Business Context and Reporting Period
This summary covers the Form 10-K for Alexander & Baldwin, Inc. (A&B), a multi-industry corporation headquartered in Honolulu, Hawaii. The reporting period is the fiscal year ended December 31, 2009. A&B operates through three primary industries: Transportation (via subsidiary Matson Navigation Company, Inc.), Real Estate (development, leasing, and sales), and Agribusiness (sugar and coffee production). The company is a large accelerated filer with common stock listed on the NYSE under the symbol "ALEX."
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenue | $1,404.8 million | $1,879.8 million |
| Net Income | $44.2 million | $132.4 million |
| Income from Continuing Operations | $11.9 million | $89.3 million |
| Income from Discontinued Operations | $32.3 million | $43.1 million |
| Operating Profit | $67.2 million | $185.5 million |
| Total Assets | $2,379.6 million | $2,350.2 million |
| Long-Term Debt | $406 million | $452 million |
| Cash Flow from Operating Activities | $115 million | $275 million |
| Diluted EPS (Net Income) | $1.08 | $3.19 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 25% to $1.405 billion, driven primarily by a 93% drop in real estate sales revenue (due to the lack of large condominium sales compared to 2008) and a 13% decline in ocean transportation revenue (lower volumes and fuel surcharges).
- Profitability Compression: Net income fell 67% to $44.2 million. Income from continuing operations dropped significantly to $11.9 million, heavily impacted by a $24 million year-over-year increase in non-cash pension expense and operating losses in the Agribusiness segment.
- Segment Performance:
- Transportation: Ocean transportation operating profit fell 45% to $58.3 million due to lower Hawaii volumes and China yields. Logistics services operating profit dropped 64% to $6.7 million.
- Real Estate: Leasing revenue remained relatively stable, but sales revenue plummeted. Operating profit from sales was $39.1 million compared to $95.6 million in 2008.
- Agribusiness: The segment reported an operating loss of $27.8 million (vs. a $12.9 million loss in 2008), attributed to reduced power sales revenue (due to regulatory changes and lower fossil fuel costs) and lower sugar production caused by drought.
- Discontinued Operations: The company reclassified significant real estate assets as discontinued operations, contributing $32.3 million to net income in 2009.
Guidance, Outlook, and Risks
- Outlook: Management expects Hawaii's economy to stabilize in 2010 but does not anticipate appreciable growth. Real estate residential sales are expected to remain suppressed. Agribusiness losses are expected to moderate due to improved sugar pricing and production forecasts.
- Capital Allocation: The company plans to continue its "Project X" real estate growth initiative and reinvest proceeds from property sales via 1031 tax-deferred exchanges. A total capital budget of approximately $335 million is projected for 2010.
- Key Risks:
- Water Rights: Critical legal proceedings regarding water diversion rights in East Maui could materially impact sugar operations if resolved adversely.
- Regulatory Changes: A 2008 Public Utilities Commission ruling reduced power revenue rates for the Agribusiness segment. The company is pursuing modifications to this mechanism.
- Market Conditions: Continued weakness in the U.S. and Hawaii economies, overcapacity in global shipping, and volatility in sugar and coffee prices pose ongoing risks.
- Legal Proceedings: The company is cooperating with a Department of Justice investigation into pricing practices in domestic trades and faces potential antitrust litigation.
- Management Changes: W. Allen Doane retired as CEO effective January 1, 2010, succeeded by Stanley M. Kuriyama. Walter A. Dods, Jr. became Chairman of the Board.
Investor Verification Checklist
- Water Rights Litigation: Verify the status of the State Commission on Water Resource Management hearings regarding East Maui stream water, which is critical for the viability of the sugar plantation.
- Power Revenue Rates: Monitor the outcome of efforts to modify the Hawaii Public Utilities Commission's avoided cost formula for power sales, which significantly impacted 2009 Agribusiness results.
- Real Estate Inventory: Assess the valuation and liquidity of the real estate portfolio, particularly residential developments in Hawaii where sales activity has slowed significantly.
- Pension Obligations: Review the funded status of defined benefit plans and the impact of non-cash pension costs on future earnings, given the $24 million increase in 2009.
- Debt Covenants: Confirm continued compliance with financial covenants (minimum equity, debt-to-EBITDA ratios) given the downgrade of the credit rating to BBB+ with a negative outlook in June 2009.