Y2K Be Damned

2000 was a Lucrative Year For the Majority of Hawaii's Top 250 Companies.

August, 2001

2000: What a thrilling year for Hawaii’s Top 250 companies. First, the Y2K bug on Jan. 1 threatened to wreak havoc on businesses. Then the dotcom bubble burst, snapping the Island’s high-tech investors out of their euphoric state. “The top of the market might have been when we were playing with firecrackers on New Year’s 2000,” recalls Paul Loo, senior vice president of Morgan Stanley, which climbed 13 places on the list to No. 171 with $40 million in revenues. Meanwhile, as Alan Greenspan slashed interest rates (giving Hawaii’s Top 250 executives good reason to partake in last year’s luxury home-buying spree), executive fleets guzzled more gas then ever.

The year 2000 also threw unpredictable turns for Japan’s mighty conglomerates and their Hawaii- based subsidiaries.

Albeit the external influences, Hawaii’s Top 250 companies ended the year 2000 with combined revenues of $33.94 billion, up 10 percent from 1999, and almost 20 percent more than 1998. Last year’s improvement was similar to the 1991 Top 250 list, when total combined revenues for Hawaii’s Top 250 companies jumped an impressive 11 percent. That was the last time Hawaii had witnessed such growth.

Hawaiian Electric Industries Inc. once again led the list with gross revenues of $1.71 billion (12.8 percent more than the previous year.) Trailing behind it was BancWest Corp. with $1.52 billion (14.4 percent increase). Schuler Homes Inc. climbed seven places to No. 3 with $1.34 billion (165.5 percent increase), while Pacific Century Financial Corp. followed with $1.32 billion (2.2 percent increase) and Tesoro Hawaii Corp. with $1.30 billion (49.8 percent jump).Not all industries contributed to last year’s stellar performance, however. Maritime activities sank with total revenues of $126.2 million that were 82.6 percent lower than 1999. Even the leisure and recreation industry recorded a 17.3 percent plunge with combined revenues of $128.9 million over the previous year. Still, Hawaii residents continued to eat, drink and be merry anyway: combined revenues for the food and beverage wholesale/distribution industry jumped 66.2 percent to $1.13 billion.

“The increase was attributable to crude oil prices,” says Faye Kurren, president of Tesoro, which operates a 95,000-barrels-a-day oil refinery and 37 gas stations in Hawaii. Energy and petroleum companies in this year’s Top 250 list boasted combined revenues of $2.04 billion, up 24 percent from 1999. Financial services in 2000 generated $3.51 billion, approximately 4.7 percent more than 1999. That jump was minor compared to the previous year’s increase of 18.6 percent.

There are signs that double-digit growth may repeat itself – especially as Hawaii’s two largest banks undergo changes. Pacific Century ballooned after Mike O’Neill on Nov. 3, 2000, became the new chairman and chief executive officer for the bank holding company. Its competitor across the street, BancWest Corp. (parent company of First Hawaiian Bank and Bank of the West), announced that Paris-based BNP Paribas on June 7, 2001, agreed to acquire the 55 percent of BancWest stock it did not yet own for $35 in cash per share (see related story on page 174). Industry watchers expect the purchase will spur BancWest to acquire more banks in the mainland U.S. “You’ve got Bank of Hawaii going from fat to all of a sudden leaner, and you’ve also got First Hawaiian being bought out by a new parent,” Loo says. “I think it’s going to reflect next year.”

Enough forecast, and back to the present. “The biggest story of the year 2000 was the recovery of the construction industry,” says Byron Gangnes, associate professor of economics at the University of Hawaii Manoa. Combined revenues for construction companies last year rose 5.5 percent to $1.31 billion.

That was good news for Hawaii’s construction industry, which suffered from a 10.7 percent drop between 1998 and 1999. “We lost valuable employees over the last few years, who were well-trained and couldn’t be retained over the economic cycles,” says Denny Watts, president of Dick Pacific Construction Co. Ltd. His company ranked No. 29 with gross revenues of million, or 1.6 percent more than the previous year.

Construction-related jobs last year rose 8.5 percent, according to the University of Hawaii Economic Research Organization. Even the overall job market in Hawaii improved about 3 percent compared to the previous year. “We’re seeing multiple jobs coming back,” says Carl Bonham, associate professor of economics and executive director for the research organization. “The labor market has tightened up enough, and people are able to get that second job.”

If economic indicators say the job market improved in 2000, then why did the number of employees in the top 250 companies fall 0.8 percent from an average of 644 to 638? “It may be that the job growth is not occurring in large companies, but in smaller enterprises,” Gangnes says. “It’s a sprawling category that includes high tech, private consulting services, software writing and people who have become private contractors.”

The Aloha State was the choice destination for nearly 7 million visitors in 2000, a 3.3 percent climb over 1999. Total combined revenues for the Top 250 tourism companies: $5.06 billion, up 6.7 percent from 1999. “If you talk to anyone in the industry, they had a good year,” Gangnes says. It was so good that tourism arrivals grew 200,000 more than the previous record set in 1997.

Air carriers soared with sky-high revenues. Aloha Airgroup Inc. (No. 24) and Hawaiian Airlines Inc. (No. 11) climbed 21.3 percent and 24.2 percent. Both companies last year outdid each other with better services and state-of-the-art equipment. Hawaiian Airlines last year acquired 13 new Boeing 717s and in June 2000 launched non-stop services between San Diego and the Islands.Meanwhile, Aloha in February 2000 hosted an inaugural flight between Hawaii and Oakland, Calif., using new Boeing 737 aircraft. The airline this year also launched new flights to Las Vegas and the Marshall Islands.

Outrigger Enterprises Inc. – which opened new properties throughout Micronesia, Australia and Fiji – led Hawaii’s Top 250 list with $405 million in revenues, 3.3 percent better than the previous year. The resort giant was followed by other hotel chains: Aston Hotels & Resorts Hawaii, $155 million; Four Seasons Resort Maui, $71 million; The Orchid at Mauna Lani, $60 million; Kahala Mandarin Oriental Hawaii, $46.8 million; and Kona Village Resort, $24.9 million. The latter hotel (No. 239) made a comeback to this year’s list, more than a decade after it ranked No. 249 in 1988.Hawaii hotels averaged 76 percent occupancy last year, almost 4 percent over 1999, according to the Department of Business, Economic Development and Tourism. And average daily room rates jumped 5.9 percent, from $131.66 to $139.42.

Homes were never this sweet since the state’s economy turned sour in the mid-1990s. Real estate companies last year boasted combined revenues of $2.62 billion, up 39.9 percent from the previous year. The growth reflected a trend that began in 1998 (35.3 percent increase) and continued through 1999 (26.5 percent increase).

Real-estate subsidiaries drove profits upward for some parent companies: Castle & Cooke Homes Hawaii Inc. generated $135 million for its parent Castle and Cook Inc. (No. 28 with $261 million). And Gentry Homes Ltd., a subsidiary of Gentry Cos. (No. 64 with $113.1 million), recorded $55.1 million in revenues.

“The housing market will lead the economy into and out of recession,” says James Schuler, president and chief executive officer for Schuler Homes. Especially lucrative last year was the resale of multimillion-dollar, luxury homes in Kahala, Diamond Head and Hawaii Kai, he says. The demand for newly built, single-family units between $120,000 and $425,000 wasn’t as strong, although the market still did well.

Leading that single-family homes segment was Schuler Homes, which climbed seven places to No. 3, with $1.34 billion in revenues, or 165.5 percent over the previous year. The 13-year-old home developer is based in Hawaii and has had nonstop growth for the past five years, thanks to the acquisitions of home developers in California, Oregon, Washington and Arizona. In March, Schuler merged with Western Pacific Housing in California, making Schuler Homes the nation’s 15th largest home builder.

“It would have taken us 10 years to do what we did with just one merger,” Schuler says. “We have a responsibility to increase shareholder value. There’s a lot of institutional investors that would love to own our stock, but when we’re under $500 million, they won’t invest in companies that small.”

Schuler Homes’ earnings per share was $9 at the end of 2000, but industry watchers anticipate the March merger will increase the company’s share price by at least 10 percent.

After plunging more than 10 percent in 1999, the building industry last year hammered its way up 5.5 percent. Hawaii contracting receipts increased 12.3 percent between mid-1999 and mid-2000, and 19.8 percent in the second half of 2000. Industry leaders anticipate continued growth over the next year, as federal interest rates fall and real estate activities thrive. The bulk of construction projects in Hawaii, however, will be in timeshare units, new residential projects in Neighbor Islands, and the renovation of private schools.

The construction industry’s most improved companies were Nordic Construction Ltd. (93.9 percent at $64 million), Isemoto Contracting Co. (89.3 percent at $40.7 million) and Coastal Construction Co. Inc. (61.5 percent at $70.4 million).

Dick Pacific Construction Co. Ltd. ($254 million) was the second largest revenue-earning construction company on the Top 250 list. Albeit Dick Pacific improved only 1.6 percent, this year its executives anticipate growth of about $100 million, followed by another $125 million in 2002. “We recognized we couldn’t survive without diversifying our business,” says Denny Watts, president and chief executive officer of Dick Pacific. The company on March 13 opened a new office in Alaska.While the majority of completed projects last year were in Hawaii, some occurred on other Pacific Islands – particularly in the federal and military sectors. Take, for instance, Dillingham Construction Pacific Ltd. (No. 25), which increased 17.8 percent with revenues of $304 million. Dillingham – the highest-earning construction firm in Hawaii – won a $16 million bid to build new living quarters at the Marine Corps Base in Kaneohe Bay, among other military projects. On Guam, Dillingham won bids to build the Army National Guard Armory, plus a new detention center for the Immigration and Naturalization Service.

Last year, Dick Pacific constructed a pair of missile silos at Meck Island in Kwajelein Atoll. On Guam, it built a $15 million Army Reserve Center and a $38.5 million school for the Department of Defense.

Amid economic storms in the land of the rising sun, some Japanese companies in Hawaii still saw a ray of hope. Japan-owned businesses last year earned $3.12 billion in combined revenues, a six percent jump over 1999. Kyo-Ya Co. Ltd ($587 million) and JTB Hawaii Inc. ($426 million) for the third consecutive year ranked highest (No. 12 and No. 17). Travel company JTB Hawaii increased 20.3 percent, while Kyo-Ya—an operator of hotels, restaurants and insurance agencies – improved its revenues by 7.7 percent. The most impressive performance, however, came from electronic goods distributor Sony Hawaii Co. (No. 44), which improved 59.4 percent with $153 million. (See related story on page 32).

It was difficult to pinpoint trends among the most improved and worst-performing companies. One thing was certain: among the top 10 revenue-losing companies on this year’s Top 250 list, four were Japan-owned: golf course operator Sports Shinko (Hawaii) Corp. and tour operators Trans Orbit Hawaii Inc. and Aloha Seven Travel. Japan Airlines’ revenues also dropped (12.7 percent). On the flip side, sales increases of 19 percent each were made by Shinwa Golf Hawaii Co. Ltd., real-estate developer Obayashi Hawaii Corp. and Wasa Electrical Services Inc.

Tokyu Department Store’s woes weren’t uncommon last year, as Japan’s nascent economy slowed amid delinquent bank loans and other mishaps. “We talk about these up-and-down recession patterns, but now we’re seeing a triple dip in recession in less than a decade,” Gangnes says. “One of the only promising signs in Japan last year, was the Bank of Japan making a commitment to return to a zero-interest rate policy.” Perhaps the political and financial reforms by new Prime Minister Junichiro Koizumi will bring Japan’s – and Hawaii’s – economy back to pre-bubble days.Shirokiya Inc., previously listed as a Japan-owned company, cut ties from its Japanese parent, Tokyu Department Store Co. Ltd. The retail chain again recorded revenues of $50 million for its stores on Maui, and in Pearlridge and Ala Moana Center. Last March, Shirokiya’s $4.5 billion parent sold the Ala Moana location to managers and employees for $1 and closed the remaining stores in Hawaii.


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