Business Context and Reporting Period
This Form 10-Q covers Alexander & Baldwin, Inc. (Note: The input metadata referenced "Matson, Inc.", but the filing text explicitly identifies the registrant as Alexander & Baldwin, Inc., which owns Matson as a subsidiary). The report covers the quarterly period ended September 30, 2002, and the nine months ended on that date. The company operates primarily in ocean transportation (Matson), property development and management, and food products (sugar and coffee).
Key Financial Metrics
| Metric | Q3 2002 | Q3 2001 | 9M 2002 | 9M 2001 |
|---|---|---|---|---|
| Total Revenue | $293.7M | $261.7M | $803.8M | $826.7M |
| Net Income | $17.8M | $17.3M | $40.8M | $64.3M |
| Diluted EPS | $0.43 | $0.42 | $0.99 | $1.58 |
| Operating Cash Flow (9M) | $43.2M (2002) vs $106.6M (2001) | |||
| Long-Term Debt | $251.4M (Sep 30, 2002) vs $207.4M (Dec 31, 2001) | |||
| Cash & Equivalents | $9.0M (Sep 30, 2002) vs $19.3M (Dec 31, 2001) | |||
| Working Capital | $101.3M (Sep 30, 2002) |
Material Changes vs. Prior Period
- Revenue: Q3 revenue increased 12% year-over-year, driven by a 13% rise in Ocean Transportation revenue due to increased intermodal services. However, 9M revenue declined 3% compared to 2001.
- Profitability: While Q3 Net Income was flat ($17.8M vs $17.3M), 9M Net Income dropped significantly to $40.8M from $64.3M. The 2001 period included a $9.4M gain from the sale of an investment in Pacific Century Financial Corporation; excluding this, 9M 2002 income decreased by $14.0M.
- Segment Performance:
- Ocean Transportation: Operating profit fell 24% in Q3 and 41% in 9M. Causes include higher fuel costs, West Coast port disruptions (lockout), higher cargo handling costs, and increased pension expenses.
- Property Leasing: Operating profit declined slightly due to lower occupancy rates (92% Mainland, 90% Hawaii) caused by tenant bankruptcies and vacancies.
- Food Products: Operating profit more than doubled in Q3 due to higher raw sugar prices and production volumes.
- Discontinued Operations: Significant gains were recorded from property sales classified as discontinued operations ($7.7M for 9M 2002).
Outlook, Risks, and Management Commentary
- West Coast Port Disruption: A labor dispute (lockout) at West Coast ports began in late September 2002. While the Q3 impact was limited to $1.1M, management warns the impact on Q4 and 2003 could be material, affecting vessel schedules and cargo volumes.
- Labor Negotiations: Ongoing negotiations with the ILWU on the West Coast and in Hawaii remain a key risk factor for future costs and operations.
- Capital Expenditures: The company agreed to purchase two new container ships (approx. $110M each) for delivery in 2003 and 2004, funded by the Capital Construction Fund (CCF).
- Guidance: Management explicitly states that 2002 earnings guidance cannot be forecasted reasonably due to operating uncertainties regarding labor disputes and real estate sales timing.
- Tax Contingency: The State of Hawaii claims a portion of ocean transportation revenue is subject to Public Service Company tax. The company disputes this but notes the claim could be material if the state prevails.
Investor Verification Checklist
- Port Lockout Impact: Verify the extent of Q4 revenue loss and cost increases resulting from the West Coast port lockout and subsequent backlog clearing.
- Real Estate Sales Pipeline: Confirm the timing and valuation of pending property sales, particularly the three Mainland commercial properties held for sale and the large industrial lease expiring in December 2002.
- Debt Structure: Review the restructuring of external borrowings required to fund the new ship purchases via the Capital Construction Fund.
- Sugar Pricing: Monitor raw sugar prices and weather conditions, as 95% of production is sold under contracts expiring in June 2003.
- Tax Audit Resolution: Track the status of the Hawaii Department of Taxation dispute regarding Public Service Company tax on ocean revenue.