| ALEXANDER & BALDWIN INC Item 1A Risk Factors |
| 16 ITEM 1A RISK FACTORS The business of A&B and its subsidiaries (collectively, the "e Company "e ) faces numerous risks, including those set forth below or those described elsewhere in this Form 10-K or in the Companyapstas filings with the SEC The risks described below are not the only risks that the Company faces, nor are they necessarily listed in order of significance |
| Other risks and uncertainties may also impair its business operations |
| Any of these risks may have a material adverse effect on the Companyapstas business, financial condition, results of operations and cash flows |
| An economic decline or decrease in market demand for the Companyapstas services and products in Hawaii, the US mainland or Asia may adversely affect the Companyapstas operating results and financial condition |
| Adverse economic conditions or a decrease in market demand for the Companyapstas services and products in Hawaii, the US mainland or Asia may negatively impact the Companyapstas results of operations and cash flows |
| A weakening of the economic drivers in Hawaii, which include tourism, military spending, construction starts and employment, or a decrease in market demand may adversely impact the level of freight volumes and real estate activity in Hawaii |
| A decline in the overall economy or market demand in the US mainland may reduce the demand for goods from Hawaii and Asia, travel to Hawaii and domestic transportation of goods, adversely affecting inland and ocean transportation volumes, the sale of Hawaii real estate to Mainland buyers, and the Hawaii real estate markets generally |
| A change in the cost of goods or currency exchange may decrease the freight volume from Asia to the United States |
| The Company may face new or increased competition |
| The Companyapstas transportation segment may face new competition by other established or start-up shipping operators that enter the Companyapstas markets |
| The entry of a new competitor or the addition of ships by existing competition on any of the Companyapstas routes could result in a significant increase in available shipping capacity that could have a material adverse effect on the Companyapstas business |
| The Companyapstas real estate segment operates in highly competitive markets |
| There are numerous other developers, managers and owners of commercial and residential real estate and undeveloped land that compete or may compete with the Company |
| They compete or may compete with the Company for management and leasing revenues, land for development, properties for acquisition and disposition, and for tenants and purchasers for properties |
| Such competition could have an adverse effect on the Companyapstas business |
| The Company is subject to risks associated with entering into a foreign shipping market |
| In February 2006, Matson launched its Hawaii/Guam/China service |
| The Company has not operated in China before and has limited experience with operations outside of the United States |
| The Company is subject to risks associated with entering a foreign shipping market, which include: o challenges caused by language and cultural differences; o challenges in doing business with a foreign government and foreign companies; o difficulties in staffing and managing foreign operations; o legal and regulatory restrictions; o decreases in shipping rates; o competition with established shippers; o difficulties in building relationships with foreign businesses and establishing brand recognition; o currency exchange rate fluctuations; o political and economic instability; and o customary operational risks related to starting a new business |
| If some or any of these risk factors occur, the Companyapstas future operating results may be adversely affected |
| The Companyapstas significant operating agreements and leases could be replaced |
| The significant operating agreements and leases of the Company in its various businesses expire at various points in the future and could be replaced, thereby adversely affecting future revenue generation |
| For example, the Companyapstas food products segment sells substantially all of its bulk raw sugar through the cooperative HS&TC, which has a supply contract with C&H Sugar Company, Inc, ending in December 2008 |
| Replacement of this supply contract on less favorable terms to the Company may adversely affect the Companyapstas sugar business |
| Rising fuel prices may adversely affect the Companyapstas profits |
| Fuel is a significant operating expense for the Companyapstas shipping operations |
| The price and supply of fuel is unpredictable and fluctuates based on events beyond the Companyapstas control |
| Increases in the price of fuel may adversely affect the Companyapstas results of operations |
| Rising fuel prices may also increase the cost of construction materials delivered to Hawaii, thus affecting the Companyapstas development projects, as well as the cost of producing and transporting sugar |
| In addition, rising fuel prices may suppress economic activity generally |
| Increases in interest rates may adversely affect the Companyapstas profits |
| An increase in interest rates could reduce the demand for transportation of goods, real estate, coffee and sugar |
| Such reduction in demand could adversely affect the Companyapstas profitability |
| An increase in interest rates may also increase the cost of financing to the Company |
| See also discussion regarding interest rates in Item 7A below |
| Changes to federal, state or local law may adversely affect the Companyapstas business |
| The Company is subject to federal, state and local laws and regulations, including government rate regulations, land use regulations, government administration of the US sugar program, new environmental regulations relating to air quality initiatives at port locations, and cabotage laws |
| Changes to the laws and regulations governing the Companyapstas business could adversely affect the Companyapstas financial condition |
| For example, if the Jones Act were repealed or substantially amended, the Companyapstas shipping business could be adversely affected |
| The Company is subject to risks associated with real estate construction and development |
| The Companyapstas development projects are subject to risks relating to the Companyapstas ability to complete its projects on time and on budget |
| Factors that may result in a development project exceeding budget or being prevented from completion include: o an inability to secure sufficient financing or insurance on favorable terms; o construction delays or cost overruns, either of which may increase project development costs; o an increase in commodity costs; o the discovery of hazardous or toxic substances, or other environmental problems; o an inability to obtain zoning, occupancy and other required governmental permits and authorizations; o an inability to secure tenants necessary to support the project; o failure to achieve or sustain anticipated occupancy or sales levels; and o an inability to sell the Companyapstas constructed inventory |
| If some or any of these risk factors occur, the Company may not achieve its projected returns on projects under development |
| The unavailability of water for agricultural irrigation and to support real estate development could adversely affect the Company |
| It is crucial for the Companyapstas real estate and food products segments to have access to reliable sources of water for the development of real estate projects and the irrigation of sugar cane and coffee, respectively |
| As further described in "e Legal Proceedings "e below, there are two administrative hearing processes challenging the Companyapstas ability to divert water from streams in Maui |
| If the Company is not permitted to divert stream waters for its use, it would have a significant adverse effect on the Companyapstas sugar operations |
| The Company is involved in joint ventures and is subject to risks associated with joint venture relationships |
| The Company is involved in joint venture relationships, especially in its real estate segment, and may initiate future joint venture projects as part of the Companyapstas overall development strategy |
| A joint venture involves certain risks such as: o the Company may not have voting control over the joint venture; o the venture partner at any time may have economic or business interests that are inconsistent with the Companyapstas; and o the venture partner could experience financial or other difficulties and be unable to fulfill its commitments |
| Interruption or failure of the Companyapstas information technology and communications systems could impair the Companyapstas ability to effectively provide its shipping and logistics services, which could damage the Companyapstas reputation and harm its operating results |
| The Company, especially its transportation segment, is highly dependent on information technology systems |
| These dependencies primarily include accounting, billing, disbursement, cargo booking, vessel scheduling and stowage, customer service, banking, payroll and employee communication systems |
| All of these systems are subject to reliability issues, integration and compatibility concerns, and security-threatening intrusions |
| The Company may experience brief or extended failures caused by the occurrence of a natural disaster, or other unanticipated problems at the Companyapstas facilities |
| Any failure of the Companyapstas systems could result in interruptions in its service, reducing its revenue and profits and damaging its reputation |
| A decline in raw sugar prices will adversely affect the Companyapstas business |
| The business and results of operations of the Companyapstas food products segment are substantially affected by market factors, principally the domestic and international prices for raw cane sugar |
| These market factors are influenced by a variety of forces, including prices of competing crops, weather conditions, and United States farm and trade policies |
| If the price for raw cane sugar were to drop, the Companyapstas food products segment may be adversely affected |
| See also discussion under "e Business and Properties - Food Products - Competition and Sugar Legislation "e above |
| The Company is subject to risks associated with raw sugar and coffee production |
| The Companyapstas raw sugar and coffee production are subject to risks, which include: o weather; o disease; o water availability (see risk factor above regarding unavailability of water); and o equipment failures in factory or power plant |
| If some or any of these risk factors occur, the Companyapstas food products segment may be adversely affected |
| Work stoppages or other labor disruptions by the Companyapstas unionized employees may adversely affect the Companyapstas operations |
| As of December 31, 2005, the Company had approximately 2cmam177 regular full-time employees, of which approximately 48 percent were covered by collective bargaining agreements with unions |
| The Companyapstas transportation and food products segments may be adversely affected by employee action against efforts by its management or the management of other companies in its industry to control labor costs, restrain wage increases or modify work practices |
| In addition, in the future, the Company may not be able to negotiate, on terms and conditions favorable to it, renewals of its collective bargaining agreements with unions in its industry and strikes and disruptions may occur as a result of its failure or the failure of other companies in its industry to negotiate collective bargaining agreements with such unions successfully |
| The loss of or damage to key vendor and customer relationships may adversely affect the Companyapstas business |
| The Companyapstas business is dependent on its relationships with key vendors and customers |
| The ocean transportation business relies on its relationships with freight forwarders, and large retailers and consumer goods and automobile manufacturers, as well as other larger customers |
| Relationships with railroads and shipping companies are important in the Companyapstas intermodal business |
| For the food products segment, its relationship with C&H Sugar Company affects the Companyapstas sale of raw sugar |
| The loss of or damage to any of these key relationships may affect the Companyapstas business adversely |
| Earnings on pension assets, or a change in pension law and on key assumptions, may adversely affect the Companyapstas financial performance |
| The amount of the Companyapstas employee retirement benefit costs and obligations are calculated on assumptions used in the relevant actuarial calculations |
| Adverse changes in any of these assumptions due to economic or other factors, or lower returns on plan assets, may adversely affect the Companyapstas results and financial condition |
| In addition, a change in federal law, including changes to the Employee Retirement Income Security Act and Pension Benefit Guaranty Corporation premiums, may adversely affect the Companyapstas single-employer and multiemployer pension plans and plan funding |
| The Company is subject to, and may in the future be subject to, disputes, or legal or other proceedings, that could have a material adverse effect on the Company |
| The nature of the Companyapstas business exposes it to the potential for disputes, or legal or other proceedings, from time to time relating to labor and employment matters, personal injury and property damage, environmental matters, construction litigation, and other matters, as discussed in the other risk factors disclosed in this section or in other Company filings with the SEC In addition, Matson is a common carrier, whose tariffs, rates, rules and practices in dealing with its customers are governed by extensive and complex foreign, federal, state and local regulations, which may be the subject of disputes or administrative and/or judicial proceedings from time to time |
| These disputes, individually or collectively, could harm the Companyapstas business by distracting its management from the operation of its business |
| If these disputes develop into proceedings, these proceedings, individually or collectively, could involve significant expenditures by the Company, or result in significant changes to Matsonapstas tariffs, rates, rules and practices in dealing with its customers, all of which could have a material adverse effect on the Companyapstas future revenue and profitability |
| For a description of significant legal proceedings involving the Company, see "e Legal Proceedings "e below |
| The Company is susceptible to weather and natural disasters |
| The Companyapstas transportation operations are vulnerable to disruption as a result of weather and natural disasters such as bad weather at sea, hurricanes, typhoons, tsunamis and earthquakes |
| Such events will interfere with the Companyapstas ability to provide on-time scheduled service, resulting in increased expenses and potential loss of business associated with such events |
| In addition, severe weather and natural disasters can result in interference with the Companyapstas terminal operations, and may cause serious damage to its vessels, loss or damage to containers, cargo and other equipment, and loss of life or physical injury to its employees |
| For the real estate segment, the occurrence of natural disasters, such as hurricanes, tsunamis, floods, fires and unusually heavy or prolonged rain, could have a material adverse effect on its ability to develop and sell properties or realize income from its projects |
| The occurrence of natural disasters could also cause increases in property insurance rates and deductibles, which could reduce demand for, or increase the cost of owning or developing, the Companyapstas properties |
| For the food products segment, drought, greater than normal rainfall, hurricanes or agricultural pestilence may have an adverse effect on the sugar and coffee planting, harvesting and production |
| Weather and natural disasters could trigger an economic downturn, which may lead to lower demand for shipping or real estate |
| War, terrorist attacks and other acts of violence may adversely impact the Companyapstas operations and profitability |
| War, terrorist attacks and other acts of violence may cause consumer confidence and spending to decrease, or may affect the ability of tourists to get to Hawaii, thereby adversely affecting the Company |
| Additionally, future terrorist attacks could increase the volatility in the US and worldwide financial markets |
| Acts of war or terrorism may be directed at the Companyapstas shipping operations, or may cause the US government to take control of Matsonapstas vessels for military operation |
| Any of these occurrences could have a significant adverse impact on the Companyapstas revenues, costs and operating results |
| Loss of the Companyapstas key personnel could adversely affect its business |
| The Companyapstas future success will depend, in significant part, upon the continued services of its key personnel, including its senior management |
| The loss of the services of key personnel could adversely affect its future operating results because of such employeeapstas experience and knowledge of its business and customer relationships |
| If key employees depart, the Company may have to incur significant costs to replace them and its ability to execute its business model could be impaired if it cannot replace them in a timely manner |
| The Company does not expect to maintain key person insurance on any of its key personnel |
| If the Company is not in compliance with relevant laws and regulations, such as continuing to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, it could have an adverse effect on the Companyapstas financial results or the market price of the Companyapstas stock |
| The Company will continue its ongoing process of addressing all compliance matters |
| If the Company is not in compliance for any reason with all relevant laws and regulations, such as maintaining effective internal controls over financial reporting, the Companyapstas financial results or the market price of the Companyapstas stock could be adversely affected, and the Company may be subject to penalties and sanctions |