Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Alexander & Baldwin, Inc. for the period ended March 31, 2002. The company operates primarily in ocean transportation, property development and management, and food products. The results are significantly impacted by the adoption of SFAS No. 144, which reclassified certain property sales as discontinued operations, and by post-September 11, 2001 economic conditions affecting Hawaii tourism and cargo volumes.
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Total Revenue | $233,953,000 | $274,967,000 |
| Net Income | $9,807,000 | $22,434,000 |
| Income from Continuing Operations | $5,517,000 | $22,739,000 |
| Diluted EPS (Net Income) | $0.24 | $0.55 |
| Operating Cash Flow | ($38,281,000) | $36,584,000 |
| Cash and Cash Equivalents | $12,210,000 | $19,291,000 (Dec 31, 2001) |
| Total Debt (Current + Long-term) | $271,817,000 | $227,278,000 (Dec 31, 2001) |
| Working Capital | $53,865,000 | $24,445,000 (Dec 31, 2001) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 15% year-over-year, driven by lower property sales and a 2% drop in ocean transportation revenue.
- Profitability Drop: Net income fell 56% to $9.8 million. Income from continuing operations dropped 76% to $5.5 million.
- Accounting Change (SFAS 144): The company adopted new standards requiring certain property sales to be reported as "Discontinued Operations." This reclassification removed $30.3 million in revenue and $6.9 million in operating profit from continuing operations for Q1 2002. Without this change, the decline in continuing operations would appear less severe.
- Segment Performance:
- Ocean Transportation: Operating profit plummeted 86% to $2.5 million due to lower cargo volumes (post-9/11 impact), competitive losses from terminal disruptions, and reduced auto shipments.
- Property Leasing: Operating profit decreased 6% to $8.2 million due to marginally lower occupancy rates (91% Mainland, 87% Hawaii).
- Food Products: Operating profit dropped 64% to $2.1 million, primarily due to lower raw sugar prices and the absence of a one-time cooperative distribution received in Q1 2001.
- Cash Flow: Operating cash flow swung from a positive $36.6 million in Q1 2001 to a negative $38.3 million in Q1 2002, largely due to the timing of federal income tax payments related to prior bank stock sales.
Guidance, Outlook, and Risks
- Outlook: Management expects quarterly results to improve as the economy progresses. Matson anticipates increased auto shipments as rental car fleets renew and modest margin increases in Q2. A general rate increase of 2.75% and a fuel surcharge increase to 4.75% took effect in April and May 2002, respectively.
- Real Estate: The company is accelerating development of the Kukui'Ula project on Kauai and actively pursuing new acquisitions. Domestic visitor travel to Hawaii has recovered to pre-9/11 levels, benefiting neighbor islands, though Japanese tourism remains weak.
- Risks: Key risks include the impact of September 11 events, economic conditions in Hawaii, competitive pricing pressures, fuel and raw sugar price volatility, and regulatory changes (cabotage laws, sugar programs).
- Contingencies: The company has off-balance sheet commitments including a $31.5 million guarantee for an unconsolidated affiliate and $22.4 million in standby letters of credit.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the extent to which the reported decline in continuing operations is due to the SFAS 144 reclassification versus actual operational deterioration.
- Cash Flow Timing: Confirm that the negative operating cash flow is primarily a one-time timing issue related to tax payments rather than a structural operational deficit.
- Debt Levels: Review the increase in total debt (from ~$227M to ~$272M) and the utilization of variable rate facilities.
- Matson Rate Increases: Monitor the effectiveness of the April/May 2002 rate and fuel surcharge increases in offsetting volume declines.
- Property Sales Pipeline: Assess the pipeline for future tax-deferred real estate exchanges and the status of the Kukui'Ula development project.