grant and the probability of vesting using a Monte Carlo simulation with the following weighted average assumptions:
 
2015 Grants
2014 Grants
Volatility of A&B common stock
29.5%
25.4%
Average volatility of peer companies
34.2%
27.3%
Risk-free interest rate
0.7%
0.4%

A summary of compensation cost related to share-based payments is as follows (in millions):
 
Quarter Ended
 
 
March 31,
 
 
2015
 
2014
 
Share-based expense (net of estimated forfeitures):
 
 
 
 
Stock options
$

 
$
0.2

 
Restricted stock units
1.2

 
1.0

 
Total share-based expense
1.2

 
1.2

 
Total recognized tax benefit
(0.3
)
 
(0.3
)
 
Share-based expense (net of tax)
$
0.9

 
$
0.9

 

(8)
Discontinued Operations.  In the first quarter of 2015, the Company sold a 46,500 square foot retail property in Colorado that was not classified as discontinued operations pursuant to Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). The Company sold a retail property on Maui whose revenues and expenses were classified as discontinued operations because the sale met the conditions for classification as discontinued operations for 2014.

The revenue, operating profit, income tax expense and after-tax effects of sales treated as discontinued operations were as follows (in millions): 
 
Quarter Ended
 
March 31,
 
2015
 
2014
Proceeds from the sale of income-producing properties
$

 
$
70.1

Real estate leasing revenue

 
0.3

 
$

 
$
70.4

 
 
 
 
Gain on sale of income-producing properties
$

 
$
55.9

Real estate leasing operating profit

 
0.3

Total operating profit before taxes

 
56.2

Income tax expense

 
21.9

Income from discontinued operations
$

 
$
34.3


(9)
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 froze 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

11



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 three months ended March 31, 2015 and 2014 were as follows (in millions):
 
Pension Benefits
 
Post-retirement Benefits
 
2015
 
2014
 
2015
 
2014
Service cost
$
0.8

 
$
0.7

 
$

 
$
0.1

Interest cost
2.3

 
1.9

 
0.2

 
0.1

Expected return on plan assets
(2.7
)
 
(2.7
)
 

 

Amortization of prior service credit
(0.2
)
 
(0.2
)
 

 

Amortization of net loss
1.0

 
1.9

 
0.1

 
0.1

Net periodic benefit cost
$
1.2

 
$
1.6

 
$
0.3

 
$
0.3


(10)
New Accounting Pronouncements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in ASU 2015-03 are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements.

(11)
Accumulated Other Comprehensive Income. The changes in accumulated other comprehensive income by component for the three months ended March 31, 2015 were as follows (in millions, net of tax):
 
Pension and Postretirement Plans
 
Three Months Ended March 31, 2015
Beginning balance
$
44.4

Amounts reclassified from accumulated other comprehensive income, net of tax
(0.5
)
Ending balance
$
43.9



12



The reclassifications of other comprehensive income components out of accumulated other comprehensive income for the three and three months ended March 31, 2015 and 2014 were as follows (in millions):
 
 
Three Months Ended March 31,
Details about Accumulated Other Comprehensive Income Components
 
2015
 
2014
Amortization of defined benefit pension items reclassified to net periodic pension cost:
 
 
 
 
Net loss*
 
$
1.1

 
1.9

Prior service credit*
 
(0.3
)
 
(0.3
)
Total before income tax
 
0.8

 
1.6

Income taxes
 
(0.3
)
 
(0.6
)
Other comprehensive income net of tax
 
$
0.5

 
$
1.0


*
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 9 for additional details).

(12)
Income Taxes.  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 sheet.

On September 13, 2013, the U.S. Treasury Department released final income tax regulations on the deduction and capitalization of expenditures related to tangible property. These final regulations apply to tax years beginning on or after January 1, 2014. Application of these provisions will require the Company to file a tax accounting method change with the IRS and record a cumulative adjustment.

The company is subject to taxation by the United States and various state and local jurisdictions. As of March 31, 2015, the Company’s tax years 2012 and 2013 are open to examination by the tax authorities. In addition, tax years 2011 and 2012, for which the Company was included in the consolidated tax group with Matson, are open to examination by the tax authorities in the company’s material jurisdictions. In addition, the 2010 tax year is also open to examination by California. The Company is not currently under examination by any tax authorities.    

(13)
Investment in Affiliates. At March 31, 2015, investments in affiliates consisted principally of equity investments in limited liability companies. The Company has the ability to exercise significant influence over the operating and financial policies of these investments and, accordingly, accounts for its investments using the equity method of accounting. The Company’s operating results include its share of net earnings from its equity method investments. For the three months ended March 31, 2015, the financial results reported by a significant joint venture were $242.3 million for operating revenue and $32.2 million for operating income, income from continuing operations, and net income.

(14)
Derivative Instruments. The Company is exposed to interest rate risk related to its floating rate debt. The Company balances its cost of debt and exposure to interest rates primarily through its mix of fixed and floating rate debt. From time to time, the Company may use interest rate swaps to manage its exposure to interest rate risk.
The Company measures its interest rate swaps at fair value. The fair values of the Company's interest rate swaps (Level 2) are determined based on discounted cash flow analysis, reflecting the terms of the contracts, and utilize observable inputs such as interest rates and yield curves.

13



As of March 31, 2015, the Company had a gross notional amount of $19.9 million related to interest rate swaps that were assumed in connection with 2013 acquisitions, in which the floating rates were swapped for fixed rates. The table below presents the fair value of derivative financial instruments, which are included in Other non-current liabilities in the condensed consolidated balance sheets (in millions):
 
As of March 31,
 
As of December 31,
 
2015
 
2014
Interest rate swap liability - floating to fixed rate
$
3.0

 
$
2.9

The amount of expense the Company recorded in Interest income and other in the condensed consolidated statements of income for the change in the fair values of the interest rate swaps was not material in 2014 or 2015.
(15)
Segment Results. Segment results for the three months ended March 31, 2015 and 2014 were as follows (in millions):
 
Three Months Ended March 31,
 
 
2015
 
2014
Revenue:
 
 
 
Real Estate1:
 
 
 
Leasing
$
32.7

 
$
31.2

Development and sales
36.5

 
71.0

Less amounts reported in discontinued operations

 
(70.4
)
Materials and construction
56.9

 
50.1

Agribusiness
28.9

 
12.9

Reconciling item2
(4.3
)
 

Total revenue
$
150.7

 
$
94.8

Operating Profit, Net Income:
 
 
 
Real Estate1:
 
 
 
Leasing
$
13.2

 
$
11.8

Development and sales
32.0

 
52.3

Less amounts reported in discontinued operations

 
(56.2
)
Materials and construction
7.2

 
3.4

Agribusiness
1.9

 
3.0

Total operating profit
54.3

 
14.3

Interest expense
(7.1
)
 
(7.2
)
General corporate expenses
(5.6
)
 
(5.2
)
Reduction in KRS II carrying value
(0.1
)
 

Income from continuing operations before income taxes
41.5

 
1.9

Income tax expense
15.6

 
0.8

Income from continuing operations
25.9

 
1.1

Income from discontinued operations (net of income taxes)

 
34.3

Net income
25.9

 
35.4

Income attributable to noncontrolling interest
(0.6
)
 
(0.4
)
Net income attributable to A&B
$
25.3

 
$
35.0


1  
Prior year amounts recast for amounts treated as discontinued operations.
2 
Represents the deduction of revenue from the sale of a 46,500 square foot retail property in Colorado that is classified as "Gain on sale of improved property" in the Condensed Consolidated Statements of Income, but reflected as revenue for segment reporting purposes.



14



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, 2014 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 2014 Annual Report on Form 10-K and other filings with the SEC. 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, 2015 and 2014.
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, 2015 and 2014, as well as a discussion of A&B’s ability to fund its future commitments and ongoing operating activities through internal and external sources of capital.
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, whose history in Hawaii dates back to 1870, is a corporation headquartered in Honolulu that conducts business in four operating segments—Real Estate Development and Sales; Real Estate Leasing; Agribusiness; and Materials and Construction.

Real Estate Development and Sales: The Real Estate Development and Sales segment generates its revenues through the investment in and development and sale of land and commercial and residential properties in Hawaii and through the sale of properties in the Company's Leasing portfolio.


15



Real Estate Leasing:  The Real Estate Leasing segment owns, operates and manages retail, office and industrial properties in Hawaii and on the Mainland. The Real Estate Leasing segment also leases urban land in Hawaii to third-party lessees.
    
Agribusiness:  The Agribusiness segment produces bulk raw sugar, specialty food grade sugars and molasses; produces and sells specialty food-grade sugars; provides general trucking services, equipment maintenance and repair services; leases agricultural land to third parties; and generates and sells electricity to the extent not used in A&B’s Agribusiness operations.

Materials and Construction: The Materials and Construction segment performs asphalt paving as prime contractor and subcontractor; imports and sells liquid asphalt; mines, processes and sells basalt aggregate; produces and sells construction materials; provides and sells various construction- and traffic-control-related products.

CONSOLIDATED RESULTS OF OPERATIONS

Consolidated – First quarter of 2015 compared with 2014
 
Quarter Ended March 31,
 
 
(dollars in millions)
2015
 
2014
 
Change
Operating revenue
$
150.7

 
$
94.8

 
59.0
 %
Operating costs and expenses
126.2

 
84.8

 
48.8
 %
Operating income
24.5

 
10.0

 
145.0
 %
Other income and (expense)
17.0

 
(8.1
)
 
NM

Income from continuing operations before income taxes
41.5

 
1.9

 
22X

Income tax expense
15.6

 
0.8

 
20X

Discontinued operations (net of income taxes)

 
34.3

 
(100.0
)%
Net income
25.9

 
35.4

 
(26.8
)%
Income attributable to noncontrolling interest
(0.6
)
 
(0.4
)
 
50.0
 %
Net income attributable to A&B
$
25.3

 
$
35.0

 
(27.7
)%
 
 
 
 
 
 
Basic earnings per share attributable to A&B
$
0.52

 
$
0.72

 
(27.8
)%
Diluted earnings per share attributable to A&B
$
0.51

 
$
0.71

 
(28.2
)%

Consolidated operating revenue for the first quarter of 2015 increased $55.9 million, or 59.0 percent, compared to the first quarter of 2014. This increase was principally due to $31.4 million in higher Development and Sales revenue, $16.0 million in higher Agribusiness revenues, $6.8 million in higher revenue from Materials and Construction, and $1.7 million in higher Real Estate Leasing revenue. 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 2015 increased $41.4 million, or 48.8 percent, compared to the first quarter of 2014, due principally to $21.4 million in higher Real Estate Development and Sales cost, $17.0 million in higher Agribusiness costs, $3.7 million in higher Materials and Construction cost, and $1.2 million in higher selling, general and administrative costs, principally related to higher professional service fees and employee compensation and benefit expenses. The reasons for the operating cost and expense changes are described below, by business segment, in the Analysis of Operating Revenue and Profit by Segment.

Other income and (expense) was $17.0 million in the first quarter of 2015 compared to $(8.1) million in the first quarter of 2014. The change in other income and (expense) was primarily due to a $25.6 million increase in earnings from joint ventures, primarily related to the closing of unit sales at Waihonua, a high-rise condominium project in Honolulu.

Income taxes and the effective tax rate on income from continuing operations for the first quarter of 2015 was higher compared to the first quarter of 2014 due to higher income from continuing operations in 2015 and a greater impact of non-deductible expenses on lower 2014 income from continuing operations. Total income tax expense for the first quarter of 2014 was $22.6 million and included $21.9 million of income tax expense related to discontinued operations.

16



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 variable. Earnings from joint venture investments are not included in segment revenue, but are included in operating profit. The mix of real estate sales in any year or quarter can be diverse and can include developed residential real estate, 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 2015 compared with 2014
 
Quarter Ended March 31,
(dollars in millions)
2015
 
2014
 
Change
Real estate leasing segment revenue
$
32.7

 
$
31.2

 
4.8
%
Real estate leasing segment operating costs and expenses
(19.2
)
 
(19.0
)
 
1.1
%
Selling, general and administrative
(0.5
)
 
(0.5
)
 
%
Other income
0.2

 
0.1

 
100.0
%
Real estate leasing operating profit
$
13.2

 
$
11.8

 
11.9
%
Operating profit margin
40.4
%
 
37.8
%
 
 
Net Operating Income*
20.9

 
19.6

 
6.6
%
Leasable Space (million sq. ft.)
 
 
 
 
 
Hawaii - improved
2.6

 
2.4

 
 
Mainland - improved
2.5

 
2.5

 
 
Total improved
5.1

 
4.9

 
 
Hawaii urban ground leases (acres)
115

 
116

 
 

*
Refer to page 19 for a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.

Real Estate Leasing revenue for the first quarter of 2015, before subtracting amounts presented as discontinued operations, was 4.8 percent higher than 2014, primarily due to increases in same-store revenue, but was also due to the addition of the 204,400-square-foot Kaka'ako Commerce Center to the portfolio in December 2014.

Operating profit and net operating income for the first quarter of 2015 were 11.9 percent and 6.6 percent higher, respectively, than 2014 due to the same factors cited for the revenue increase. Tenant improvement costs and leasing commissions were $1.9 million and $1.0 million for the three months ended March 31, 2015 and 2014, respectively.

    

17



The Company's commercial portfolio's weighted average occupancy summarized by geographic location and property type for the quarter ended March 31, 2015 was as follows:
Weighted average occupancy - percent
Hawaii
Mainland
Total
Retail
94%
91%
94%
Industrial
96%
100%
98%
Office
82%
89%
88%
Total
94%
94%
94%

Improved leasable space increased in the first quarter of 2015, compared with the first quarter of 2014. The table below identifies sales and acquisitions between April 1, 2014 and March 31, 2015:
Dispositions
 
Acquisitions
Date
 
Property
 
Leasable sq. ft
 
Date
 
Property
 
Leasable sq. ft
3-15
 
Wilshire Shopping Center
 
46,500

 
12-14
 
Kaka'ako Commerce Center
 
204,400

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Dispositions
 
46,500

 
 
 
Total Improved Acquisitions
 
204,400


Same-store occupancy in the first quarter of 2015 was 94%, compared to 93% in 2014, due primarily to higher Mainland occupancy at three office properties in California and Texas. "Same-store" refers to properties that were owned throughout the entire duration of both periods under comparison, including stabilized properties. Stabilized properties refer to commercial properties developed by the Company that have achieved 80 percent economic occupancy in each of the periods presented for comparison.

18



Use of Non-GAAP Financial Measures

The Company presents net operating income (“NOI”), which is a non-GAAP measure derived from Real Estate Leasing segment revenues (determined in accordance with GAAP, less straight-line rental adjustments) minus property operating expenses (determined in accordance with GAAP). NOI does not have any standardized meaning prescribed by GAAP, and therefore, may differ from definitions of NOI used by other companies. The Company provides this information to investors as an additional means of evaluating ongoing core operations. NOI should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance, or as an alternative to cash flow from operating activities as a measure of the Company's liquidity. NOI is commonly used as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. NOI excludes general and administrative expenses, straight-line rental adjustments, interest income, interest expense, depreciation and amortization, and gains on sales of interests in real estate. The Company believes that the Real Estate Leasing segment's operating profit after discontinued operations is the most directly comparable GAAP measurement to NOI. A reconciliation of Real Estate Leasing segment operating profit to Real Estate Leasing segment NOI is as follows:

Reconciliation of Real Estate Leasing Operating Profit to NOI
 
Three Months Ended March 31,
 
(In Millions, Unaudited)
2015
 
2014
 
 
 
 
 
 
Real Estate Leasing segment operating profit before discontinued operations
$
13.2

 
$
11.8

 
Less amounts reported in discontinued operations (pre-tax)

 
(0.3
)
 
Real Estate Leasing segment operating profit after subtracting discontinued operations
13.2

 
11.5

 
Adjustments:


 


 
Depreciation and amortization
7.2

 
7.1

 
Straight-line lease adjustments
(0.6
)
 
(0.5
)
 
General and administrative expenses
1.1

 
1.2

 
Discontinued operations

 
0.3

 
Real Estate Leasing segment NOI
$
20.9

 
$
19.6

 


Real Estate Development and Sales – First quarter of 2015 compared with 2014
 
Quarter Ended March 31,
(dollars in millions)
2015
 
2014
 
Change
Improved property sales revenue
$
4.3

 
$
70.1

 
(93.9
)%
Development sales revenue
23.2

 

 
NM

Unimproved/other property sales revenue
9.0

 
0.9

 
10X

Total Real Estate Development and Sales segment revenue
36.5

 
71.0

 
(48.6
)%
Cost of Real Estate Development and Sales
(24.6
)
 
(14.1
)
 
74.5
 %
Operating expenses
(3.8
)
 
(4.0
)
 
(5.0
)%
Earnings (losses) from joint ventures
22.8

 
(0.9
)
 
NM

Other income
1.1

 
0.3

 
4X

Total Real Estate Development and Sales operating profit
$
32.0

 
$
52.3

 
(38.8
)%

First quarter 2015: Real Estate Development and Sales revenue and operating profit were $36.5 million and $32.0 million, respectively, and were principally related to the sales of a 4-acre parcel at Maui Business Park, two Kahala Avenue parcels, a 46,500-square-foot retail property in Colorado, a non-core parcel on Maui and a vacant parcel in Santa Barbara, California. Proceeds from the sale of the retail property in Colorado were used to partially fund the December 2014 purchase of the 204,400-square-foot Kaka'ako Commerce Center. Operating profit also included the following joint venture unit sales: all

19



328 remaining units at the 340-unit Waihonua condominium on Oahu (12 units closed in December 2014), two units at Ka Milo on Hawaii Island, the last unit at Kai Malu at Wailea on Maui, and three units at Kukui’ula on Kauai, partially offset by joint venture expenses.

First quarter 2014: Real Estate Development and Sales revenue and operating profit, before subtracting amounts presented as discontinued operations, were $71.0 million and $52.3 million, respectively, and were principally related to the sale of the 185,700-square-foot Maui Mall and recognition of deferred revenue associated with the sale of three Mainland retail properties in the fourth quarter of 2013, and two non-core Maui land sales. Operating profit also included two non-core Maui land sales and five joint venture unit sales, that were more than offset by joint venture expenses.
    
Real Estate Discontinued Operations – First quarter of 2015 compared with 2014

Income from discontinued operations consisted of the following (in millions):
 
Quarter Ended March 31,
 
 
2015
 
2014
 
Proceeds from the sale of income-producing properties
$

 
$
70.1

 
Real Estate Leasing revenue

 
0.3

 
Total

 
70.4

 
 
 
 
 
 
Gain on sale of income-producing properties

 
55.9

 
Real Estate Leasing operating profit

 
0.3

 
Total operating profit before taxes

 
56.2

 
Income tax expense

 
21.9

 
Income from discontinued operations
$

 
$
34.3

 

2015:  In the first quarter of 2015, the Company sold a 46,500 square foot retail property in Colorado, which was not classified as discontinued operations pursuant to Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08").

2014: The revenue and expenses related to the sale and operations of Maui Mall, a retail property on Maui, have been 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. Proceeds from the sales of property treated as discontinued operations are deposited in escrow accounts for tax-deferred reinvestment in accordance with Section 1031 of the Internal Revenue Code if the replacement property is purchased after the sale, or alternatively, proceeds are received by the Company if the replacement property is purchased before the sale.



20



MATERIALS AND CONSTRUCTION
Materials and Construction - First quarter of 2015 compared with 2014
 
Quarter Ended March 31,
(dollars in millions)
2015
 
2014
 
Change
Revenue
$
56.9

 
$
50.1

 
13.6
 %
Operating profit
$
7.2

 
$
3.4

 
111.8
 %
Operating profit margin
12.7
%
 
6.8
%
 
 
Depreciation and amortization
$
2.9

 
$
4.2

 
(31.0
)%
Aggregate used and sold (tons in thousands)
235.0

 
145.4

 
61.6
 %
Asphaltic concrete placed (tons in thousands)
116.4

 
108.9

 
6.9
 %
Backlog1 at period end
$
206.1

 
$
257.4

 
(19.9
)%
1
Backlog represents the amount of revenue that Grace and Maui Paving, LLC, a 50-percent-owned non-consolidated affiliate, expect to realize on contracts awarded, primarily related to asphalt paving and, to a lesser extent, Grace’s consolidated revenue from its construction- and traffic-control-related products. Backlog includes estimated revenue from the remaining portion of contracts not yet completed, as well as revenue from approved change orders. The length of time that projects remain in backlog can span from a few days for a small volume of work to 36 months for large paving contracts and contracts performed in phases. Maui Paving's backlog at March 31, 2015 and 2014 were $30.2 million and $38.1 million, respectively.
Materials and Construction revenue was $56.9 million for the first quarter of 2015 and was primarily attributable to increased material sales and improved weather conditions compared to last year that led to increased paving activity. Revenue reflected approximately 235,000 tons of aggregate used and sold and 116,400 tons of asphaltic concrete placed. Backlog at the end of March 31, 2015 was $206.1 million, compared to $219.4 million as of December 31, 2014. Backlog declined from year-end due to the timing of The City and County of Honolulu bid award activity. Materials and Construction revenue was $50.1 million for the first quarter of 2014 and reflects 145,400 tons of aggregate used and sold and 108,900 tons of asphaltic concrete placed.
Operating profit was $7.2 million for the first quarter of 2015, compared to $3.4 million for the first quarter of 2014. The increase in operating profit related principally to increased material sales and paving activity described above. Operating profit margin for the first quarters of 2015 and 2014, were 12.7 percent and 6.8 percent, respectively.
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 2015 compared with 2014
 
Quarter Ended March 31,
(dollars in millions)
2015
 
2014
 
Change
Revenue
$
28.9

 
$
12.9

 
124.0
 %
Operating profit
$
1.9

 
$
3.0

 
(36.7
)%
Operating profit margin
6.6
%
 
23.3
%
 
 
Tons sugar produced
3,200

 
1,400

 
128.6
 %
Tons sugar sold (raw and specialty sugar)
37,100

 
2,400

 
15X


Agribusiness revenue for the first quarter of 2015 increased $16.0 million, or 124.0 percent, compared to the first quarter of 2014. The increase was primarily due to one completed bulk shipment of raw sugar in the first quarter of 2015, while there was no bulk shipment in the first quarter of 2014. This increase was partially offset by $2.2 million lower power revenues resulting from a contractual reduction in power supplied by HC&S to Maui Electric Company (MECO) during peak hours, a reduction in pricing for power sold to MECO, and a lower volume of hydro power delivered on Kauai due to a decrease in rainfall compared to the first quarter of last year.

21




Operating profit for the first quarter of 2015 decreased $1.1 million compared to the first quarter of 2014. The decrease was principally due to $2.0 in lower power margins, partially offset by $0.8 million in higher raw sugar and molasses margins due to lower terminal and related operating costs and higher molasses sales volume.

Sugar production for the first quarter of 2015, while modest due to the mid-March start of the harvest, was 129 percent higher than the first quarter of 2014. However, both periods were impacted by poor weather that delayed the start of the harvest. Weather-related challenges continue to impact the harvest, resulting in sugar production levels that are substantially behind schedule. Sugar volume sold in the first quarter of 2015 was significantly higher than last year, due to the raw sugar shipment delivered in the quarter as compared to no raw sugar deliveries in last year's first quarter.

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 material 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 2014 Annual Report on Form 10-K.
Cash Flows: Cash flows from operating activities totaled $26.8 million for the first three months of 2015, compared to cash flows used in operating activities of $29.4 million for the first three months of 2014. The increase in cash flows from operating activities was primarily due to higher proceeds from real estate development sales and distributions from joint ventures.

Cash flows from investing activities totaled $23.4 million for the first quarter of 2015, compared with $57.5 million in the first quarter of 2014. The decrease in cash flows from investing activities was due to lower proceeds from the disposal of property in 2015, as compared to the proceeds received in 2014 from the sale of a commercial property on Maui.

Capital expenditures for the first quarter of 2015 totaled $8.6 million compared with $8.5 million for the first quarter of 2014. Net cash flows used in investing activities for capital expenditures were as follows:
 
Three Months Ended March 31,
(dollars in millions)
2015
 
2014
 
Change
Quarrying and paving
$
1.6

 
$
2.4

 
(33.3
)%
Commercial real estate property improvements
1.8

 
3.3

 
(45.5
)%
Tenant improvements
1.7

 
0.7

 
142.9
 %
Agribusiness and other
3.5

 
2.1

 
66.7
 %
Total capital expenditures*
$
8.6

 
$
8.5

 
1.2
 %

*
Capital expenditures for real estate developments to be held and sold as real estate development inventory are classified in condensed consolidated statement of cash flows as operating activities.

Cash flows used in financing activities were $49.6 million for the first quarter of 2015, compared with $25.9 million used in financing activities during the first quarter of 2014. The increase in cash flows used in financing activities was principally due to payments on the Company's revolving credit facility in the quarter.

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.


22



Sources of Liquidity: Additional sources of liquidity for the Company, consisting of cash and cash equivalents, receivables, and quarry and sugar inventory, totaled $99.0 million at March 31, 2015, a decrease of $17.6 million from December 31, 2014. The decrease was due primarily to a $17.0 million decrease in sugar inventories resulting from a completed raw sugar delivery in the quarter, partially offset by a $2.3 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. Total debt as of March 31, 2015 was $660.8 million compared to $706.0 million at the end of 2014. The decrease in debt during the first quarter of 2015 was principally due to payments on the Company's revolving credit facility. As of March 31, 2015, unused capacity under the Company’s revolving credit facility and its Prudential shelf facility totaled $222.4 million.

Balance Sheet: The Company had working capital of $30.7 million at March 31, 2015, compared to a working capital deficit of $7.1 million at the end of 2014. The change in working capital is principally due to a reduction in deferred revenue related to a completed sugar voyage and decreases in accrued liabilities and accounts payable.

At March 31, 2015, 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 2015, there were $4.6 million of proceeds from a retail center in Colorado and a non-core land sale on Maui that qualified for tax-deferral treatment under Internal Revenue Code Section 1031, which were applied toward the acquisition of Kaka'ako Commerce Center that closed on December 1, 2014. During the first quarter of 2014, approximately $63.1 million of proceeds from the sale of Maui Mall qualified for tax-deferral treatment under Internal Revenue Code Section 1031.

Purchases - During the first quarter of 2015 and 2014, the Company made no 1031 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, 2015, there were no proceeds from tax-deferred sales that had not been designated for reinvestment.

Commitments, Contingencies and Off-balance Sheet Arrangements: A description of other commitments, contingencies, and off-balance sheet arrangements at March 31, 2015, 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 17 to 30 of the Company’s 2014 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 real estate market is provided by Colliers International (Hawaii). Bankruptcy filing information cited below is published by the U.S. Bankruptcy Court District of Hawaii. Information below on foreclosures is from the Hawaii State Judiciary. Debit and credit card same-store sales activity is provided by First Hawaiian Bank.

The Company’s overall outlook assumes steady growth for the U.S. and Hawaii economies. The Hawaii economy is projected to produce real growth of 3.1 percent in 2015, 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 an all-time record for visitor expenditures and arrivals for a third consecutive year in 2014, and is expected to continue to grow at a modest rate for the next several years. Year-to-date through February 2015, arrivals have increased by 0.8 percent, however expenditures have decreased by 3.3 percent compared to last year.

23




Construction continues its upward trend. The value of statewide private building permits through March was up 71.1 percent compared to the same period in 2014, led by an increase in commercial/industrial and residential construction permits.

The median resale price for a single family home on Oahu in March 2015 was $700,000, up 6.5 percent compared to last year, and the median resale price of an Oahu condominium was up 8.6 percent at $380,000. Year-to-date through March 2015, the median Oahu single family home price was $676,000, up 3.2 percent compared to last year, and the median resale price of an Oahu condominium was $364,000, up 5.4 percent. For March 2015, days on market were low at 21 days for both homes and condos.

Oahu retail vacancy remained low at 4.3 percent, while asking rents increased 9.2 percent to $3.69 in the first
quarter of 2015, compared to last year. First quarter industrial vacancy was 2.1 percent, compared to 2.6 percent in last year's
first quarter. Industrial asking rents increased 6.5 percent in the first quarter of 2015, compared to last year. Office
vacancy increased modestly in the first quarter of 2015, compared to the first quarter of 2014; however, asking
rents improved 5.1 percent over the same comparative period.
Property Type
Vacancy Rate
Average Asking Rent Per Square Foot Per Month (NNN)
Retail
4.3%
$3.69
Industrial
2.1%
$1.15
Office
13.4%
$1.65

The state continues to see positive trends in other economic indicators. Unemployment in March of 2015 was 4.1
percent, down from 4.6 percent in March of 2014, and below the national unemployment rate of 5.5 percent. Hawaii's labor force grew to a record 675,750 in March 2015.

Bankruptcy filings through March 2015 were down by 6.5 percent compared to the same period of 2014. Foreclosures were down 38.4 percent through March 2015 compared to last year. First Hawaiian Bank reported that their debit and credit card same-store sales activity increased 4.6 percent for the quarter over the first quarter of 2014.

The Company's Real Estate Leasing NOI was up 6.6 percent1 in the first quarter due to improvements in same-store performance and the addition of Kaka'ako Commerce Center to the portfolio in December 2014. For 2015, management expects NOI growth of approximately 6 percent to 8 percent due to expectations for improving portfolio occupancy and retail rent growth.

Agribusiness operating profit is dependent on a number of factors, including, but not limited to, the following:

Market prices for raw sugar at the time sugar is priced;
Total sugar production, which is affected by weather and other factors;
The volume, price and timing of molasses sales;
The volume and prices at which the Company sells power to the local electric utilities; and
Variability in other sources of segment income.
As of May 8, 2015, the Company is roughly one-fifth through its scheduled harvest season and has priced only 28 percent of its projected sugar sales. With myriad variables affecting Agribusiness profitability, and at this early stage of the harvest, future earnings are very difficult to predict. Sugar production is substantially behind schedule due to early and continuing weather-related challenges, and it is unclear whether the Company can improve on its 2014 Agribusiness performance. The Company continues to evaluate alternative business models to reduce the inherent volatility of its Agribusiness earnings.
At the end of March 2015, the Materials and Construction segment had a consolidated backlog2 of $206.1 million, 6.1 percent lower than at the end of 2014 due to the timing of government bid award activity. The City has, however, recently resumed bid activity, and planned federal (military and transportation) and state highways bids are expected to provide additional opportunities to build the backlog as the year progresses.

1 
Refer to page 19 for a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.


24



2 
Refer to page 21 for a discussion of the Company's backlog.

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 2014 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 2014 Form 10-K.

Dividends: On April 28, 2015, A&B's Board of Directors announced a second-quarter 2015 dividend of $0.05 per share, payable on June 4, 2015 to shareholders on record as of the close of business on May 11, 2015.

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, 2014. There has been no material change in the quantitative and qualitative disclosures about market risk since December 31, 2014.

ITEM 4. CONTROLS AND PROCEDURES

(a)
Disclosure Controls and Procedures

As previously disclosed in the Company’s 2014 Form 10-K, in the course of preparing its financial statements for the year ended December 31, 2014, the Company, based on a multi-year evaluation of all of its significant deferred income tax accounts, identified corrections required for prior periods in certain of these accounts and, accordingly, revised its prior period financial statements. These revisions were quantitatively and qualitatively immaterial to the consolidated financial statements taken as whole and had no impact on pre-tax income or on cash flows from operating, investing, or financing activities. However, management concluded that the control deficiency that gave rise to the errors could possibly have, if not identified, resulted in a material misstatement of the deferred income taxes and related income tax expense, and therefore, at December 31, 2014, the Company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting related to the accounting for deferred income taxes.

During the quarter ended March 31, 2015, the Company commenced its remediation efforts, which are further described below. 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. Because the remediation work related to the accounting for deferred income taxes is ongoing, the Chief Executive Officer, along with the Chief Financial Officer, concluded that, as of March 31, 2015, the Company's disclosure controls and procedures were not effective. As a result, prior to filing its quarterly report on Form 10-Q, additional substantive procedures were performed with the assistance of third-party tax and accounting consultants. Accordingly, management believes that the financial statements included in this 2015 Form 10-Q fairly present, in all material respects, the Company's financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

(b)    Changes in Internal Control Over Financial Reporting

Other than the ongoing remediation efforts described below, there were no changes in the Company's internal control over financial reporting during the first quarter of 2015 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

25



(c)     Remediation Plan for Material Weakness in Internal Control
In response to the identified control issue, the Company is enhancing its review and related controls over the reconciliation of deferred income taxes through a combination of the following actions, which have been taken or are pending:
recruit additional qualified personnel and retain outside consultants to identify and assist with implementation of enhanced tax accounting processes and related internal control procedures
provide additional training and education for tax and accounting staff

Management and the Company’s Board of Directors are committed to maintaining a strong internal control environment and believe that these remediation efforts will provide necessary improvements to the Company’s internal controls over the accounting for deferred income taxes. While management believes that implementing controls around the preparation and accounting for deferred income taxes will remediate the material weakness identified, the material weakness in internal control will not be considered fully addressed until the new procedures have been implemented. The Company expects to fully complete the required remedial actions during 2015.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under the “Legal Proceedings and Other Contingencies” section in Note 3 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.

ITEM 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, 2015
38,515
$38.92
Feb 1 - 28, 2015
$—
Mar 1 - 31, 2015
1,660 (1)
$41.51

(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 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulations S-K (17 CFR 229.104) is included in Exhibit 95 to this periodic report on Form 10-Q.
ITEM 6.  EXHIBITS


10.a.(xvi)
First Amendment to Credit Agreement, dated December 18, 2013, by and among Alexander & Baldwin, LLC, Grace Pacific LLC, Alexander & Baldwin, Inc., A&B II, LLC, Bank of America, N.A., and First Hawaiian Bank.

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.


26



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, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three and three months ended March 31, 2015 and March 31, 2014, (ii) Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2015 and March 31, 2014, (iii) Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014, (iv) Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2015 and March 31, 2014, (v) Condensed Consolidated Statements of Equity for the three months ended March 31, 2015 and March 31, 2014, and (vi) the Notes to the Condensed Consolidated Financial Statements.

95.
Mine Safety Disclosure

27



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 8, 2015
 
/s/ Paul K. Ito
 
 
 
Paul K. Ito
 
 
 
Senior Vice President,
 
 
 
Chief Financial Officer, Treasurer
 
 
 
and Controller
 
 
 
 
 
 
 
 


28



EXHIBIT INDEX

10.a.(xvi)
First Amendment to Credit Agreement, dated December 18, 2013, by and among Alexander & Baldwin, LLC, Grace Pacific LLC, Alexander & Baldwin, Inc., A&B II, LLC, Bank of America, N.A., and First Hawaiian Bank.

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, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three months ended March 31, 2015 and March 31, 2014, (ii) Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2015 and March 31, 2014, (iii) Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014, (iv) Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2015 and March 31, 2014, (v) Condensed Consolidated Statements of Equity for the three months ended March 31, 2015 and March 31, 2014 and (vi) the Notes to the Condensed Consolidated Financial Statements.

95.
Mine Safety Disclosure







29
EX-10.A.(XVI) 2 a2015q110qexhibit10axvi1st.htm EXHIBIT 10.A.(XVI) 2015 Q1 10Q Exhibit 10.a.(xvi) 1st Amend to Cr Agmt


FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AGREEMENT dated as of December 18, 2013 (this “Agreement”) is entered into by and among ALEXANDER & BALDWIN, LLC, a Hawaii limited liability company (the “Company”), GRACE PACIFIC LLC, a Hawaii limited liability company (“Grace” and together with the Company, the “Borrowers”), ALEXANDER & BALDWIN, INC., a Hawaii corporation (“Holdings”), A&B II, LLC, a Hawaii limited liability company (“Grace Holdings”; together with the Borrowers and Holdings, collectively, the “Loan Parties”), the Lenders party hereto, BANK OF AMERICA, N.A., as Agent (in such capacity, the “Agent”), Swing Line Lender and L/C Issuer and FIRST HAWAIIAN BANK, as L/C Issuer. All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement (as defined below).


RECITALS

WHEREAS, the Company has entered into a Credit Agreement dated as of June 4, 2012 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) among the Company, the Lenders identified therein (the “Lenders”) and the Agent;

WHEREAS, in connection with the Credit Agreement, the Guaranty Agreement dated as of June 28, 2012 (the “Holdings Guaranty”) was entered into by Holdings;

WHEREAS, the Company has requested that the Lenders make certain amendments to the Credit Agreement, including the increase of the Aggregate Commitments to be provided by certain existing Lenders; and

WHEREAS, the Required Lenders (including each of the Lenders providing a portion of the increase of the Aggregate Commitments) are willing to provide such amendments to the Credit Agreement, and certain of the existing Lenders are willing to provide a portion of the increase of the Aggregate Commitments, in each case, subject to the terms and conditions specified in this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Amendments to Credit Agreement. The Credit Agreement is hereby amended as of the First Amendment Effective Date (as defined herein) as follows:
(a)    The definition of “Aggregate Commitments” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Aggregate Commitments” means, as of any date of determination, the Commitments of all the Lenders. The initial amount of the Aggregate Commitments in effect on the First Amendment Effective Date is $350,000,000. The Aggregate Commitments may be increased or decreased from time to time as provided herein.

(b)    The definition of “Applicable Cap Rates” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:


1
CHAR1\1338557v10



Applicable Cap Rates” means (i) 7.50% for Investment Properties, (ii) 9.50% for Agricultural Land which is leased to third parties, (iii) 8.25% for Leased Non-Agricultural Land which is located in the continental United States, and (iv) 7.75% for Leased Non-Agricultural Land which is located in the State of Hawaii.

(c)    The definition of “Borrower” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Borrower” means (a) prior to the First Amendment Effective Date, the Company and (b) following the First Amendment Effective Date, the Company and Grace (in each case, as a collective reference, unless otherwise set forth herein). For the avoidance of doubt, any reference herein to the Borrower providing or receiving notice shall be deemed to be a reference to the Company, on behalf of itself and Grace.

(d)    The definition of “Change of Control” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Change of Control” means:

(a)    the acquisition, after the date hereof, by any “person” or “group” (as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934) (but excluding any employee benefit plan of such persons or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) of outstanding shares of voting stock representing more than 50% of voting control of Holdings; or

(b)    the failure of Holdings to own 100% of the Equity Interests of the Company at any time thereafter; or

(c)    the failure of Holdings to directly or indirectly own 100% of the Equity Interests of Grace at any time.

(e)    The definition of “EBITDA” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

EBITDA” means, for any period, for Holdings and its Subsidiaries on a consolidated basis, Consolidated Net Income Before Taxes for such period plus, to the extent deducted in the calculation thereof, Consolidated Interest Expense, depreciation and amortization expense, non-cash stock-based compensation expense, non-cash pension, non-cash postretirement and non-cash nonqualified expenses, and one-time expenses in connection with the acquisition of Grace and its Subsidiaries and the Kaneohe Ranch Assets incurred during the fiscal year ended December 31, 2013 in an aggregate amount not to exceed $8,000,000; provided that EBITDA shall exclude non-cash gains or losses resulting from the write-up or write-down of assets.

(f)    The definition “Eurodollar Rate” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Eurodollar Rate” means:

2
CHAR1\1338557v10




(a)    for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the London Interbank Offered Rate (“LIBOR”), or a comparable or successor rate which rate is approved by the Agent, as published on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by the Agent from time to time) (in such case, the “LIBOR Rate”) at or about 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period; and

(b)    for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to the LIBOR Rate, at or about 11:00 a.m., London time, two (2) Business Days prior to such date for Dollar deposits with a term of one (1) month commencing that day;

provided that to the extent a comparable or successor rate is approved by the Agent in connection herewith, the approved rate shall be applied in a manner consistent with market practice; provided, further that to the extent such market practice is not administratively feasible for the Agent, such approved rate shall be applied in a manner as otherwise reasonably determined by the Agent.

(g)    The definition of “Guarantor” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Guarantor” means Holdings, Grace Holdings and each Additional Guarantor.

(h)    The definition of “Guaranty” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Guaranty” means the Guaranty, dated as of the Initial Funding Date, executed by Holdings in favor of the Agent, substantially in the form of Exhibit G and any additional guaranty in favor of the Agent provided pursuant to the terms of this Agreement.

(i)    The definition of “Principal Credit Facility” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Principal Credit Facility” means (a) the Note Purchase Agreement or (b) any other credit agreement, loan agreement, note purchase agreement or similar agreement under which credit facilities in the aggregate principal or commitment amount of at least $40,000,000 are provided for, in each case, as any of the same may be amended, restated, supplemented or otherwise modified from time to time; provided that the Bridge Loan Agreement shall not constitute a Principal Credit Facility; provided, further, that the immediately preceding clause (b) shall exclude (i) all purchase money debt, (ii) all construction and other project financings, and (iii) all Non-Recourse Debt.

(j)    The definition of “Priority Debt” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:


3
CHAR1\1338557v10



Priority Debt” means, with respect to the Borrower, Holdings and their Subsidiaries, at any time of determination and without duplication, the sum of (a) Debt of the Company, Grace, Holdings and the other Guarantors secured by a Lien, plus (b) Debt of Subsidiaries of Holdings (other than the Company, Grace and the Subsidiaries of Holdings which are Guarantors), regardless of whether such Debt is secured or unsecured.

(k)    The definition of “Swing Line Sublimit” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Swing Line Sublimit” means an amount equal to the lesser of (a) $80,000,000 and (b) the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Commitments.

(l)    The definition of “Total Adjusted Asset Value” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
 
Total Adjusted Asset Value” means, at any date of determination thereof, without duplication, (a) real estate leasing property value (which shall be deemed to equal the sum of (i) Net Operating Income from Investment Properties divided by the Applicable Cap Rates, (ii) Net Operating Income from Leased Agricultural Land divided by the Applicable Cap Rates and (iii) Net Operating Income from Leased Non-Agricultural Land divided by the Applicable Cap Rates, plus (b) the greater of (x) EBITDA for the period of four (4) consecutive fiscal quarters most recently ended generated from the agricultural division of Holdings and its Subsidiaries (excluding, as an abundance of caution, Net Operating Income from Leased Agricultural Land and including, as an abundance of caution, income generated from electricity producing assets) divided by 20.0%, and (y) the Appraised Value of Agricultural Land which is not leased to third parties (provided that the determination of whether or not to obtain the appraisal necessary to determine the Appraised Value shall be made at the option of the Borrower and if the Borrower does not elect to have an appraisal performed, then clause (x) will be deemed to be greater than clause (y)), plus (c) the book value of Development Real Properties owned by Holdings or any of its Subsidiaries (with such book value, in the case of a less than wholly-owned subsidiary or any other entity (other than a Subsidiary) in which Holdings or any of its Subsidiaries owns an equity interest (each, a “Joint Venture Entity”), to be (i) with respect to a consolidated Joint Venture Entity, equal to the net assets of such Joint Venture Entity less the noncontrolling interest in such Joint Venture Entity as reflected on the consolidated balance sheet of Holdings required to be delivered pursuant to Section 6.01(a) or (b), or (ii) with respect to an unconsolidated Joint Venture Entity, equal to the book value of Holdings’ direct or indirect investment in such Joint Venture Entity), provided that the aggregate amount under this clause (c) shall not comprise more than 30% of consolidated total assets of Holdings and its Subsidiaries (less cash, cash equivalents, marketable securities, goodwill, noncontrolling interest and pension assets) in accordance with GAAP for the most recent fiscal quarter plus (d) the value of the assets of Grace and its Subsidiaries (which shall be deemed to be equal to EBITDA generated solely by Grace Holdings and its Subsidiaries for the period of four (4) consecutive fiscal quarters most recently ended divided by 16.67%).

Notwithstanding anything to the contrary in the foregoing portions of this definition or Section 1.02(e): (i) any asset or Person (together with such Person’s Subsidiaries) acquired by Holdings or any of its Subsidiaries, for purpose of determining the “Total Adjusted Asset

4
CHAR1\1338557v10



Value,” shall be valued at net book value during the period (the “Book Value Period”) from the consummation of such acquisition until the last day of the first full fiscal quarter occurring after the consummation of such acquisition; and (ii) with respect to clause (d) of this definition, following the relevant Book Value Period the calculation described in clause (d) of this definition shall include EBITDA (calculated solely with respect to Grace and its Subsidiaries) to the extent the applicable calculation described in clause (d) of this definition includes periods prior to the consummation of the acquisition by Holdings and its Subsidiaries of Grace and its Subsidiaries.

(m)    The definition of “Unencumbered EBITDA” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Unencumbered EBITDA” means, for any period, with respect to Holdings and its Subsidiaries on a consolidated basis, without duplication, EBITDA derived from (i) Unencumbered Investment Properties, (ii) Unencumbered Leased Agricultural Land, (iii) EBITDA generated from the agricultural division of Holdings and its Subsidiaries but only to the extent the assets in the agricultural division are Unencumbered Agricultural Division Assets and (iv) EBITDA calculated solely with respect to Grace Holdings and its Subsidiaries, provided that the amount of EBITDA under this clause (iv) shall be excluded from the calculation of Unencumbered EBITDA if, at any time during such period of determination, any Debt of Grace Holdings or its Subsidiaries is secured by a consensual Lien except that only EBITDA of GLP Asphalt LLC shall be excluded from the calculation of Unencumbered EBITDA if the only Debt of Grace Holdings or its Subsidiaries which is secured by a consensual Lien consists of (1) the bank facility from First Hawaiian Bank in favor of GLP Asphalt LLC in an aggregate commitment or outstanding principal amount not to exceed $40,000,000 (and only until August 31, 2014), or any extensions, refinancings, replacements, amendments or amendments and restatements of such bank facility in an aggregate commitment or outstanding principal amount not to exceed $30,000,000, and/or (2) the term loan from Bank of Hawaii in favor of GLP Asphalt LLC in an aggregate outstanding principal amount not to exceed the original aggregate principal amount of $14,000,000, as reduced from time to time in accordance with its originally scheduled principal amortization (and only until its final maturity date of March 1, 2021).

Notwithstanding anything to the contrary in the foregoing portions of this definition, the calculation described in clause (iv) of this definition shall include EBITDA (calculated solely with respect to Grace (or Grace Pacific Corporation, as applicable, for periods prior to the limited liability company conversion of Grace Pacific Corporation) and its Subsidiaries) to the extent the applicable calculation described in clause (iv) of this definition includes periods prior to the consummation of the acquisition by Holdings and its Subsidiaries of Grace and its Subsidiaries.

(n)    The definition of “Unencumbered Income Producing Assets Value” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Unencumbered Income Producing Assets Value” means, at any time of determination thereof, without duplication, the sum of (i) the Net Operating Income from Unencumbered Investment Properties divided by the Applicable Cap Rates, (ii) the Net Operating Income from Unencumbered Leased Agricultural Land divided by the Applicable Cap Rates, (iii) the Net Operating Income from Unencumbered Leased Non-Agricultural

5
CHAR1\1338557v10



Land divided by the Applicable Cap Rate, (iv) the greater of (x) EBITDA for the period of four (4) consecutive fiscal quarters most recently ended generated from the agricultural division of Holdings and its Subsidiaries but only to the extent the assets in the agricultural division are Unencumbered Agricultural Division Assets (excluding, as an abundance of caution, Net Operating Income from Leased Agricultural Land) divided by 20.0%, and (y) the Appraised Value of Unencumbered Agricultural Land which is not leased to third parties (provided that the determination of whether or not to obtain the appraisal necessary to determine the Appraised Value shall be made at the option of the Borrower and if the Borrower does not elect to have an appraisal performed, then clause (x) will be deemed to be greater than clause (y)) and (v) the value of the assets of Grace and its Subsidiaries (which shall be deemed to be equal to EBITDA generated solely by Grace Holdings and its Subsidiaries for the period of four (4) consecutive fiscal quarters most recently ended divided by 16.67%), provided that the amount of EBITDA under this clause (v) shall be excluded from the calculation of Unencumbered Income Producing Assets Value if, at such time of determination or at any time during such then or most recently ended period of four consecutive fiscal quarters, any Debt of Grace Holdings or its Subsidiaries is or was secured by a consensual Lien, except that only the value of GLP Asphalt LLC (which shall be deemed to be equal to EBITDA (but calculated solely with respect to GLP Asphalt LLC and its Subsidiaries for the then or most recently ended period of four consecutive fiscal quarters) divided by 16.67%) shall be excluded from the calculation of Unencumbered Income Producing Assets Value if the only Debt of Grace Holdings or its Subsidiaries which is or was secured by a consensual Lien consists or consisted of (1) the bank facility from First Hawaiian Bank in favor of GLP Asphalt LLC in an aggregate commitment or outstanding principal amount not to exceed $40,000,000 (and only until August 31, 2014), or any extensions, refinancings, replacements, amendments or amendments and restatements of such bank facility in an aggregate commitment or outstanding principal amount not to exceed $30,000,000, and/or (2) the term loan from Bank of Hawaii in favor of GLP Asphalt LLC in an aggregate outstanding principal amount not to exceed the original aggregate principal amount of $14,000,000, as reduced from time to time in accordance with its originally scheduled principal amortization (and only until its final maturity date of March 1, 2021).

Notwithstanding anything to the contrary in the foregoing portions of this definition or in Section 1.02(e): (i) any asset or Person (together with such Person’s Subsidiaries) acquired by Holdings or any of its Subsidiaries, for purpose of determining the “Unencumbered Income Producing Asset Value,” shall be valued at net book value during the period (the “Book Value Period”) from the consummation of such acquisition until the last day of the first full fiscal quarter occurring after the consummation of such acquisition; and (ii) with respect to clause (v) of this definition, following the relevant Book Value Period the calculation described in clause (v) of this definition shall include EBITDA (calculated solely with respect to Grace (or Grace Pacific Corporation, as applicable, for periods prior to the limited liability company conversion of Grace Pacific Corporation) and its Subsidiaries) to the extent the applicable calculation described in clause (v) of this definition includes periods prior to the consummation of the acquisition by Holdings and its Subsidiaries of Grace and its Subsidiaries.

(o)    Section 1.01 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order therein:
    

6
CHAR1\1338557v10



Bridge Loan Agreement” means that certain Unsecured Loan Agreement, dated as of December 18, 2013 between the Borrower and Bank of America, N.A., as the same may be amended, amended and restated, restated, supplemented or otherwise modified from time to time.

Company” means Alexander & Baldwin, LLC, a Hawaii limited liability company.

Covenant Relief Period” means the period from the First Amendment Effective Date through and including March 30, 2014.

First Amendment Effective Date” means December 18, 2013.

Grace” means Grace Pacific LLC, a Hawaii limited liability company.

Grace Holdings” means A&B II, LLC, a Hawaii limited liability company, the direct holding company of Grace.

Kaneohe Ranch Acquisition” means the acquisition of the Kaneohe Ranch Assets subject to (i) that certain Purchase and Sale Agreement and Joint Escrow Instructions, dated as of October 18, 2013, among Castle Family LLC, Castle 1974 LLC, Castle Residuary LLC, Castle Kaopa LLC and Holdings and (ii) that certain Purchase and Sale Agreement and Joint Escrow Instructions, dated as of October 18, 2013, between Harold K.L. Castle Foundation and Holdings, in each case, as amended, restated, supplemented or otherwise modified prior to the First Amendment Effective Date.
 
Kaneohe Ranch Assets” means those certain Kaneohe Ranch Hawaii Portfolio assets acquired by Holdings pursuant to the Kaneohe Ranch Acquisition.

(p)    Section 1.02(e) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(e)    For purposes of all calculations made under the financial covenants set forth in Section 7.01 and the Priority Debt covenant set forth in Section 7.05 for an applicable period, (i) if during such period Holdings, the Borrower or any Subsidiary shall have consummated an acquisition of a Significant Subsidiary or a Significant Line of Business, (x) EBITDA or Unencumbered EBITDA, as the case may be, for such period shall be calculated after giving pro forma effect thereto as if such transaction occurred on the first day of such period; provided, that if the aggregate purchase price for any such acquisition is greater than or equal to $25,000,000, EBITDA or Unencumbered EBITDA, as the case may be, shall only be calculated on a pro forma basis to the extent such pro forma calculations are based on audited financial statements or other financial statements reasonably satisfactory to the Required Lenders (subject to adjustments set forth in the second paragraphs of each of the definitions of Total Adjusted Asset Value and Unencumbered Income Producing Assets Value, as applicable) and (y) any Debt incurred or assumed by any Loan Party or Subsidiary (including the Person or property acquired) in connection with such transaction and any Debt of the Person or property acquired which is not retired in connection with such transaction (1) shall be deemed to have been incurred as of the last day of the previous period and (2) if such Debt has a floating or formula rate, shall have an implied rate of interest for the applicable period for purposes of this definition determined

7
CHAR1\1338557v10



by utilizing the rate which is or would be in effect with respect to such Debt as at the relevant date of determination, and (ii) if during such period Holdings, the Borrower or any Subsidiary shall have consummated a disposition of all or substantially all of the assets of Holdings, the Borrower or a Subsidiary or of a majority of the equity interests of a Subsidiary or of a Significant Line of Business, (x) EBITDA or Unencumbered EBITDA, as the case may be, for such period shall be calculated after giving pro forma effect thereto as if such transaction occurred on the last day of the previous period and (y) any Debt which is retired in connection with such transaction shall be excluded and deemed to have been retired as of the last day of the previous period.
(q)    Section 2.14(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(a)    Request for Increase. Provided there exists no Default, upon notice to the Agent (which shall promptly notify the Lenders), the Borrower may from time to time, after the Initial Funding Date, but no more than one time in any calendar year, request an increase in the Aggregate Commitments by an amount (for all such requests) not exceeding $100,000,000; provided that any such request for an increase shall be in a minimum amount of $10,000,000. At the time of sending such notice, the Borrower (in consultation with the Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten Business Days from the date of delivery of such notice to the Lenders).

(r)    Article II of the Credit Agreement is hereby inserting the following new Section 2.17 at the end thereof:

Section 2.17    Joint and Several Obligations. Except as specifically provided herein, the Obligations of the Borrowers shall be joint and several in nature regardless of which such Person actually receives Credit Extensions hereunder or the amount of such Credit Extensions received or the manner in which the Lender accounts for such Credit Extensions on its books and records. Notwithstanding the foregoing, Grace hereby irrevocably appoints the Company to act as its agent for all purposes of this Agreement and the other Loan Documents and agrees that (i) the Company may execute such documents on behalf of Grace (in its capacity as Borrower) as the Company deems appropriate in its sole discretion and Grace shall be obligated by all of the terms of any such document executed on its behalf (ii) any notice or communication delivered by the Agent or the Lender to the Company shall be deemed delivered to Grace and (iii) the Agent or the Lenders may accept, and be permitted to rely on, any document, instrument or agreement executed by the Company on behalf of Grace.

(s)    Section 3.03 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

3.03    Inability to Determine Rates.

(a)     If in connection with any request for a Eurodollar Loan or a conversion to or continuation thereof, (i)  the Agent determines that (A)  deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Loan or (B) adequate and reasonable means do not exist for

8
CHAR1\1338557v10



determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Loan or in connection with an existing or proposed Base Rate Loan (in each case with respect to clause (i), “Impacted Loans”), or (ii) the Agent or the Required Lenders determine that for any reason Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Agent will promptly so notify the Borrower and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain Eurodollar Loans shall be suspended (to the extent of the affected Eurodollar Loans or Interest Periods), and (y) in the event of a determination described in the preceding sentence with respect to the Eurodollar Rate component of the Base Rate, the utilization of the Eurodollar Rate component in determining the Base Rate shall be suspended, in each case until the Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Loans (to the extent of the affected Eurodollar Loans or Interest Periods) or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.

(b)    Notwithstanding the foregoing, if the Agent has made the determination described in clause (a)(i) of this Section, the Agent in consultation with the Borrower and the Required Lenders, may establish an alternative interest rate for the Impacted Loans, in which case, such alternative rate of interest shall apply with respect to the Impacted Loans until (1) the Agent revokes the notice delivered with respect to the Impacted Loans under clause (a)(i) of this Section, (2) the Agent or the Required Lenders notify the Agent and the Borrower that such alternative interest rate does not adequately and fairly reflect the cost to the Lenders of funding the Impacted Loans, or (3) any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for such Lender or its applicable Lending Office to make, maintain or fund Loans whose interest is determined by reference to such alternative rate of interest or to determine or charge interest rates based upon such rate or any Governmental Authority has imposed material restrictions on the authority of such Lender to do any of the foregoing and provides the Agent and the Borrower written notice thereof.

(t)    Section 6.01(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(a)    as soon as practicable and in any event within 60 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year (or if earlier, 10 Business Days after the date required to be filed with the SEC), or the date on which another creditor of the Borrower first receives such information, (i) consolidated statements of income and cash flows of Holdings and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of Holdings and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Borrower, subject only to changes resulting from year-end adjustments, and (ii) financial statements of Grace and its Subsidiaries that correspond to the periods occurring prior to the acquisition of Grace and its Subsidiaries by Holdings and its Subsidiaries for which EBITDA of Grace and its Subsidiaries is reported for such quarterly period (for the avoidance of doubt, such separate financial statements of Grace and its Subsidiaries shall not be required to be provided

9
CHAR1\1338557v10



at any time after the four fiscal quarter period following the acquisition of Grace and its Subsidiaries by Holdings and its Subsidiaries);

(u)    Section 6.01(b) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(b)    as soon as practicable and in any event within the earlier to occur of 120 days after the end of each fiscal year of the Borrower (or if earlier, 10 Business Days after the date required to be filed with the SEC) or the date on which another creditor of the Borrower first receives such information, (i) consolidated statements of income and cash flows of Holdings and its Subsidiaries for such year and a consolidated balance sheet of Holdings and its Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form corresponding figures from the preceding annual audit, all in reasonable detail and reasonably satisfactory in scope to the Required Lenders and certified by independent public accountants of recognized standing whose opinion shall be unqualified and otherwise satisfactory in scope and substance to the Required Lenders, provided that such opinion shall be deemed otherwise satisfactory if prepared in accordance with GAAP and generally accepted accounting standards, and (ii) financial statements of Grace and its Subsidiaries that correspond to the periods occurring prior to the acquisition of Grace and its Subsidiaries by Holdings and its Subsidiaries for which EBITDA of Grace and its Subsidiaries is reported for such annual period (for the avoidance of doubt, such separate financial statements of Grace and its Subsidiaries shall not be required to be provided at any time after the four fiscal quarter period following the acquisition of Grace and its Subsidiaries by Holdings and its Subsidiaries);

(v)    Section 6.01(f) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(f)    promptly after the furnishing thereof, copies of any certificate, statement or report furnished to any other holder of the debt securities of any Loan Party pursuant to the terms of the Note Purchase Agreement or any other indenture, loan, credit or similar agreement or instrument and not otherwise required to be furnished to the Lenders pursuant to any other clause of this Section 6.01;

(w)    Section 7.01(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(a)    Minimum Consolidated Shareholders’ Equity. Holdings shall not permit the Consolidated Shareholders’ Equity at any time to be less than the sum of (a) $791,440,000, plus (b) to the extent positive, 25% of Consolidated Net Income for each fiscal quarter ended after December 31, 2013 (such required minimum consolidated shareholders’ equity amount not to be reduced by any consolidated net loss during any such fiscal quarter).

(x)    Section 7.01(c) of the Credit Agreement is hereby amended by deleting the first paragraph thereof in its entirety and replaced with the following:

(c)    Maximum Total Debt to Total Adjusted Asset Value Ratio.


10
CHAR1\1338557v10



(i)     Holdings shall not permit the Total Debt to Total Adjusted Asset Value Ratio at any time to exceed 0.50 to 1.0; provided that, for the purposes of the calculation in this clause (i), during the Covenant Relief Period only, the Debt of Holdings and its Subsidiaries incurred to consummate the Kaneohe Ranch Acquisition shall be excluded.

(ii)    During the Covenant Relief Period only, Holdings shall not permit the Total Debt to Total Adjusted Asset Value Ratio any time during such Covenant Relief Period to exceed 0.575 to 1.00; provided that, for the purposes of the calculation in this clause (ii), during the Covenant Relief Period only, the Debt of Holdings and its Subsidiaries incurred to consummate the Kaneohe Ranch Acquisition shall be included.

(y)    Section 7.01(d) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(d)    Minimum Unencumbered Income Producing Assets Value to Unsecured Debt Ratio.

(i)    The Borrower shall not permit the Unencumbered Income Producing Assets Value to Unsecured Debt Ratio at any time to be less than 1.75 to 1.0; provided that, for the purposes of the calculation in this clause (i), during the Covenant Relief Period only, the Unsecured Debt incurred to consummate the Kaneohe Ranch Acquisition shall be excluded.

(ii)     During the Covenant Relief Period only, the Borrower shall not permit the Unencumbered Income Producing Assets Value to Unsecured Debt Ratio at any time to be less than 1.40 to 1.0; provided that, for the purposes of the calculation in this clause (ii), during the Covenant Relief Period only, the Unsecured Debt incurred to consummate the Kaneohe Ranch Acquisition shall be included.

(z)    Section 7.04(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(a) (i) any Subsidiary of the Borrower may merge with the Borrower, so long as the Borrower is the surviving Person, (ii) Grace may merge with the Company, so long as the Company is the surviving Person and (iii) Grace Holdings may merge with the Company, so long as the Company is the surviving Person;

(aa)    Section 7.04(d)(ii) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

(ii) such assets, together with all other assets sold or otherwise disposed of to Third Parties pursuant to this clause (d) did not contribute more than 10% of EBITDA, determined as of the four quarter period ending as of the most recent fiscal quarter with respect to which financial statements are required to be delivered pursuant to Section 6.01(a) or (b); provided that, notwithstanding the percentage limitations appearing in clauses (i) and (ii), above, sales or dispositions in excess thereof in a twelve month period may be made for cash if the proceeds of each such excess sale or disposition (net of taxes thereon) are fully utilized in

11
CHAR1\1338557v10



the acquisition of Permitted Assets and/or applied to the repayment of Permitted Debt, in each case within 365 days from the date of such sale or disposition;

(bb)    Schedule 2.01 [Commitments and Applicable Percentages] to the Credit Agreement is hereby amended in its entirety to read in the form of such Schedule attached hereto as Annex I to this Agreement.

(cc)    Exhibit C [Form of Note] to the Credit Agreement is hereby amended in its entirety to read in the form of such Exhibit attached hereto as Annex II to this Agreement.
2.    Joinder.
Grace hereby acknowledges, agrees and confirms that, by its execution of this Agreement, it will be deemed to be (a) a party to the Credit Agreement and a “Borrower” for all purposes of the Credit Agreement and the other Loan Documents, and shall have all of the obligations of as a Borrower thereunder as if it had executed the Credit Agreement. Grace hereby ratifies, as of the First Amendment Effective Date, and agrees to be bound by, all of the terms, provisions and conditions applicable to the Borrowers contained in the Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph, the Company and Grace hereby acknowledge, agree and confirm that the Obligations of the Company and Grace as Borrowers shall be joint and several in nature in accordance with the terms set forth in the Credit Agreement.
3.    Conditions Precedent. This Agreement shall be effective as of the date hereof (the “First Amendment Effective Date”) when all of the conditions set forth below have been satisfied (or waived in accordance with the terms of the Credit Agreement:
(a)    The Agent shall have received counterparts of this Agreement, duly executed by each Loan Party, the Agent and the Required Lenders (including each of the Lenders providing a portion of the increase of the Aggregate Commitments).
(b)    The Agent’s receipt of the following, each of which shall be originals, PDF copies or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer, each dated the First Amendment Effective Date (or, in the case of certificates of governmental officials, a recent date before the First Amendment Effective Date) and each in form and substance satisfactory to the Agent:
(i)    an amended and restated Note executed by the Company and Grace in favor of each existing Lender that received a Note on the Closing Date;

(ii)    a guaranty executed by Grace Holdings (the “Grace Holdings Guaranty”);

(iii)    such certificates of resolutions or other action, incumbency certificates (including specimen signatures) and/or other certificates of the secretary or assistant secretary of each Loan Party as the Agent may require evidencing the identity, authority and capacity of each Authorized Officer thereof authorized to act as an Authorized Officer in connection with this Agreement and the other Loan Documents;


12
CHAR1\1338557v10



(iv)    such documents and certifications as the Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party is validly existing and in good standing in its jurisdiction of organization;
(v)    a favorable customary opinion of (I) Skadden, Arps, Slate, Meagher & Flom LLP, as legal counsel to the Loan Parties and (II) General Counsel to the Loan Parties addressed to the Agent and each Lender, as to such customary matters concerning the Loan Parties and the Loan Documents as the Agent may reasonably request;
(vi)    a certificate of a Responsible Officer of the Company either (A) attaching copies of all documents evidencing other necessary actions, approval or consents with respect to this Agreement or (B) stating that no such actions, approvals or consents are so required;
(vii)    a certificate signed by a Responsible Officer of the Company certifying that (A) the representations and warranties of the Borrowers and each other Loan Party contained in Article V of the Credit Agreement or any other Loan Document are true and correct in all material respects (except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect which such representation and warranty shall be true and correct in all respects) on and as of the First Amendment Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and (B) no Default exists or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document;
(viii)    a copy, certified by a Responsible Officer of the Company as true and complete, of an amendment to the Note Purchase Agreement, in form and substance reasonably satisfactory to the Agent;

(ix)    consolidated statements of income of (1) Grace (or Grace Pacific Corporation, as applicable, for periods prior to the limited liability company conversion of Grace Pacific Corporation) and its Subsidiaries, and (2) GLP Asphalt LLC and its Subsidiaries, in each case for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, and a consolidated balance sheet of (1) Grace (or Grace Pacific Corporation, as applicable, for dates prior to the limited liability company conversion of Grace Pacific Corporation) and its Subsidiaries, and (2) GLP Asphalt LLC and its Subsidiaries, in each case for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, all in reasonable detail and certified by an authorized financial officer of Grace (or Grace Pacific Corporation, as applicable), subject only to changes resulting from year-end adjustments; and

(x)    such other assurances, certificates, documents, consents, opinions or additional financial information as the Agent or any Lender reasonably may require.

(c)    The representations and warranties set forth in Section 4 hereof shall be true in all material respects and correct on the First Amendment Effective Date and no Default or Event of Default shall exist.

13
CHAR1\1338557v10



(d)    The Agent shall have received (i) an amendment fee, for the account of each Lender that provides the Agent with an executed counterpart of this Agreement on or before 5 p.m. Eastern time on December 18, 2013, in the amount equal to 0.05% of the amount of the Commitment of such Lender as of the First Amendment Effective Date (but prior to giving effect to this Agreement) and (ii) an upfront fee, for the account of each Lender providing an increase to the Commitments, in an amount equal to 0.35% of the final allocated amount of such increase in the Commitments of such Lender (after giving effect to this Agreement).
(e)    The Company shall have paid in full all other fees due and payable in connection with this Agreement and all reasonable out-of-pocket fees and expenses of the Agent in connection with the preparation, execution and delivery of this Agreement, including without limitation, the reasonable fees and expenses of Moore & Van Allen PLLC, special counsel to the Agent.
4.    Representations and Warranties.
(a)    Each Loan Party hereby represents and warrants as follows:
(i)    It has taken all necessary action to authorize the execution, delivery and performance of this Agreement.
(ii)    This Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may be subject to (A) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors’ rights generally and (B) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).
(iii)    No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by it of this Agreement.
(b)    Each Loan Party represents and warrants to the Lenders that, (i) the representations and warranties of the Borrowers and each other Loan Party set forth in Article V of the Credit Agreement and/or in each other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, are true and correct in all material respects (except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect which such representation and warranty shall be true and correct in all respects) on and as of the date hereof with the same effect as if made on and as of the date hereof, except to the extent such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such date, and except that the representations and warranties contained in subsections (a) and (b) of Section 5.02 of the Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Credit Agreement and (ii) no event has occurred and is continuing which constitutes a Default or an Event of Default.
5.    No Prejudice or Waiver; Ratification; Loan Document. The Credit Agreement, and the obligations of each Loan Party thereunder and under the other Loan Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms. The terms of this Agreement shall not operate as a waiver by the Lenders of, or otherwise prejudice the Lenders’ rights, remedies or powers

14
CHAR1\1338557v10



under, the Credit Agreement, any other Loan Document or applicable law. Except as expressly provided herein:
(a)    no terms and provisions of any agreement are modified or changed by this Agreement;
(b)    the terms and provisions of the Credit Agreement and all other Loan Documents shall continue in full force and effect; and
(c)    this Agreement shall constitute a “Loan Document” under, and as defined in, the Credit Agreement.

6.    Miscellaneous.
(a)    This Agreement shall be binding upon and enforceable by and against the parties hereto and their respective successors and assigns.
(b)    Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. Execution of this Agreement by any of the parties may be evidenced by way of a faxed or electronic transmission of such party’s signature and such faxed or electronic signature shall be deemed to constitute the original signature of such party to this Agreement and shall be admissible into evidence for all purposes.
(c)    THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK.
7.    Survival. All warranties, representations, certifications and covenants made by or on behalf of the Loan Parties herein shall be considered to have been relied upon by the Agent and the Lenders and shall survive the execution of this Agreement, regardless of any investigation made by or on behalf of the Agent and the Lenders.
8.    Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
9.    Acknowledgment of Guarantors. Each of Holdings and Grace Holdings acknowledge and consent to all of the terms and conditions of this Agreement and agree that this Agreement and any documents executed in connection herewith do not operate to reduce or discharge Holdings’ and Grace Holdings’ respective obligations under the Holdings Guaranty, the Grace Holdings Guaranty, as applicable, or the other Loan Documents, except as otherwise modified by paragraph 2 hereof.

10.    Entirety. This Agreement and the other Loan Documents embody the entire agreement between the parties and supersede all prior agreements and understandings, if any, relating to the subject

15
CHAR1\1338557v10



matter hereof. These Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no oral agreements between the parties.

11.    Reallocation of Commitments. On the First Amendment Effective Date, the Company shall prepay any Committed Loans outstanding on the First Amendment Effective Date (and pay any additional amounts required pursuant to Section 3.05 of the Credit Agreement) to the extent necessary to keep the outstanding Committed Loans ratable with any revised Applicable Percentages arising from any nonratable increase in the Commitments on the First Amendment Effective Date. Each of the Lenders acknowledges and agrees that as of the First Amendment Effective Date, (i) the aggregate Commitments of the Lenders shall be as set forth on Schedule 2.01 to the Credit Agreement (and attached hereto as Annex I) and (ii) any outstanding obligations of the Lenders immediately before giving effect to this Amendment shall be automatically reallocated in accordance with such Lender’s Applicable Percentage as set forth on Schedule 2.01 to the Credit Agreement (and attached hereto as Annex I). In order to effect such reallocations, assignments shall be deemed to be made among the Lenders in such amounts as may be necessary, and with the same force and effect as if such assignments were evidenced by the applicable Assignment and Assumptions (but without the payment of any related assignment fee), and no other documents or instruments shall be required to be executed in connection with such assignments (all of which such requirements are hereby waived).


[remainder of page intentionally left blank]


16
CHAR1\1338557v10



Each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.


BORROWERS:                ALEXANDER & BALDWIN, LLC

By: /s/ Nelson N.S. Chun
Name: Nelson N.S. Chun
Title: Senior Vice President and Chief Legal Officer

By: /s/ Paul K. Ito
Name: Paul K. Ito
Title: Senior Vice President, Chief Financial Officer,
Treasurer and Controller

GRACE PACIFIC LLC
By: A&B II, LLC, its sole member

By: /s/ Stanley M. Kuriyama
Name: Stanley M. Kuriyama
Title: Its Sole Manager



GUARANTORS:
ALEXANDER & BALDWIN, INC.

By: /s/ Nelson N.S. Chun
Name: Nelson N.S. Chun
Title: Senior Vice President and Chief Legal Officer

By: /s/ Paul K. Ito
Name: Paul K. Ito
Title: Senior Vice President, Chief Financial Officer,
Treasurer and Controller

A&B II, LLC

By: /s/ Stanley M. Kuriyama
Name: Stanley M. Kuriyama
Title: Its Sole Manager




ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT




AGENT:
BANK OF AMERICA, N.A.,
as Agent

By: /s/ Brenda Schriner
Name: Brenda Schriner
Title: Vice President



ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT



BANK OF AMERICA, N.A.,
as a Lender, L/C Issuer and Swing Line Lender


By: /s/ Sarah E. Young
Name: Sarah E. Young
Title: Vice President


ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT




FIRST HAWAIIAN BANK,
as L/C Issuer and a Lender

By: /s/ Jon T. Fukagawa
Name: Jon T. Fukagawa
Title: Vice President




ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT




WELLS FARGO BANK, N.A.,
as a Lender

By: /s/ Guy Churchill
Name: Guy Churchill
Title: Senior Vice President



ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT




AMERICAN AGCREDIT, PCA,
as a Lender

By: /s/ Janice T. Thede
Name: Janice T. Thede
Title: Vice President


ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT




BANK OF HAWAII,
as a Lender

By: /s/ Darrell McCorquodale
Name: Darrell McCorquodale
Title: Vice President



ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT




AMERICAN SAVINGS BANK, F.S.B.,
as a Lender

By: /s/ Edward Chin
Name: Edward Chin
Title: Vice President



ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT




CENTRAL PACIFIC BANK,
as a Lender

By: /s/ Fernando Lopez
Name: Fernando Lopez
Title: Vice President



ALEXANDER & BALDWIN, LLC
FIRST AMENDMENT TO CREDIT AGREEMENT




ANNEX I

Schedule 2.01

COMMITMENTS AND APPLICABLE PERCENTAGES

[see attached]


CHAR1\1338557v10



ANNEX II

Exhibit C

FORM OF NOTE

[see attached]


CHAR1\1338557v10
EX-31.1 3 a2015q110qexhibit311.htm EXHIBIT 31.1 2015 Q1 10Q Exhibit 31.1


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, Chairman and
 
 
Chief Executive Officer
Date:
May 8, 2015
 


EX-31.2 4 a2015q110qexhibit312.htm EXHIBIT 31.2 2015 Q1 10Q Exhibit 31.2


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 8, 2015
 


EX-32 5 a2015q110qexhibit32.htm EXHIBIT 32 2015 Q1 10Q Exhibit 32


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, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Stanley M. Kuriyama, as Chairman 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:
Chairman and Chief Executive Officer
Date:
May 8, 2015

/s/ Paul K. Ito
Name:
Paul K. Ito
Title:
Senior Vice President, Chief Financial Officer, Controller and Treasurer
Date:
May 8, 2015


EX-95 6 a2015q110qexhibit95.htm EXHIBIT 95 2015 Q1 10Q Exhibit 95

Exhibit 95
MINE SAFETY DISCLOSURE
The operation of Grace Pacific LLC’s Makakilo Quarry (the “Quarry”) is subject to regulation by the federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects the Quarry on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Whenever MSHA issues a citation or order, it also generally proposes a civil penalty, or fine, related to the alleged violation. Citations or orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Company is required to present information regarding certain mining safety and health citations which MSHA has issued with respect to its mining operation in its periodic reports filed with the Securities and Exchange Commission (the “SEC”). We have provided information below in response to the rules and regulations of the SEC issued under Section 1503(a) of the Dodd-Frank Act.
The Dodd-Frank Act and the subsequent implementing regulation issued by the SEC require disclosure of the following categories of violations, orders and citations: (1) Section 104 S&S Citations, which are citations issued for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard; (2) Section 104(b) Orders, which are orders issued upon a follow up inspection where the inspector finds the violation previously cited has not been totally abated in the prescribed time period; (3) Section 104(d) Citations and Orders, which are issued upon violations of mandatory health or safety standards caused by an unwarrantable failure of the operator to comply with the standards; (4) Section 110(b)(2) Violations, which result from the reckless and repeated failure to eliminate a known violation; (5) Section 107(a) Orders, which are given when MSHA determines that an imminent danger exists and results in an order of immediate withdrawal from the area of the mine affected by the condition; and (6) written notices from MSHA of a pattern of violations—or the potential to have such pattern—of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under Section 104(e). In addition, the Dodd-Frank Act requires the disclosure of the total dollar value of proposed assessments from MSHA under the Mine Act and the total number of mining related fatalities. This information for the Quarry for the quarter ended March 31, 2015 is as follows:




Total Number of S&S Citations
4
Mine Act § 104(b) Orders
0
Mine Act § 104(d) Citations and Orders
0
Mine Act § 110(b)(2) Violations
0
Mine Act § 107(a) Orders
0
Total Dollar Value of Proposed MSHA Assessments
$3,762.00*
Total Number of Mining Related Fatalities
0
Received Written Notice of Pattern of Violation under Mine Act §104(e) (yes/no)
No
Received Written Notice of Potential to Have Pattern under Mine Act §104(e) (yes/no)
No
*On January 7-12, 2015, the Quarry underwent an MSHA inspection and four (4) citations were issued. Grace Pacific LLC paid the $3,762.00 assessment related to the four (4) citations on March 18, 2015.
As of March 31, 2015, there were no pending legal actions before the Federal Mine Safety and Health Review Commission involving the Quarry. No legal actions were instituted during the quarter ending March 31, 2015 and no legal actions were resolved during the quarter ending March 31, 2015.

EX-101.INS 7 alex-20150331.xml XBRL INSTANCE DOCUMENT 0001545654 2015-01-01 2015-03-31 0001545654 2015-03-31 0001545654 2014-01-01 2014-03-31 0001545654 2014-12-31 0001545654 2013-12-31 0001545654 2014-03-31 0001545654 us-gaap:NoncontrollingInterestMember 2015-01-01 2015-03-31 0001545654 us-gaap:NoncontrollingInterestMember 2014-01-01 2014-03-31 0001545654 us-gaap:NoncontrollingInterestMember 2014-03-31 0001545654 us-gaap:ParentMember 2015-01-01 2015-03-31 0001545654 us-gaap:ParentMember 2014-01-01 2014-03-31