ALEXANDER & BALDWIN, INC. Forward-Looking Statements
Statements in this Form 10-K that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and involve a number of risks and uncertainties that could cause actual
results to differ materially from those contemplated by the relevant
forward-looking statements. These forward-looking statements include, but are
not limited to, statements regarding possible or assumed future results of
operations, business strategies, growth opportunities and competitive positions,
as well as the rapidly changing challenges with, and the Company's plans and
responses to, the coronavirus pandemic ("COVID-19") and related economic
disruptions. Such forward-looking statements speak only as of the date the
statements were made and are not guarantees of future performance.
Forward-looking statements are subject to a number of risks, uncertainties,
assumptions and other factors that could cause actual results and the timing of
certain events to differ materially from those expressed in or implied by the
forward-looking statements. These factors include, but are not limited to, those
discussed in Part I, Item 1A of this Form 10-K under the heading "Risk Factors."
The information in this Form 10-K should be evaluated in light of these
important risk factors. The Company does not undertake any obligation to update
any forward-looking statements.
The risk factors discussed in "Risk Factors" could cause our results to differ
materially from those expressed in forward-looking statements. There may be
other risks and uncertainties that we are unable to predict at this time or that
we currently do not expect to have a material adverse effect on our financial
position, results of operations or cash flows. Any such risks could cause our
results to differ materially from those expressed in forward-looking statements.
Introduction and Objective
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") provides additional material information about the Company's
business, recent developments and financial condition; its results of operations
at a consolidated and segment level; its liquidity and capital resources
including an evaluation of the amounts and certainty of cash flows from
operations and from outside sources; and how certain accounting principles,
policies and estimates affect its financial statements. MD&A is organized as
follows:
•Business Overview: This section provides a general description of the Company's
business, as well as recent developments that management believes are important
in understanding its results of operations and financial condition or in
understanding anticipated future trends.
•Consolidated Results of Operations: This section provides an analysis of the Company's consolidated results of operations.
•Analysis of Operating Revenue and Profit by Segment: This section provides an analysis of the Company's results of operations by business segment.
•Liquidity and Capital Resources: This section provides a discussion of the Company's liquidity, financial condition and an analysis of its cash flows, including a discussion of the Company's ability to fund its future commitments and ongoing operating activities in the short-term (i.e., over the next twelve months from the most recent fiscal period end) and in the long-term (i.e., beyond the next twelve months) through internal and external sources of capital. It includes an evaluation of the amounts and certainty of cash flows from operations and from outside sources. •Critical Accounting Estimates: This section identifies and summarizes the significant judgments or estimates on the part of management in preparing the Company's consolidated financial statements that may materially impact the Company's reported results of operations and financial condition. This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Amounts in the MD&A section are rounded to the nearest tenth of a million. Accordingly, a recalculation of totals and percentages, if based on the reported data, may be slightly different.
31
--------------------------------------------------------------------------------Business Overview
Reportable segments
The Company operates three segments:Commercial Real Estate ; Land Operations; and Materials & Construction. A description of each of the Company's reporting segments is as follows: •Commercial Real Estate ("CRE") - This segment functions as a vertically integrated commercial real estate company with core competencies in investments and acquisitions (i.e., identifying opportunities and acquiring properties); construction and development (i.e., designing and ground-up development of new properties or repositioning and redevelopment of existing properties); and in-house leasing and property management (i.e., executing new and renegotiating renewal lease arrangements, managing its properties' day-to-day operations and maintaining positive tenant relationships). The Company's preferred asset classes include improved retail and industrial properties and urban ground leases. Its focus within improved retail properties, in particular, is on grocery-anchored neighborhood shopping centers that meet the daily needs of Hawai'i communities. Through its core competencies and with its experience and relationships in Hawai'i, the Company seeks to create special places that enhance the lives of Hawai'i residents and to provide venues and opportunities that enable its tenants to thrive. Income from this segment is principally generated by owning, operating and leasing real estate assets. •Land Operations - This segment includes the Company's legacy assets and landholdings that are subject to the Company's simplification and monetization effort. Financial results from this segment are principally derived from real estate development and land sales, income/loss from real estate joint ventures, hydroelectric energy and other legacy business activities. •Materials & Construction ("M&C") - This segment operates one of Hawai'i's largest asphalt paving contractors and is one of the state's largest natural materials and infrastructure construction companies, primarily conducting business through its wholly-owned subsidiary,Grace Pacific LLC ("Grace Pacific"), a materials and construction company in Hawai'i. The M&C segment also includes the Company-owned quarry land onMaui , as well as the Company's unconsolidated joint venture interest in materials companies.
Simplification strategy
As a result of its conversion to a REIT and consequent de-emphasis of non-REIT operating businesses, the Company has pursued the simplification of its business, which includes ongoing efforts to accelerate the monetization of its non-commercial real estate assets, including its Materials & Construction businesses. During the second quarter of 2020, the Company sold its interest inGP/RM Prestress, LLC ("GPRM"), which was a consolidated joint venture of Grace Pacific and is a provider of precast/prestressed concrete products and services. In connection with this sale and disposal, the Company recognized a write-down of$5.6 million (based on fair value less cost to sell) related to GPRM which was included in Impairment of assets in the consolidated statements of operations in the year endedDecember 31, 2020 . The Company is evaluating strategic alternatives in order to monetize and dispose of the remaining Materials & Construction businesses, either together as a group or individually. However, the outcome, including the timing, of the strategic exploration process is not certain, as any potential transaction related to the Materials & Construction businesses would be dependent upon a number of external factors that may be beyond the Company's control, including, among other factors, market conditions, industry trends, interest of third parties, and the availability of financing to potential buyer(s) on reasonable terms. There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms. Accordingly, there can be no assurance that any of the options evaluated will be pursued or completed. Further, there can be no assurance that the outcome of the evaluation of strategic alternatives or any potential transaction or transactions will result in the Company being able to recover the carrying value of the Materials & Construction businesses or related disposal group. Related to the Land Operations segment, the Company completed real estate sales involving approximately 1,800 acres of land holdings onMaui andKauai for$41.3 million , and also closed on the sale of nine Maui Business Park II lots for$16.0 million during the year endedDecember 31, 2021 . In addition, inNovember 2021 , the Company capitalized on the historically high demand for Hawai'i real estate when its joint venture projects Kukui`ulaDevelopment Company (Hawaii) LLC , Kukui`ulaWeb IP LLC , andLodge IP LLC (collectively, "KDCH") completed the sale of substantially all of their assets to a third party for$183.5 million . The Company received cash distributions of$113.4 million and recognized joint venture income of$5.5 million related to the transaction. The carrying value of the Company's investment in KDCH is zero as ofDecember 31, 2021 . This substantially completed the Company's goal to monetize its unconsolidated equity method investments in joint venture 32 --------------------------------------------------------------------------------
development projects at Kukui'ula.
Termination of certain employee benefit plans
OnFebruary 23, 2021 , the Company's Board of Directors approved a plan to effect the termination of the A&B Retirement Plan for Salaried Employees ofAlexander & Baldwin, LLC and the Pension Plan for Employees of A&B Agricultural Companies (collectively, the "Defined Benefit Plans"), which became effective onMay 31, 2021 . As a result, the Company has proceeded with the following steps in connection with the termination of the tax-qualified Defined Benefit Plans:
•In
•The Company filed the Application for Determination Upon Termination with the
Internal Revenue Service ("IRS") in April 2021 , and the Company received a
favorable determination notice for federal tax purposes from the IRS in July
2021 ;
•The Company is preparing the appropriate notices and documents to file related
to the termination of the Defined Benefit Plans and wind-down with the Pension
Benefit Guaranty Corporation (the "PBGC"), the U.S. Department of Labor , the
trustee and any other appropriate parties.
Except for retirees currently receiving payments under the Defined Benefit
Plans, participants will have the choice of receiving a single lump sum payment
or an annuity from a highly-rated insurance company that will pay and administer
future benefit payments. The amount of any lump sum payment will equal the
actuarial-equivalent present value of the participant's accrued benefit under
the applicable pension plan as of the distribution date. Annuity payments to
current retirees will continue under their current elections, but will be
administered by the selected insurance company.
The Company will recognize a gain/loss upon settlement of the Defined Benefit
Plans when the following three criteria have been met: (1) an irrevocable action
to terminate the Defined Benefit Plans have occurred, (2) the Company is
relieved of the primary responsibility of the Defined Benefit Plans, and (3) the
significant risks related to the obligations of the Defined Benefit Plans and
the assets used to effect the settlement is eliminated for the Company.
The Company expects to make cash contributions in 2022 in order to fully fund
the Defined Benefit Plans on a plan termination basis, and the Defined Benefit
Plans will be settled upon completion of lump sum distributions and purchase of
annuity contracts. These additional cash contributions are expected to range
between $34 million and $48 million . However, the actual amount of this cash
contribution requirement will depend upon the nature and timing of participant
settlements, interest rates, as well as prevailing market conditions. In
addition, the Company expects to recognize pre-tax non-cash pension settlement
charges in the range of $80 million to $95 million , related to actuarial losses
currently in Accumulated other comprehensive income (loss) in the consolidated
balance sheets, upon settlement of the obligations of the Defined Benefit Plans.
These charges are currently expected to occur in 2022, with the specific timing
and final amounts dependent upon completion of the activities enumerated above.
Coronavirus disease
COVID-19 has adversely impacted the global economy and contributed to significant volatility in financial markets and uncertainty still remains. During 2020, the pandemic resulted in severe, government-imposed restrictions on business activities and travel to/from Hawai'i that significantly disrupted the local economy, including the Company's tenants and the Company's business. During 2021,Hawaii's government-imposed restrictions moderated, resulting in increased, domestic tourism and enabling an economic recovery. However, economic uncertainty and volatility resulting from the pandemic continued to persist throughout 2021, including depressed international tourism, global supply chain disruptions, labor shortages and turnover, and more recently, rising inflation. The ultimate extent of the impact that the COVID-19 pandemic will have on the Company's business, financial condition, results of operations and liquidity and capital resources may continue to be impacted by unpredictable future developments. As a result of financial hardships from the COVID-19 pandemic, certain tenants sought rent relief from the Company, which has been provided in the form of rent deferrals (varying in terms of applicable months covered and the repayment period) or other relief modifications, including modifying the nature of rent payments from fixed to variable (i.e., variable based on a percentage of the tenant's sales, typically subject to a minimum "floor" amount) or, in some cases, payment forgiveness. 33 -------------------------------------------------------------------------------- Additionally, during the year endedDecember 31, 2021 , the Company estimated a higher amount of uncollectable tenant billings due to COVID-19, pursuant to which the reductions or increases in revenue the Company recorded as a result of such assessments were as follows (in millions): 2021
2020
Other relief modifications and other adjustments1$ 7.5
Tenant collectability assessments and allowance for doubtful accounts Impact to billed accounts receivable
(1.3) 10.6
Impact to straight-line lease receivables 0.1 4.8
Total revenue reductions (increases) - tenant collectability (1.2) 15.4 assessments Provision for allowance for doubtful accounts
(1.7) 3.6 Total revenue reductions (increases) for assessments and provisions (2.9) 19.0
Total revenue reductions (increases) related to adjustments,
$ 25.4 assessments and provisions Total revenue reductions (increases) impacting billed accounts$ 4.5 $ 20.6 receivable only2 1 Primarily related to COVID-19, but may include other adjustments (e.g., adjustments due to tenant bankruptcies). 2 Excludes the impact to unbilled straight-line receivables. The Company's financial results for the year endedDecember 31, 2020 , were significantly impacted by COVID-19 resulting in fluctuations in operating profit and its non-GAAP performance measures. As such, the comparability of the Company's results of operations for the year endedDecember 31, 2020 to past and future periods may be significantly impacted by the effects of COVID-19. 34 --------------------------------------------------------------------------------
Consolidated Results of Operations
The following analysis of the consolidated financial condition and results of
operations of the Company and its subsidiaries should be read in conjunction
with the consolidated financial statements and related notes thereto.
2021 vs 2020
(amounts in millions, except
percentage data and per share
data) 2021 2020 $ %
Operating revenue $ 379.3 $ 305.3 $ 74.0 24.2 %
Cost of operations (254.1) (233.5) (20.6) (8.8) %
Selling, general and
administrative (51.9) (46.1) (5.8) (12.6) %
Impairment of assets (26.1) (5.6) (20.5) 4X
Gain (loss) on disposal of assets,
net 3.0 9.6 (6.6) (68.8) %
Operating income (loss) 50.2 29.7 20.5 69.0
Income (loss) related to joint
ventures 17.5 5.9 11.6 196.6 %
Impairment of equity method
investment (2.9) - (2.9) - %
Interest and other income
(expense), net (1.6) 0.3 (1.9) NM
Interest expense (26.3) (30.3) 4.0 13.2 %
Income tax benefit (expense) - 0.4 (0.4) (100.0) %
Income (loss) from continuing
operations 36.9 6.0 30.9 5X
Discontinued operations (net of
income taxes) (1.1) (0.8) (0.3) (37.5) %
Net income (loss) 35.8 5.2 30.6 6X
(Income) loss attributable to
noncontrolling interest (0.4) 0.4 (0.8) NM
Net income (loss) attributable to
A&B $ 35.4 $ 5.6 $ 29.8 5X
Basic Earnings (Loss) Per Share of
Common Stock:
Basic earnings (loss) per share -
continuing operations $ 0.50 $ 0.09 $ 0.41 5X
Basic earnings (loss) per share -
discontinued operations (0.02) (0.01) (0.01) (100.0) %
$ 0.48 $ 0.08 $ 0.40 5X
Diluted Earnings (Loss) Per Share
of Common Stock:
Diluted earnings (loss) per share
- continuing operations $ 0.50 $ 0.09 $ 0.41 5X
Diluted earnings (loss) per share
- discontinued operations (0.02) (0.01) (0.01) (100.0) %
$ 0.48 $ 0.08 $ 0.40 5X
Continuing operations available to
A&B common shareholders $ 36.2 $ 6.3 $ 29.9 5X
Discontinued operations available
to A&B common shareholders (1.1) (0.8) (0.3) (37.5) %
Net income (loss) available to A&B
common shareholders $ 35.1 $ 5.5 $ 29.6 5X
Funds From Operations ("FFO")1 $ 70.0 $ 45.1 $ 24.9 55.2 %
Core FFO1 $ 69.4 $ 55.2 $ 14.2 25.7 %
FFO per diluted share $ 0.96 $ 0.62 $ 0.34 54.8 %
Core FFO per diluted share $ 0.96 $ 0.76 $ 0.20 26.3 %
Weighted average diluted shares
outstanding (FFO/Core FFO)2 72.6 72.4
1 For definitions of capitalized terms and a discussion of management's use of non-GAAP financial measures and the required reconciliations of non-GAAP measures to GAAP measures, refer to page
42 . 2 May differ from figure used in the consolidated statements of operations based on differing dilutive effects for net income (loss) versus FFO/Core FFO. The causes of material changes in the consolidated statements of operations for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 , are described below or in the Analysis of Operating Revenue and Profit by Segment sections below. Operating revenue for 2021 increased 24.2%, or$74.0 million , to$379.3 million due primarily to higher revenues from the Land Operations andCommercial Real Estate segments.
Cost of operations for 2021 increased 8.8%, or
35
--------------------------------------------------------------------------------
Selling, general and administrative costs for 2021 increased 12.6%, or $5.8
million , to $51.9 million primarily due to higher Corporate overhead costs,
partially offset by lower costs incurred in the Land Operations and Commercial
Real Estate segments. Corporate overhead costs increased from the prior period
primarily due to higher performance-based incentive compensation costs and
expenses incurred in 2021 related to the Company's implementation of a new
enterprise resource planning system.
Impairment of assets of $26.1 million during 2021 related to the Company's
Materials & Construction segment. During the fourth quarter of 2021, the Company
recorded impairment charges related to Grace Pacific's paving and roadway
solutions operations as a result of the Company's review and analysis of
strategic alternatives that have resulted in downward revisions of management's
forecasts on future projected earnings and cash flows. During 2020, the Company
recorded impairment of $5.6 million in connection with the disposition of GPRM
in the quarter ended June 30, 2020 .
Gain (loss) on disposal of assets, net of $3.0 million for 2021 was primarily
related to the sale of residual land on Maui that was part of the Company's
Commercial Real Estate segment. The $9.6 million gain on disposal of assets, net
during 2020, was primarily driven by the consummation of the sale of assets
related to the Company's solar power facility in Port Allen on Kauai that was
part of the Company's Land Operations segment.
36
--------------------------------------------------------------------------------Analysis of Operating Revenue and Profit by Segment
The following analysis should be read in conjunction with the consolidated financial statements and related notes thereto.
Financial results
Results of operations for the years endedDecember 31, 2021 and 2020 were as follows: 2021 vs 2020 (amounts in millions, except 2021 2020 $ % percentage data and acres; unaudited) Commercial Real Estate operating$ 173.2 $ 150.0 $ 23.2 15.5 % revenue Commercial Real Estate operating (96.0) (95.6) (0.4) (0.4) % costs and expenses Selling, general and administrative (6.5) (7.5) 1.0 13.3 % Intersegment operating revenue, net1 1.3 2.0 (0.7) (35.0) % Interest and other income (expense), 0.6 0.9 (0.3) (33.3) %
net
Commercial Real Estate operating$ 72.6 $ 49.8 $ 22.8 45.8 % profit (loss) Operating profit (loss) margin 41.9 % 33.2 % Net Operating Income ("NOI")2$ 110.7 $ 94.3
Same-Store Net Operating Income$ 107.8 $ 91.9 $ 15.9 17.3 % ("Same-Store NOI")2 Gross Leasable Area ("GLA") in square 3.9 3.9 - - % feet ("SF") for improved properties at end of period Ground leases (acres at end of 143.4 153.8 (10.4) (6.8) %
period)
1 Intersegment operating revenue, net forCommercial Real Estate is primarily from the Materials & Construction segment and is eliminated in the consolidated results of operations. 2 For a discussion of management's use of non-GAAP financial measures and the required reconciliations of non-GAAP measures to GAAP measures, refer to page 42 .Commercial Real Estate operating revenue increased 15.5% or$23.2 million , to$173.2 million for the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . Operating profit increased 45.8%, or$22.8 million , to$72.6 million for the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . The increase in each ofCommercial Real Estate operating revenue and operating profit for the year endedDecember 31, 2021 largely reflects improved performance due primarily to lower, net bad debt and cash-basis charges as a result of rent collections and recoveries of previously reserved A/R balances. During the year endedDecember 31, 2021 , the Company recorded reductions to revenue of$4.6 million related to collectability assessments of tenant billings, as compared to$25.4 million for the year endedDecember 31, 2020 . TheCommercial Real Estate segment also benefited from the positive impacts to revenue and operating profit of redevelopment/new development projects commencing operations. Operating costs and expenses remained relatively flat, increasing slightly by 0.4% or$0.4 million to$96.0 million for the year endedDecember 31, 2021 .
During the year ended
Acquisitions
Date
Property Location (Month/Year) Purchase Price GLA (SF)
228 Kalihi Street Oahu, HI 10/21 $ 4.4 N/A
Kahai Street Industrial Oahu, HI 10/21 $ 6.4 27,900
37--------------------------------------------------------------------------------
During the year ended
Dispositions
Date
Property Location (Month/Year) Purchase Price GLA (SF)
Residual Maui land Maui, HI 2/21 $ 0.3 N/A
Residual Maui land Maui, HI 11/21 $ 2.7 N/A
Leasing activity
In the year ended December 31, 2021 , the Company signed 95 new leases and 176
renewal leases for its improved properties across its three asset classes,
covering 650,600 square feet of GLA. The 95 new leases consist of 210,300 square
feet with an average annual base rent of $27.24 per-square-foot. Of the 95 new
leases, 29 leases with a total GLA of 73,600 square feet were considered
comparable (i.e., leases executed for units that have been vacated in the
previous 12 months for comparable space and comparable lease terms) and, for
these 29 leases, resulted in a 9.3% average base rent increase over comparable
expiring leases. The 176 renewal leases consist of 440,300 square feet with an
average annual base rent of $27.79 per square foot. Of the 176 renewal leases,
111 leases with a total GLA of 286,400 were considered comparable and resulted
in a 3.7% average base rent increase over comparable expiring leases.
Leasing activity summarized by asset class for the year ended December 31, 2021
was as follows:
Year Ended December 31, 2021
Leases GLA ABR/SF Rent Spread1
Retail 185 310,263 $38.93 5.2%
Industrial 68 304,191 $14.99 4.1%
Office 18 36,141 $36.62 3.0%
1 Rent spread is calculated for comparable leases, a subset of the total population of leases for the period presented (described above).
Occupancy
The Company reports three types of occupancy: "Leased Occupancy," "Physical Occupancy," and "Economic Occupancy."
The Leased Occupancy percentage calculates the square footage leased (i.e., the space has been committed to by a lessee under a signed lease agreement) as a percentage of total available improved property square footage as of the end of the period reported. The Physical Occupancy percentage calculates the square footage leased and commenced (i.e., measured when the lessee has physical access to the space) as a percentage of total available improved property square footage at the end of the period reported. The Economic Occupancy percentage calculates the square footage under leases for which the lessee is contractually obligated to make lease-related payments (i.e., subsequent to the rent commencement date) to total available improved property square footage as of the end of the period reported.
The Company's improved portfolio occupancy metrics as of
As of As of
December 31, 2021 December 31, 2020 Basis Point Change
Leased Occupancy 94.3% 94.3% -
Physical Occupancy 93.8% 93.5% 30
Economic Occupancy 92.2% 92.9% (70)
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Leased Occupancy
As of As of
December 31,
December 31, 2021 2020 Basis Point Change
Retail 93.1% 92.3% 80
Industrial 97.0% 98.6% (160)
Office 91.5% 93.0% (150)
Total Leased
Occupancy 94.3% 94.3% -
Economic Occupancy
As of As of
December 31,
December 31, 2021 2020 Basis Point Change
Retail 89.9% 90.4% (50)
Industrial 97.0% 98.1% (110)
Office 90.0% 90.8% (80)
Total Economic
Occupancy 92.2% 92.9% (70)
Same-Store Leased Occupancy1
As of As of
December 31,
December 31, 2021 2020 Basis Point Change
Retail 93.0% 92.2% 80
Industrial 96.9% 98.6% (170)
Office 91.5% 93.0% (150)
Total Same-Store
Leased Occupancy 94.2% 94.3% (10)
Same-Store Economic Occupancy1
As of As of
December 31,
December 31, 2021 2020 Basis Point Change
Retail 90.0% 90.6% (60)
Industrial 96.9% 98.1% (120)
Office 90.0% 90.8% (80)
Total Same-Store
Economic
Occupancy 92.2% 93.0% (80)
1 For a discussion of management's use of non-GAAP financial measures and the required reconciliations of non-GAAP measures to GAAP measures, refer to page 42 .
Land Operations
Trends, events and uncertainties
The asset class mix of real estate sales in any given period can be diverse and
may include developed residential real estate, developable subdivision lots,
undeveloped land or property sold under threat of condemnation. Further, the
timing of property or parcel sales can significantly affect operating results in
a given period.
Operating profit reported in each period for the Land Operations segment does
not necessarily follow a percentage of sales trend because the cost basis of
property sold can differ significantly between transactions. For example, the
sale of undeveloped land and vacant parcels in Hawai'i may result in higher
margins than the sale of developed property due to the low historical cost basis
of the Company's Hawai'i landholdings.
As a result, direct year-over-year comparison of the Land Operations segment
results may not provide a consistent, measurable indicator of future
performance. Further, Land Operations revenue trends, cash flows from the sales
of real estate,
39
--------------------------------------------------------------------------------and the amount of real estate held for sale on the Company's consolidated balance sheet do not necessarily indicate future profitability trends for this segment.
Financial results
Results of operations for the years ended
(amounts in millions; unaudited) 2021 2020 Development sales revenue$ 16.0 $ 7.9 Unimproved/other property sales revenue 41.3 9.7 Other operating revenue1 22.6 21.1 Total Land Operations operating revenue 79.9 38.7 Land Operations operating costs and expenses2 (39.4) (31.4) Selling, general and administrative (3.8) (4.9) Gain (loss) on disposal of assets, net
0.1 8.9
Earnings (loss) from joint ventures 20.4 4.6 Interest and other income (expense), net (1.8) (0.5) Total Land Operations operating profit (loss) $
55.4
1 Other operating revenue includes revenue related to trucking, renewable energy and diversified agriculture. 2 Includes intersegment operating charges primarily from CRE that are eliminated in the consolidated results of operations. 2021: Land Operations revenue of$79.9 million and operating profit of$55.4 million during the year endedDecember 31, 2021 , was primarily driven by land monetization, including land sales of approximately 1,800 acres on the islands ofMaui andKauai for$41.3 million and nine Maui Business Park II lots for$16.0 million . Additionally, segment operating profit included earnings from joint ventures of$20.4 million , due primarily to the Company's joint venture projects at Kukui'ula. Operating costs and expenses for this segment increased primarily due to cost of sales associated with the landholdings and Maui Business Park II lot sales, but also included costs and expenses related to the segment's other legacy business activities (e.g., trucking service, renewable energy, and diversified agribusiness operations) 2020: Land Operations revenue during the year endedDecember 31, 2020 , was$38.7 million and included the sales of development parcels at Maui Business Park II and unimproved land sales on the islands ofKauai andMaui . Revenue also included other operating revenue related to the Company's legacy business activities in the Land Operations segment (e.g., trucking service, renewable energy, and diversified agribusiness operations). Land Operations operating profit of$15.4 million during the year endedDecember 31, 2020 , was primarily driven by the gain of$8.9 million realized on the sale of the Company's solar power facility in Port Allen during the third quarter and was also composed of the margins on the sales noted above, as well as profits generated from the operations of the segment's other legacy business activities. Other notable items within operating profit during the year endedDecember 31, 2020 , included a charge of$6.7 million related to the estimated costs of probable remediation work for reservoirs onKauai , as well as the impact of a favorable resolution of certain contingent liabilities during the year endedDecember 31, 2020 related to the sale of agricultural land onMaui in 2018. 40 --------------------------------------------------------------------------------
Materials & Construction
Financial results
Results of operations for the years ended
2021 vs 2020
(dollars in millions; unaudited) 2021 2020 $ %
Materials & Construction
Operating revenue $ 126.2 $ 116.6 $ 9.6 8.2 %
Operating costs and expenses (118.9) (106.8) (12.1) (11.3) %
Selling, general and administrative (15.2) (15.0) (0.2) (1.3) %
Intersegment operating charges, net1 (0.9) (1.6) 0.7 43.8 %
Impairment of assets (26.1) (5.6) (20.5) 4X
Impairment of equity method investments (2.9) - (2.9) - %
Gain (loss) on disposal of assets, net 0.1 0.2 (0.1) (50.0) %
Income (loss) related to joint ventures (2.9) 1.3 (4.2) NM
Interest and other income (expense), net 0.1 0.4 (0.3) (75.0) %
Materials & Construction operating profit
(loss) $ (40.5) $ (10.5) $ (30.0) 3X
Operating margin percentage (32.1) % (9.0) %
Depreciation and amortization $ 10.8 $ 10.8 $ - - %
Backlog at period end2 $ 175.3 $ 126.7 $ 48.6 38.4 %
1 Intersegment operating charges, net for Materials & Construction represent
amounts primarily from the Commercial Real Estate segment and are eliminated in
the consolidated results of operations.
2 Backlog represents the total amount of revenue that Grace Pacific, Maui
Paving, LLC and Goodfellow Grace Pacific A J.V. expect to realize on contracts
awarded. Both Maui Paving and Goodfellow Grace Pacific are 50-percent-owned
unconsolidated affiliates. Backlog primarily consists of asphalt paving and, to
a lesser extent, Grace Pacific's consolidated revenue from its construction-and
traffic control-related products and services. Backlog includes estimated
revenue from the remaining portion of contracts not yet completed, as well as
revenue from approved change orders. The length of time that projects remain in
backlog can span from a few days for a small volume of work to 36 months, or
longer, for large paving contracts and contracts performed in phases. This
amount includes opportunity backlog consisting of contracts in which Grace
Pacific has been confirmed to be the lowest bidder at the time of this
disclosure (such amounts were $63.4 million and $64.1 million as of December 31,
2021 and 2020, respectively). Circumstances outside the Company's control such
as procurement or technical protests, and/or changes in the availability of
project funding, among others, may arise that prevent the finalization of such
contracts. Maui Paving's backlog as of December 31, 2021 and 2020 was $10.6
million and $5.8 million , respectively. Goodfellow Grace Pacific's backlog as of
December 31, 2021 and 2020 was $24.2 million and zero, respectively.
Materials & Construction revenue was $126.2 million for the year ended December
31, 2021 , compared to $116.6 million for the year ended December 31, 2020 .
Segment operating loss was $40.5 million for the year ended December 31, 2021 ,
compared to $10.5 million for the year ended December 31, 2020 . The segment
operating loss during the current period was largely driven by goodwill and
other asset impairment charges of $26.1 million , impairment of an equity method
investment of $2.9 million , and a loss related to joint ventures of $2.9
million . The segment recorded goodwill and long-lived asset impairment charges
as a result of the Company's review and analysis of strategic alternatives that
have resulted in downward revisions of management's forecasts on future
projected earnings and cash flows. The segment operating loss of $10.5 million
in the prior period was primarily driven by a write-down of $5.6 million related
to the sale of the Company's interest in GPRM which was completed during the
quarter ended June 30, 2020 .
The remaining operating loss during the years ended December 31, 2021 and 2020
was due primarily to the impact of low paving volumes and lower margins
resulting from to persisting, competitive market pressures. These losses were
partially offset by the operating profit generated by the segment's quarry
operations.
In connection with its simplification efforts, the Company is evaluating
strategic alternatives in order to monetize and dispose of the remaining
Materials & Construction businesses, either together as a group or individually.
However, the outcome, including the timing, of the strategic exploration process
is not certain, as any potential transaction related to the Materials &
Construction businesses would be dependent upon a number of external factors
that may be beyond the Company's control, including, among other factors, market
conditions, industry trends, interest of third parties, and the availability of
financing to potential buyer(s) on reasonable terms. There can be no assurance
that the exploration of strategic alternatives will result in any agreements or
transactions, or that, if completed, any agreements or transactions will be
successful or on attractive terms. Accordingly, there can be no assurance that
any of the options evaluated will be pursued or completed. Further, there can be
no assurance that the outcome of the evaluation of strategic alternatives or any
potential transaction or transactions will result in the Company being able to
recover the carrying value of the Materials & Construction businesses or related
disposal group.
41
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Backlog at
Use of Non-GAAP Financial Measures
The Company uses non-GAAP measures when evaluating operating performance because management believes that they provide additional insight into the Company's and segments' core operating results, and/or the underlying business trends affecting performance on a consistent and comparable basis from period to period. These measures generally are provided to investors as an additional means of evaluating the performance of ongoing core operations. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for or superior to, financial measures calculated in accordance with GAAP. FFO is presented by the Company as a widely used non-GAAP measure of operating performance for real estate companies. FFO is defined by theNational Association of Real Estate Investment Trusts ("Nareit")December 2018 Financial Standards White Paper as follows: net income (calculated in accordance with GAAP), excluding (1) depreciation and amortization related to real estate, (2) gains and losses from the sale of certain real estate assets, (3) gains and losses from change in control and (4) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The Company believes that, subject to the following limitations, FFO provides a supplemental measure to net income (calculated in accordance with GAAP) for comparing its performance and operations to those of other REITs. FFO does not represent an alternative to net income calculated in accordance with GAAP. In addition, FFO does not represent cash generated from operating activities in accordance with GAAP, nor does it represent cash available to pay distributions and should not be considered as an alternative to cash flow from operating activities, determined in accordance with GAAP, as a measure of the Company's liquidity. The Company presents different forms of FFO: •"Core FFO" represents a non-GAAP measure relevant to the operating performance of the Company's commercial real estate business (i.e., its core business). Core FFO is calculated by adjusting CRE operating profit to exclude items noted above (i.e., depreciation and amortization related to real estate included in CRE operating profit) and to make further adjustments to include expenses not included in CRE operating profit but that are necessary to accurately reflect the operating performance of its core business (i.e., corporate expenses and interest expense attributable to this core business) or to exclude items that are non-recurring, infrequent, unusual and unrelated to the core business operating performance (i.e., not likely to recur within two years or has not occurred within the prior two years). The Company believes such adjustments facilitate the comparable measurement of the Company's core operating performance over time. The Company believes that Core FFO, which is a supplemental non-GAAP financial measure, provides an additional and useful means to assess and compare the operating performance of REITs. •FFO represents the Nareit-defined non-GAAP measure for the operating performance of the Company as a whole. The Company's calculation refers to net income (loss) available to A&B common shareholders as its starting point in the calculation of FFO. The Company presents both non-GAAP measures and reconciles each to the most directly-comparable GAAP measure as well as reconciling FFO to Core FFO. The Company's FFO and Core FFO may not be comparable to FFO non-GAAP measures reported by other REITs. These other REITs may not define the term in accordance with the current Nareit definition or may interpret the current Nareit definition differently. NOI is a non-GAAP measure used internally in evaluating the unlevered performance of the Company'sCommercial Real Estate portfolio. The Company believes NOI provides useful information to investors regarding the Company's financial condition and results of operations because it reflects only the contract-based income and cash-based expense items that are incurred at the property level. When compared across periods, NOI can be used to determine trends in earnings of the Company's properties as this measure is not affected by non-contract-based revenue (e.g., straight-line lease adjustments required under GAAP); by non-cash expense recognition items (e.g., the impact of depreciation and amortization expense or impairments); or by other expenses or gains or losses that do not directly relate to the Company's ownership and operations of the properties (e.g., indirect selling, general, administrative and other expenses, as well as lease termination income). The Company believes the exclusion of these items from operating profit (loss) is useful because the resulting measure captures the contract-based revenue that is realizable (i.e., assuming collectability is deemed probable) and the direct property-related expenses paid or payable in cash that are incurred in operating the Company'sCommercial Real Estate portfolio, as well as 42 -------------------------------------------------------------------------------- trends in occupancy rates, rental rates and operating costs. NOI should not be viewed as a substitute for, or superior to, financial measures calculated in accordance with GAAP. NOI represents totalCommercial Real Estate contract-based operating revenue that is realizable (i.e., assuming collectability is deemed probable) less the direct property-related operating expenses paid or payable in cash. The calculation of NOI excludes the impact of depreciation and amortization (e.g., depreciation related to capitalized costs for improved properties, other capital expenditures for building/area improvements and tenant space improvements, as well as amortization of leasing commissions); straight-line lease adjustments (including amortization of lease incentives); amortization of favorable/unfavorable lease assets/liabilities; lease termination income; interest and other income (expense), net; selling, general, administrative and other expenses (not directly associated with the property); and impairment of commercial real estate assets. The Company reports NOI and Occupancy on a Same-Store basis, which includes the results of properties that were owned and operated for the entirety of the prior calendar year and current reporting period, year-to-date. The Same-Store pool excludes properties under development or redevelopment and also excludes properties acquired or sold during either of the comparable reporting periods. While there is management judgment involved in classifications, new developments and redevelopments are moved into the Same-Store pool after one full calendar year of stabilized operation. Properties included in held for sale are excluded from Same-Store. The Company believes that reporting on a Same-Store basis provides investors with additional information regarding the operating performance of comparable assets separate from other factors (such as the effect of developments, redevelopments, acquisitions or dispositions). To emphasize, the Company's methods of calculating non-GAAP measures may differ from methods employed by other companies and thus may not be comparable to such other companies. Reconciliations of net income (loss) available to A&B common shareholders to FFO and Core FFO for the years endedDecember 31, 2021 and 2020 are as follows (in millions): 2021 2020 Net income (loss) available to A&B common shareholders$ 35.1 $ 5.5 Depreciation and amortization of commercial real estate properties 37.7 40.1 Gain on the disposal of commercial real estate properties, net
(2.8) (0.5)
FFO$ 70.0 $ 45.1 Exclude items not related to core business: Land Operations Operating Profit (55.4) (15.4) Materials & Construction Operating (Profit) Loss 40.5 10.5 Loss from discontinued operations 1.1 0.8 Income (loss) attributable to noncontrolling interest 0.4 (0.4) Income tax expense (benefit) - (0.4) Non-core business interest expense 12.8 15.0 Core FFO$ 69.4 $ 55.2 43
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Reconciliations of Core FFO starting from CRE operating profit for the years
ended
2021 2020
CRE Operating Profit $ 72.6 $ 49.8
Depreciation and amortization of commercial real estate properties 37.7 40.1
Corporate and other expense (27.1) (19.3)
Core business interest expense (13.5) (15.3)
Distributions to participating securities (0.3) (0.1)
Core FFO $ 69.4 $ 55.2 Reconciliations of CRE operating profit (loss) to NOI for the years ended
2021 2020
CRE Operating Profit (Loss) $ 72.6 $ 49.8
Plus: Depreciation and amortization 37.7 40.1
Less: Straight-line lease adjustments (4.4) 1.3
Less: Favorable/(unfavorable) lease amortization (0.9) (1.2)
Less: Termination income (0.2) (2.3)
Plus: Other (income)/expense, net (0.6) (0.9)
Plus: Selling, general, administrative and other expenses
6.5 7.5
NOI 110.7 94.3 Less: NOI from acquisitions, dispositions and other adjustments (2.9) (2.4) Same-Store NOI$ 107.8 $ 91.9
Liquidity and Capital Resources
Overview
The Company's principal sources of liquidity to meet its business requirements and plans both in the short-term (i.e., the next twelve months fromDecember 31, 2021 ) and long-term (i.e., beyond the next twelve months) have generally been cash provided by operating activities; available cash and cash equivalents; and borrowing capacity under its various credit facilities. The Company's primary liquidity needs for its business requirements and plans have generally been supporting its known contractual obligations and also funding capital expenditures (including recent commercial real estate acquisitions and real estate developments); shareholder distributions; and working capital needs.
Known contractual obligations
A description of material contractual commitments as ofDecember 31, 2021 , is included in Note 10, Note 15 and Note 17 of the Notes to Consolidated Financial Statements and Part II, Item 8 of this report, and relates to the Company's Notes payable and other debt, Operating lease liabilities and Accrued pension and post-retirement benefits, respectively, and is herein incorporated by reference. In addition, contractual interest payments for Notes payable and other debt in the short term (i.e., over the next twelve months fromDecember 31, 2021 ) and long-term (i.e., beyond the next twelve months) is estimated to be$21.6 million and$67.2 million , respectively (includes amounts based on contractual/fixed swap interest rates applied to future principal balances based on repayment schedules for secured and unsecured debt and also estimated interest on revolving credit facilities based on outstanding balances and the rate in effect as ofDecember 31, 2021 ). Total amounts to be spent on contractual non-cancellable purchase obligations (that specifies all significant terms, including fixed or minimum quantities to be purchased, pricing structure and approximate timing of the transaction that are not recorded as liabilities in the consolidated balance sheet) over the next twelve months fromDecember 31, 2021 is$5.5 million ; such amounts beyond the next twelve months are not material. The largest of such amounts pertain to the Company's CRE 44 --------------------------------------------------------------------------------
redevelopment project related to
A description of other commitments, contingencies and off-balance sheet
arrangements as of
Sources of liquidity
As noted above, one of the Company's principal sources of liquidity has been cash flows provided by operations, which were$124.2 million for the year endedDecember 31, 2021 , primarily driven by cash generated from the CRE operations (the Company's core business) and monetization of non-core assets within the Land Operations segment. The Company's cash flows from operations for the year endedDecember 31, 2021 reflect an increase of$62.4 million from the prior year amount of$63.1 million , due primarily to higher cash proceeds generated from the monetization of non-core assets in the Land Operations segment, as well as improved tenant collections and overall performance in the CRE operations. Cash proceeds from unimproved/other property and development sales increased by$32.2 million from$16.9 million for year endedDecember 31, 2020 to$49.1 million for year endedDecember 31, 2021 . The Company's operating income (loss) and cash flows provided by operating activities is generated by its subsidiaries. There are no material restrictions on the ability of the Company's wholly owned subsidiaries to pay dividends or make other distributions to the Company. The Company's other primary sources of liquidity include its cash and cash equivalents of$70.0 million as ofDecember 31, 2021 , and the Company's revolving credit and term facilities, which provide liquidity and flexibility on a short-term (i.e., the next twelve months fromDecember 31, 2021 ), as well as long-term basis. OnAugust 31, 2021 , the Company amended the existing$450.0 million committed revolving credit facility ("A&B Revolver"), which increased the total revolving commitments to$500.0 million , extended the term of the facilities toAugust 29, 2025 , and includes two six-month extension options. In addition, there were favorable amendments to certain covenants and reductions to the interest rates and fees charged. With respect to the A&B Revolver, as ofDecember 31, 2021 , the Company had$50.0 million of borrowings outstanding,$1.1 million letters of credit issued against and$448.9 million of available capacity on such revolving credit facility. OnAugust 13, 2021 , the Company entered into an at-the-market equity distribution agreement, or ATM Agreement, pursuant to which it may sell common stock up to an aggregate sales price of$150.0 million . Sales of common stock, if any, made pursuant to the ATM Agreement may be sold in negotiated transactions or transactions that are deemed to be "at the market" offerings, as defined in Rule 415 of the Securities Act of 1933, as amended. Actual sales will depend on a variety of factors including market conditions, the trading price of the Company's common stock, capital needs, and the Company's determination of the appropriate sources of funding to meet such needs. As ofDecember 31, 2021 , the Company has not sold any shares under the at-the-market offering program, nor has any obligation to sell the shares under the at-the-market offering program. Other sources of liquidity for the Company include trade receivables, contracts retention, and inventories (excluding parts, materials and supplies), totaling$47.4 million atDecember 31, 2021 .
Other uses (or sources) of liquidity
The Company may use (or, in some periods, generate) cash through various investing activities or financing activities. Cash provided by investing activities was$96.5 million for the year endedDecember 31, 2021 , as compared to cash provided by investing activities of$12.0 million for the year endedDecember 31, 2020 . The year endedDecember 31, 2021 , included cash proceeds from distributions of capital and other receipts from the Company's investments in affiliates, primarily its Kukui`ula joint ventures, of$149.5 million . Cash used in investing activities is primarily composed of capital expenditures. In the year endedDecember 31, 2021 , the Company had capital expenditures for property, plant and equipment of$53.5 million . As it relates to the CRE segment (i.e., its core business), the Company differentiates capital expenditures as follows (based on management's perspective on discretionary versus non-discretionary areas of spending for its CRE business):
•Growth Capital Expenditures: Property acquisition, development and redevelopment activity to generate income and cash flow growth.
•Maintenance Capital Expenditures: Activity necessary to maintain building value, the current income stream and position in the market.
45
--------------------------------------------------------------------------------Capital expenditures for the respective periods for all segments were as follows:
(in millions, unaudited) 2021 2020 Change CRE property acquisitions, development and redevelopment$ 27.2 $ 9.7 180.4% Building/area improvements (Maintenance Capital Expenditures) 9.9 6.0 65.0% Tenant space improvements (Maintenance Capital Expenditures) 2.5 3.1 (19.4)% Quarrying and paving 6.3 4.5 40.0% Agribusiness and other 7.6 1.8 322.2% Total capital expenditures¹$ 53.5 $ 25.1 113.1% 1 Excludes capital expenditures for real estate developments to be held and sold as real estate development inventory, which are classified in the consolidated statement of cash flows as operating activities and are excluded from the tables above. The year endedDecember 31, 2021 , included cash outlays of$53.5 million related to capital expenditures which was largely driven by$36.6 million of capital expenditures for property, plant and equipment improvements,$10.8 million related to the Company's acquisition of two commercial real estate assets using proceeds from the sale of legacy landholdings that qualified for tax-deferral treatment under §1033 of the Internal Revenue Code of 1986, as amended (the "Code"), and$6.2 million for two land operations assets that qualified for tax-deferral treatment under §1031 and §1033 of the Code. There were no such acquisitions of commercial real estate or land operations assets during the year endedDecember 31, 2020 . See below for further discussion on the Company's use of §1031 and §1033 of the Code. The Company regularly evaluates investment opportunities, including development-for-hold projects, commercial real estate acquisitions, joint venture investments, share repurchases, business acquisitions and other strategic transactions to increase shareholder value. In 2022, the Company expects that its capital expenditures, not including potential commercial real estate acquisitions, will be approximately$47.0 million -$60.0 million . Of this amount, the Company expects to spend approximately$35.0 million -$43.0 million for growth and maintenance capital for theCommercial Real Estate segment,$11.0 million -$14.0 million for the Materials & Construction segment, and the remaining$1.0 million -$3.0 million for Land Operations and general Corporate purposes. Should investment opportunities in excess of the amounts budgeted arise, the Company believes it has adequate sources of liquidity to fund these investments. Net cash flows used in financing activities was$207.1 million for the year endedDecember 31, 2021 , as compared to net cash used in financing activities for the year endedDecember 31, 2020 , of$33.1 million . The change in cash flows from financing activities in 2021 as compared to 2020 was due primarily to higher net payments on debt (i.e., debt payments net of additional borrowings) of$159.2 million during year endedDecember 31, 2021 , as compared to$18.7 million during the year endedDecember 31, 2020 , as well as higher cash dividends paid of$46.6 million during year endedDecember 31, 2021 , as compared to$13.8 million during the year endedDecember 31, 2020 .
Other capital resource matters
The Company utilizes §1031 or §1033 of the Code, to obtain tax-deferral treatment when qualifying real estate assets are sold or become subject to involuntary conversion and the resulting proceeds are reinvested in replacement properties within the required time period. Proceeds from potential tax-deferred sales under §1031 of the Code are held in escrow (and presented as part of Restricted cash on the consolidated balance sheets) pending future reinvestment or are returned to the Company for general use if eligibility for tax-deferral treatment based on the required time period lapses. The proceeds from involuntary conversions under §1033 of the Code are held by the Company until the funds are redeployed. During the year endedDecember 31, 2021 , the Company completed four transactions that gave rise to cash proceeds from sales or involuntary conversion activity that qualified under §1031 or §1033 of the Code. Further, during the year endedDecember 31, 2021 , there were four acquisitions utilizing eligible/available proceeds from tax-deferred sales or involuntary conversions. As ofDecember 31, 2021 , there is$0.8 million from tax-deferred sales that are available for use and have not been reinvested under §1031 of the Code. In addition, the Company holds approximately$3.1 million from tax-deferred involuntary conversions that had not yet been reinvested under §1033 of the Code as ofDecember 31, 2021 . 46 --------------------------------------------------------------------------------
Trends, events and uncertainties
As noted above, COVID-19 has significantly impacted the global economy. Although initial economic impacts have largely come into focus, long-term effects remain uncertain. This uncertainty includes the potential need for additional capital resources to maintain the Company's business and operations during a period of potential declining or delayed rent payments from CRE tenants and/or potential declining revenue from its other businesses. The Company's ability to retain outstanding borrowings and utilize remaining amounts available under its revolving credit facility will depend on its continued compliance with the applicable financial covenants and other terms of the Company's notes payable and other debt arrangements. The Company was in compliance with its financial covenants for all outstanding balances as ofDecember 31, 2021 . However, due to various uncertainties and factors outside of Management's control, the Company may be unable to continue to maintain compliance with certain of its financial covenants. Failure to maintain compliance with its financial covenants or obtain waivers or agree to modifications with its lenders would have a material adverse impact on the Company's financial condition. The Company intends to operate in compliance with these covenants or seek to obtain waivers or modifications to these financial covenants to enable the Company to maintain compliance. Based on its current outlook, the Company believes that funds generated from cash provided by operating activities; available cash and cash equivalent balances; and borrowing capacity under its various credit facilities will be sufficient to meet the needs of the Company's business requirements and plans both in the short-term (i.e., the next twelve months fromDecember 31, 2021 ) and long-term (i.e., beyond the next twelve months). There can be no assurance, however, that the Company will continue to generate cash flows at or above current levels or that it will be able to maintain its ability to borrow under its available credit facilities. As the circumstances underlying its current outlook may change, the Company will continue to actively monitor the situation and may take further actions that it determines is in the best interest of its business, financial condition and liquidity and capital resources.
Critical Accounting Estimates
The Company's significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report. The preparation of financial statements in conformity with accounting principles generally accepted inthe United States , upon which the MD&A is based, requires that management exercise judgment when making estimates and assumptions about future events that may affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with certainty and actual results may differ from those critical accounting estimates. These differences could be material. Management considers an accounting estimate to be critical if: (i) it requires assumptions to be made that were uncertain at the time the estimate was made; and (ii) changes in the estimate, or the use of different estimating methods that could have been selected and could have a material impact on the Company's consolidated results of operations or financial condition. The critical accounting estimates inherent in the preparation of the Company's financial statements are described below.
Impairment of long-lived assets held and used and finite-lived intangible assets
Long-lived assets held and used, including finite-lived intangible assets, are reviewed for possible impairment when events or circumstances indicate that the carrying value may not be recoverable. In such an evaluation, the estimated future undiscounted cash flows generated by the asset are compared with the amount recorded for the asset to determine if its carrying value is not recoverable. If this review determines that the recorded value will not be recovered, the amount recorded for the asset is reduced to estimated fair value. These asset impairment analyses are highly subjective because they require management to make assumptions and apply considerable judgments to, among other things, estimates of the timing and amount of future cash flows, the cash flow projection period, uncertainty about future events, including changes in economic conditions, changes in operating performance, discount rates, changes in the use of the assets and ongoing costs of maintenance and improvements of the assets, and thus, the accounting estimates may change from period to period. If management uses different assumptions or if different conditions occur in future periods, the Company's financial condition or its future financial results could be materially impacted.
During the year ended
In each of the years ended
47
--------------------------------------------------------------------------------New Accounting Pronouncements
See Note 2 of Notes to Consolidated Financial Statements, included in Part II,
Item 8 of this report, for a full description of the impact of recently issued
accounting standards, which is incorporated herein by reference, including the
expected dates of adoption and estimated effects on the Company's results of
operations and financial condition.
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