MATX

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2002, for Alexander & Baldwin, Inc. (A&B), a diversified holding company with primary operations in ocean transportation (Matson), property development and management, and food products (sugar and coffee). The filing includes unaudited condensed financial statements for the three and six months ended June 30, 2002, compared to the same periods in 2001.

Key Financial Metrics

Note: Q2 2001 results included a one-time gain of $9.4 million from the sale of an investment in Pacific Century Financial Corporation.

Material Changes vs. Prior Period

• Net Income Decline: Net income for the first half of 2002 decreased 51% compared to the first half of 2001. Excluding the one-time gain in 2001, the decline was 39%.
• Ocean Transportation: Revenue increased 4% year-over-year for the first half, driven by higher cargo volume and new intermodal business. However, operating profit dropped 52% due to productivity issues at the Sand Island terminal, asset write-offs ($1.2 million for obsolete cranes), and lower margins on slot-charter agreements.
• Property Development: Leasing operating profit declined 9% for the first half due to lower occupancy rates (91% Mainland, 87% Hawaii) compared to the prior year. Sales revenue and profit were lower due to fewer property transactions in 2002.
• Food Products: Operating profit fell significantly (57% for the first half) primarily due to lower domestic raw sugar prices and reduced production caused by wet harvesting conditions on Maui, partially offset by reduced losses from the C&H Sugar Company investment.
• Discontinued Operations: The first half of 2002 included $5.166 million in after-tax gains from property sales classified as discontinued operations, compared to $603,000 in the prior year.

Outlook, Risks, and Management Commentary

• Capital Expenditures: Matson agreed to purchase two new container ships for approximately $110 million each, with deliveries expected in mid-2003 and 2004. Funding will come from the Capital Construction Fund and external borrowings.
• Labor Relations: Negotiations for the Pacific Coast Longshore Contract and the Hawaii labor agreement were ongoing as of July 2002. No work stoppages were reported at the time of filing.
• Tax Contingency: The State of Hawaii Department of Taxation claims a portion of ocean transportation revenue is subject to Public Service Company tax. Management disputes this, but acknowledges the claim could be material if the State prevails.
• Guarantees: The company holds off-balance-sheet commitments including a $31.5 million guarantee for Sea Star Line debt and a $15 million guarantee for the Hawaiian Sugar & Transportation Cooperative.
• Economic Outlook: Management noted that the outlook for Hawaii's economy became less positive following the mid-July 2002 U.S. equity market decline, which could impact visitor traffic and real estate demand.
• Management Changes: Effective July 1, 2002, W. Allen Doane was appointed Chairman of Matson, and James S. Andrasick was appointed interim President and CEO of Matson.

Investor Verification Checklist

• One-Time Gains: Verify the impact of the $9.4 million Pacific Century gain in 2001 on year-over-year comparisons.
• Terminal Productivity: Assess the resolution of productivity issues at the Sand Island terminal and the impact of the new crane investments.
• Discontinued Operations: Review the classification of property sales under SFAS No. 144 to understand the separation of recurring vs. non-recurring income.
• Tax Dispute: Monitor the status of the Hawaii Public Service Company tax claim and potential liability.
• Labor Contracts: Track the outcome of the Pacific Coast and Hawaii labor negotiations for potential cost impacts.
• Off-Balance Sheet Liabilities: Review the status of the $31.5 million Sea Star guarantee and the $15 million HS&TC guarantee.