Matson
Annual Report 2015

Plain-text annual report

M A T S O N , I N C . 2 0 1 5 A N N U A L R E P O R T + F O R M 1 0 - K matson.com 2015 Annual Report + FORM 10-K 205102_AR_Cover.indd 1 2016-02-25 1:11 PM Founded in 1882, Matson is a leading U.S. carrier in the Pacific. Matson provides a vital lifeline to the economies of Hawaii, Alaska, Guam, Micronesia and select South Pacific islands, and operates a premium, expedited service from China to Southern California. The Company’s fleet consists of 23 owned and three chartered vessels including containerships, combination container and roll- on/roll-off ships and custom-designed barges. Matson Logistics, established in 1987, extends the geographic reach of Matson’s transportation network throughout the continental U.S. Its integrated, asset-light logistics services include rail intermodal, highway brokerage and warehousing. INVESTOR INFORMATION TRANSFER AGENT & REGISTRAR | Computershare Corporate news releases, SEC filings, the Company’s annual report For questions regarding stock certificates, dividends, or other transfer-related and other pertinent information about the Company are available at matters, representatives of the Transfer Agent may be reached at: 1-800-522-6645 Shareholders and professional investors with questions about the www.computershare.com/investor Computershare, P.O. BOX 30170, College Station, TX 77842-3170 AUDITORS | Deloitte & Touche LLP, Honolulu, Hawaii Shareholders who wish to communicate with the Board of Directors www.matson.com. Company may correspond with: Jerome Holland - Director, Investor Relations email: investor-relations@matson.com may correspond with: Peter T. Heilmann - Corporate Secretary email: corpsec@matson.com NON-GAAP MEASURES Matson reports financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company also considers other non-GAAP measures to evaluate performance, make day-to-day operating decisions, help investors understand our ability to incur and service debt and to make capital expenditures, and to understand period-over-period operating results separate and apart from items that may, or could, have a disproportionate positive or negative impact on results in any particular period. These non-GAAP measures include, but are not limited to, Earnings Before Interest, Depreciation and Amortization (“EBITDA”), Return on Invested Capital (“ROIC”) Free Cash Flow per Share and Net Debt/EBITDA. ($ IN MILLONS, EXCEPT PER SHARE AMOUNT) YEAR ENDED DECEMBER 31, 2015 FORWARD-LOOKING STATEMENTS LESS: TOTAL CASH AND CASH EQUIVALENTS LESS: CASH ON DEPOSIT IN CAPITAL CONSTRUCTION FUND TOTAL DEBT: NET DEBT NET INCOME ADD: INCOME TAX EXPENSE ADD: INTEREST EXPENSE ADD: DEPRECIATION AND AMORTIZATION EBITDA NET INCOME ADD: INTEREST EXPENSE (TAX EFFECTED) (1) TOTAL RETURN AVERAGE TOTAL DEBT AVERAGE SHAREHOLDERS’ EQUITY TOTAL INVESTED CAPITAL ROIC CASH FLOW FROM OPERATIONS SUBTRACT: CAPITAL EXPENDITURES FREE CASH FLOW WEIGHTED AVERAGE NUMBER OF SHARES – DILUTED FREE CASH FLOW PER SHARE 2013 286.1 (114.5) 171.6 53.7 32.2 14.4 91.0 191.3 53.7 9.0 62.7 302.6 309.1 611.7 10.3% 195.7 (35.2) 160.5 43.1 3.72 2014 373.6 (293.4) (27.5) 52.7 70.8 51.9 17.3 90.1 230.1 70.8 10.0 80.8 329.9 351.0 680.9 11.9% 165.7 (27.9) 137.8 43.4 3.18 2015 429.9 (25.5) - 404.4 103.0 74.8 18.5 105.8 302.1 113.7 401.8 407.1 808.9 14.1% 245.3 (67.8) 177.5 44.0 4.03 103.0 10.7 (1) (1) THE EFFECTIVE TAX RATE FOR 2015 IS 42.1%, 42.3% FOR 2014 AND 37.3% FOR 2013 PHOTOGRAPHY Lew Harrington - HI | Tim Rue - CA | Jeff Schultz - AK | DESIGN Sujeet Paul - LA PRINTING Hemlock Printers USA This Annual Report includes forward- looking statements, such as forecasts and projections of the Company’s future performance or statements of management’s plans and objectives. These statements are “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These include, for example, all references to 2015 or future years. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all such risks, nor can it assess the impact of all such risks on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including, but not limited to the factors that are described in Part I, Item 1A under the caption of “Risk Factors” of the Company’s Report on Form 10-K. The Company is not required, and undertakes no obligation, to revise or update forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, or circumstances occurring after the date of this Annual Report. 205102_AR_Cover.indd 2 2016-02-25 1:11 PM Financial Highlights 2015 ($ in millions, except per share amounts) 2013 2014 2015 For the years ended December 31, Revenue Ocean Transportation Logistics Operating Income Ocean Transportation Logistics Net Income Diluted Earnings per Share EBITDA Cash Flow from Operations Return on Investment Capital (ROIC) Diluted EPS ($ per share) $2.34 EBITDA ($ in millions) 1,229.4 407.8 1,637.2 94.3 6.0 100.3 53.7 1.25 191.3 195.7 10.3% $302.1 $1.63 $1.25 $230.1 $191.3 1,278.4 435.8 1,714.2 131.1 8.9 140.0 70.8 1.63 230.1 165.7 11.9% 1,498.0 386.9 1,884.9 187.8 8.5 196.3 103.0 2.34 302.1 245.3 14.1% Cash Flow from Operations ($ in millions) ROIC 14.1% $245.3 11.9% 10.3% $195.7 $165.7 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 REFER TO THE BACK INSIDE COVER OF THIS REPORT FOR A DISCUSSION OF THE COMPANY’S USE OF NON-GAAP FINANCIAL MEASURES. 01 215102_AR_Intro_single_pages.indd 1 2016-02-25 1:10 PM To Our Shareholders We strive toward our mission by remaining flexible in our thinking, decisive in our actions, and always committed to superior customer service. 2015 was an exceptional year for Matson, strategically and financially. We substantially grew our ocean transportation platform with the opening of our Alaska trade, we maintained our leadership position in Hawaii and we strengthened our standing as the service leader from China. These actions led to 2015 financial results that significantly outpaced the strong results posted in 2014. In 2015 we earned net income of $103.0 million or $2.34 per diluted share, and our return on invested capital was 14.1 percent on a capital base of $808.9 million. Our business generated EBITDA of $302.1 million and free cash flow per share of $4.03. In June 2015, our Board of Directors authorized the third consecutive annual increase in our quarterly dividend, from $0.17 to $0.18 per share. And, in November 2015, the Board authorized a share repurchase program for up to three million shares over the next three years, representing approximately 7 percent of our current shares outstanding. We view share repurchases as another important capital efficiency tool and we expect to make repurchases at a steady, measured pace. We made our first repurchases in 2015 and continue in 2016. Since our debut as an independent public company in July 2012, we have returned over $100 million via dividends and share repurchases and achieved total shareholder return of 65.9 percent. These positive results come from a single focus on moving freight better than any other carrier. And while this goal sounds simple, it requires mastering a complex network on an ever-changing market stage. We strive toward our mission by remaining flexible in our thinking, decisive in our actions, and always committed to superior customer service. Year to year results may vary, but our continued focus on cash flow generation and conservative financial leverage provides the foundation from which we pursue investments to grow our business, invest in new markets, renew our fleet, and enhance shareholder value. With that in mind, let’s review some of the major developments of 2015 and trends we see on the horizon. expedited service from China in 2006, and in May 2015, we completed our $495 million acquisition of Horizon Lines’ Alaska operations. The Alaska business fits well culturally and operationally with our other trades. Like Hawaii and Guam, Alaska is a geographically remote market with a stable population base that depends on reliable containership service, and there is considerable customer overlap between the markets. Container freight in the Alaska market is characterized by a northbound trade heavily weighted towards consumables, freight forwarders, building materials and retail goods, and a robust, but seasonal southbound seafood trade. There is of course some variability in volume associated with energy industry activity, but much of the material for energy development and certainly all of the product is carried in bulk or by special- purpose vessels. FIRST CALL ALASKA Opportunities to meaningfully grow our business into attractive new markets come along only so often and typically require sizeable investments. Over the last 20 years, Matson has made three such long term investments: first we expanded our Hawaii service to Guam in 1996, then we opened our industry leading We made several follow-on investments in Alaska to improve operating efficiencies and service reliability, including a new 65- ton gantry crane at the Kodiak Terminal, new ground equipment and a fleet of new dry and insulated containers. In addition, we completed the first of three exhaust gas scrubber installations for our Alaska fleet to meet new environmental regulation thresholds. The Matson Kodiak, 215102_AR_Intro_single_pages.indd 2 2016-02-25 1:10 PM REVENUE OPERATING INCOME $2,000.0 1,500.0 1,000.0 500.0 0.0 $200.0 175.0 150.0 125.0 100.0 75.0 50.0 2013 201 4 201 5 2013 201 4 201 5 MATTHEW J. COX | PRESIDENT AND CHIEF EXECUTIVE OFFICER, MATSON, INC. OCEAN TRANSPORTATION LOGISTICS ($ IN MILLIONS) our first ship to receive a scrubber, returned to service in January 2016 and our two other Alaska vessels will undergo similar installations in 2016. We are pleased by the warm reception we have received from our Alaska customers and our new associates. We are also pleased by the performance of the Alaska operations, and made our investment based on the attractive cash flow and earnings generation potential of this market over the long haul. Our integration of the Alaska operations is going better than originally expected, and while there is still much to do, we expect to complete the integration by the third quarter of this year. Needless to say, our Alaska operations remain a top priority in 2016. THE ONLY CONSTANT IS CHANGE The markets in which we operate are largely shaped by underlying economic activity and vessel capacity dynamics. In Hawaii, we saw our container volume increase by 8.1 percent in 2015 as we benefited from continued economic growth and the progression of several high-rise construction projects in urban Honolulu. In May 2015 our primary competitor in Hawaii, Pasha Hawaii, completed its acquisition of Horizon’s Hawaii operations and subsequently reconfigured its fleet deployment, withdrawing from the Pacific Northwest to add a second weekly call in L.A./Long Beach. The overall market growth in Hawaii combined with Pasha’s service changes and start-up issues resulted in additional freight to Matson, which required the activation of additional vessels for much of the second half of the year. In 2016, we expect moderate growth in our Hawaii container volume as the economy remains healthy and the construction cycle continues to progress. On Guam, economic activity remained stable; however, there were two significant developments that I expect to influence the market going forward. First, a new competitor, APL, launched a bi-weekly U.S. flagged containership service to Guam at the beginning of 2016. While this service is significantly slower and less frequent than Matson’s weekly service, we do expect to experience some competitive volume losses in 2016. Looking further out, the long-awaited Record of Decision for relocating U.S. Marine Corps forces to Guam was signed by the Department of the Navy at the end of August 2015. This project is expected to begin in 2017, so we will not see the benefit this year, but it is good news for Guam and Matson. Matson’s expedited transpacific service from China had an extraordinarily strong year, achieving rates significantly higher than 2014 and continuing strong execution. Demand for our reliable service was amplified by cargo availability delays experienced by the international carriers in the first quarter of 2015 due to port congestion along the U.S. West Coast. More important, our highly differentiated service, which provides a 5-10 day transit advantage over the international carriers, efficient cargo off-loading at our dedicated terminal in Long Beach, 03 215102_AR_Intro_single_pages.indd 3 2016-02-25 1:10 PM Our continued focus on cash flow generation and conservative financial leverage provides the foundation from which we pursue investments to grow our business, invest in new markets, renew our fleet and enhance shareholder value. LOGISTICS Our Logistics business, where consistent progress in the warehouse space has been a real bright spot, also made significant investments in technology to improve efficiency and enable new services in 2015. We will continue to focus on organic growth and cost efficiencies while also considering disciplined acquisitions to expand our service offering and enhance operating margins. We look for more from this business in the coming year. In closing, I want to thank our Board of Directors for their continuing support and dedication. And to our shareholders, employees, customers and community stakeholders, I offer my heartfelt gratitude for another good year at Matson and my commitment to our continued success going forward. Sincerely, Matthew J. Cox Chief Executive Officer and superior on-time performance allowed us to sustain premium rates throughout the year. While I expect Matson’s service differential to endure in 2016, endemic international vessel overcapacity and softening Chinese demand will put downward pressure on Matson’s freight rates, especially when compared to the extraordinary levels achieved in 2015. RISE OF THE MEGA-CONTAINERSHIP Our U.S. West Coast terminal joint venture, SSAT, yielded strong results in 2015, buoyed by increased terminal throughput related to the clearing of the international carrier cargo backlog. Looking ahead, SSAT is well-positioned to benefit from two major trends impacting U.S. West Coast terminals: larger containerships and the outsourcing of terminal operations. This past December an 18,000 TEU mega-containership made its first call on the U.S. West Coast, and the expectation is that carriers will continue to focus on larger vessels to consolidate cargo that was previously spread across multiple terminals onto a single ship with a single port of call. These behemoths require significant port-side investments in larger cranes, and the international carriers are reluctant to makes these large bets, preferring to work with terminal operators like SSAT. 215102_AR_Intro_single_pages.indd 4 2016-02-25 1:10 PM Now serving the last frontier For more than 130 years Matson plied the Pacific shipping lanes, and in 2015 we proudly entered the Alaska trade. In Alaska, we now serve more locations than any other carrier and continue to offer industry-leading dependability and on-time performance. In Anchorage, Kodiak and Dutch Harbor, we serve our customers with respect and aloha, hallmarks of the Matson brand and its promise. We call now on the last frontier — first to port, first in service, and first in meeting our customers’ needs.  215102_AR_Intro_single_pages.indd 5 2016-02-25 1:10 PM 05 Matson’s Network: Connecting the Pacific Matson’s mission is “To move freight better than anyone.” That means operating a complex network of vessels, cranes, containers and chassis, backed by experienced personnel using leading-edge technology. All to ensure reliable, “just in time” delivery of our customers’ goods, an unrivalled service measured in hours. Because we understand that we are not just carrying cargo, we are carrying lifeline supplies to remote economies. Matson Logistics 215102_AR_Intro_single_pages.indd 6 2016-02-25 1:10 PM Leading U.S. Carrier to Guam and Micronesia • Guam is a critical link in network configuration • Feeder ships provide connecting service to nine ports of call throughout Micronesian islands Matson South Pacific • Serving the Polynesian island group on a fortnightly basis using two foreign flagged container vessels • Leading fuel service supply company in South PacificExpedited Service from China to U.S. West Coast • The fastest time and cargo availability for time definite goods • Weekly service connecting three ports in China to L.A. / Long Beach • 5 to 10 day service advantage creates premium pricing modelCONTAINER VOLUME BY TRADE LANE (1) Hawaii Alaska (2) China Guam 2013 2014 2015 138,500 138,300 149,500 39,100 61,300 62,000 59,200 24,100 24,600 24,200 Micronesia / South Pacific 12,800 14,800 14,000 (1) Approximate container volumes included for the period are based on the voyage departure date, but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages in transit at the end of each reporting period. (2) Alaska container volume represents operations from May 29, 2015 215102_AR_Intro_single_pages.r1.indd 7 2016-03-02 3:43 PM The Market Leader in Hawaii • Frequency and reliability advantages result in commanding market share • Five weekly departures from U.S. West Coast ports • Owned network of inter-island barges connect service to Maui, Kauai and the Big Island Matson Logistics • Transportation offering including ocean, domestic and international intermodal, truckload, less-than-truckload and expedited brokerage are integrated with warehousing and supply chain solutions • An asset-light network stretching from China to virtually any point in North America • Operates six customer service centers, including one in ChinaNow a Leading Carrier to Alaska • Three ship deployment providing twice weekly service from the Pacific Northwest to Anchorage and Kodiak and weekly service to Dutch Harbor • The only U.S. containership operator serving Kodiak and Dutch Harbor; important markets for southbound seafood trade • Provides terminal and slot charter services for international carriers SSAT Joint Venture • 35% interest in the leading U.S. West Coast terminal operator • Matson operates from dedicated terminals that provide for best in class cargo availability and truck turn times Board of Directors + Senior Management WALTER A. DODS, JR., 74 Chairman of the Board, Matson, Inc., Chairman of the Board (Ret.), First Hawaiian Bank 3 MATTHEW J. COX, 54 President and Chief Executive Officer, Matson, Inc. CONSTANCE H. LAU, 64 President, Chief Executive Officer and Director, Hawaiian Electric Industries, Inc. (Electric Utility / Banking) 1, 3 MY FELLOW SHAREHOLDERS, I am honored to write to you once again on behalf of the Board of Directors. 2015 was an important year for your Company. Beyond the notable financial success, the management team successfully completed the acquisition of Horizon Lines’ Alaska operations, expanding Matson’s presence to another attractive market. With the acquisition, your Company strengthened its position as the leading U.S. carrier in the Pacific. As a Board, we remain focused on the successful integration of the acquisition, while also looking for new growth opportunities in complementary businesses. The goal is, of course, to expand profitably in businesses we understand well and markets that demand superior, reliable, and integrated service. To do so, your Board carefully assesses the Company’s operating and strategic plans, its business operations, capital allocation, financial performance and leadership. We are confident that our experienced management team will continue to operate the Company efficiently, ensure stable financial footing and deliver superior shareholder value over time, all while representing the very best of the Matson brand and our customer promise. As always, our interests remain aligned with yours, Sincerely, Walter A. Dods, Jr. Chairman of the Board 1. Audit Committee Member 2. Compensation Committee Mamber 3. Nominating and Corporate Governance Committee Member. Ages as of April 1, 2016 215102_AR_Intro_single_pages.indd 8 2016-02-25 1:10 PM W. BLAKE BAIRD, 55 MICHAEL J. CHUN, 72 Chairman of the Board and Chief Executive Officer, Terreno Realty Corporation (Real Estate Investment Trust) 1, 2 President and Headmaster (Ret.), Kamehameha Schools Kapalama Campus (Education Institution) 2, 3 THOMAS B. FARGO USN (RET.), 67 JEFFREY N. WATANABE, 73 Chairman of the Board, Huntington Ingalls Industries (Military Shipbuilder) Former Commander of the U.S. Pacific Command 1 Chairman of the Board, Hawaiian Electric Industries, Inc. (Electric Utility / Banking) Retired Founder, Watanabe Ing LLP (Attorneys at Law) 2, 3 SENIOR MANAGEMENT JOEL M. WINE, 44 Senior Vice President and Chief Financial Officer KENNETH J. GILL, 48 Vice President, Alaska VIC S. ANGOCO JR., 49 Senior Vice President, Pacific RUSTY K. ROLFE, 58 President, Matson Logistics, Inc. JOHN P. LAUER, 55 Senior Vice President Ocean Services PETER T. HEILMANN, 47 Senior Vice President, Chief Legal Officer and Corporate Secretary RONALD J. FOREST, 60 Senior Vice President, Operations L to R - Joel Wine, Kenneth Gill, Vic Angoco, Rusty Rolfe, John Lauer, Peter Heilmann, Ron Forest 09 215102_AR_Intro_single_pages.indd 9 2016-02-25 1:11 PM Investment Highlights $2.34 Diluted Earnings per Share 20% Dividend Growth since 2013 1.3x Net Debt / EBITDA INTEGRATED NETWORK CONNECTING THE PACIFIC » Leading U.S. carrier in the Pacific provides lifeline to economies of Hawaii, Alaska and Guam » Leading market share in stable, niche markets with multi-decade customer relationships » High vessel utilization and container turnover creates asset efficiencies » Dual head-haul economics on China service unique in industry WORLD CLASS OPERATOR AND PREMIUM SERVICE PROVIDER » Leading on-time vessel arrivals and dedicated terminals with best in class truck turns » Fastest transit and cargo availability from China creates 5 to 10 day advantage resulting in sizeable rate premiums » Broad array of Logistics services provides customer and supply chain flexibility FINANCIAL STRENGTH AND DISCIPLINED CAPITAL ALLOCATION WITH A FOCUS ON GROWING SHAREHOLDER VALUE » Significant and stable cash flow generation provides platform to repay debt, invest in fleet renewal, pursue strategic opportunities and return capital to shareholders » Strong balance sheet with low financial leverage and investment grade credit metrics » Attractive operating margins and return on invested capital » Steady dividend growth and share repurchases Quarters during the year ended December 31, 2015 Q1 Q2 Q3 Q4 Diluted Earnings per Share Dividend per Share $0.57 $0.17 $0.23 $0.17 $0.94 $0.18 $0.60 $0.18 RATIOS Return on Invested Capital Net Debt to EBITDA EBITDA to Interest Expense 2013 10.3% 1.0x 11.8x 2014 11.9% 0.3x 12.1x 2015 14.1% 1.3x 16.3x 10 REFER TO THE BACK INSIDE COVER OF THIS REPORT FOR A DISCUSSION OF THE COMPANY’S USE OF NON-GAAP FINANCIAL MEASURES. 215102_AR_Intro_single_pages.indd 10 2016-02-25 1:11 PM UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-34187 Matson, Inc. (Exact name of registrant as specified in its charter) Hawaii (State or other jurisdiction of incorporation or organization) 99-0032630 (I.R.S. Employer Identification No.) 1411 Sand Island Parkway Honolulu, HI 96819 (Address of principal executive offices and zip code) (808) 848-1211 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, without par value Securities registered pursuant to Section 12(g) of the Act: Name of each exchange on which registered New York Stock Exchange None Number of shares of Common Stock outstanding at February 23, 2016: 43,444,091 Aggregate market value of Common Stock held by non-affiliates at June 30, 2015: $1,812,878,266 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer  Non-accelerated filer  (Do not check if a smaller reporting company) Accelerated filer  Smaller reporting company  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  Documents Incorporated By Reference The following document is incorporated by reference in Part III of the Annual Report on Form 10-K to the extent described therein: Proxy statement for the annual meeting of shareholders of Matson, Inc. to be held April 28, 2016. 102_10K.pdf 1 2016-02-26 4:22 PM TABLE OF CONTENTS PART I Page Items 1. Business .......................................................................................................................................................... A. Business Description ...................................................................................................................................... (1) Operations ................................................................................................................................................. (2) Maritime Laws and the Jones Act ............................................................................................................. (3) Competition ............................................................................................................................................... (4) Customers and Rate Regulations .............................................................................................................. (5) Fuel Costs .................................................................................................................................................. (6) Seasonality ................................................................................................................................................ (7) Emissions .................................................................................................................................................. B. Employees and Labor Relations ..................................................................................................................... C. Available Information ..................................................................................................................................... Item 1A. Risk Factors .................................................................................................................................................... Item 1B. Unresolved Staff Comments ........................................................................................................................... Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Properties ........................................................................................................................................................ Legal Proceedings ........................................................................................................................................... Mine Safety Disclosures ................................................................................................................................. PART II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ........................................................................................................................................ Selected Financial Data .................................................................................................................................. Management’s Discussion and Analysis of Financial Condition and Results of Operations ......................... Items 7A. Quantitative and Qualitative Disclosures About Market Risk ........................................................................ Item 8. Item 9. Financial Statements and Supplementary Data ............................................................................................... Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................... Item 9A. Controls and Procedures ................................................................................................................................. Conclusion Regarding Effectiveness of Disclosure Controls and Procedures ................................................ Internal Control over Financial Reporting ...................................................................................................... Item 9B. Other Information ........................................................................................................................................... 1 1 1 4 4 5 6 6 6 6 7 7 14 15 15 15 16 17 19 30 31 65 65 65 65 65 i 102_10K.pdf 2 2016-02-26 4:22 PM PART III Item 10. Directors, Executive Officers and Corporate Governance .............................................................................. A. Directors ......................................................................................................................................................... B. Executive Officers .......................................................................................................................................... C. Corporate Governance .................................................................................................................................... D. Code of Ethics ................................................................................................................................................ Item 11. Executive Compensation ................................................................................................................................ Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ....... Item 13. Certain Relationships and Related Transactions, and Director Independence ................................................ Item 14. Principal Accounting Fees and Services ......................................................................................................... PART IV Item 15. Exhibits and Financial Statement Schedules .................................................................................................. A. Financial Statements ....................................................................................................................................... B. Financial Statement Schedules ....................................................................................................................... C. Exhibits Required by Item 601 of Regulation S-K ......................................................................................... Signatures .................................................................................................................................................................................... 66 66 66 66 66 66 66 66 66 67 67 67 67 73 ii 102_10K.pdf 3 2016-02-26 4:22 PM MATSON, INC. FORM 10-K Annual Report for the Fiscal Year Ended December 31, 2015 PART I ITEM 1. BUSINESS Matson, Inc., a holding company incorporated in January 2012 in the State of Hawaii, and its subsidiaries (“Matson” or the “Company”), is a leading provider of ocean transportation and logistics services. The Company consists of two segments, Ocean Transportation and Logistics. For financial information by segment for the three years ended December 31, 2015, see Note 15 to the consolidated financial statements in Item 8 of Part II below. Ocean Transportation: Matson’s Ocean Transportation business is conducted through Matson Navigation Company, Inc. (“MatNav”), a wholly-owned subsidiary of Matson, Inc. Founded in 1882, MatNav is an asset-based business that provides a vital lifeline of ocean freight transportation services to the domestic economies of Hawaii, Alaska, and Guam, and to other island economies in Micronesia and in the South Pacific. MatNav also operates a premium, expedited service from China to Long Beach, California. In addition, subsidiaries of MatNav provide container stevedoring, container equipment maintenance and other terminal services for MatNav and other ocean carriers on the Hawaii islands of Oahu, Hawaii, Maui and Kauai, and in the Alaska locations of Anchorage, Kodiak, Dutch Harbor and Akutan. Matson has a 35 percent ownership interest in SSA Terminals, LLC (“SSAT”) through a joint venture between Matson Ventures, Inc., a wholly-owned subsidiary of MatNav, and SSA Ventures, Inc. (“SSA”), a subsidiary of Carrix, Inc. SSAT provides terminal and stevedoring services to various carriers at six terminal facilities on the U.S. West Coast, including to MatNav at three of those facilities. Matson records its share of income in the joint venture in operating expenses within the Ocean Transportation segment due to the nature of SSAT’s operations. Horizon Acquisition: On May 29, 2015, Matson completed its acquisition of Horizon Lines, Inc. (“Horizon”). As a result, Matson acquired Horizon’s Alaska operations and assumed all of Horizon’s non-Hawaii assets and liabilities (the “Horizon Acquisition”). For additional information on the Horizon Acquisition, see Note 3 to the consolidated financial statements in Item 8 of Part II below. Logistics: Matson’s Logistics business is conducted through Matson Logistics, Inc. (“Matson Logistics” or “Logistics”), a wholly- owned subsidiary of MatNav. Established in 1987, Matson Logistics is an asset-light business that provides multimodal transportation services, including domestic and international rail intermodal service (“Intermodal”); long-haul and regional highway brokerage, specialized hauling, flat-bed and project services, less-than-truckload services, and expedited freight services (collectively “Highway”); supply chain management, and warehousing and distribution services. A. BUSINESS DESCRIPTION (1) Operations Ocean Transportation Matson’s Services: Matson’s Ocean Transportation segment provides the following ocean freight services: Hawaii Service: Matson’s Hawaii service provides ocean freight services (lift-on/lift-off, roll-on/roll-off and conventional services) between the ports of Long Beach, Oakland, Seattle, and the major ports in Hawaii on the islands of Oahu, Kauai, Maui and Hawaii. Matson is the largest carrier of ocean cargo between the U.S. West Coast and Hawaii. Westbound cargo carried by Matson to Hawaii includes dry containers of mixed commodities, refrigerated commodities, packaged foods, building materials, automobiles and household goods. Matson’s eastbound cargo from Hawaii includes automobiles, household goods, dry containers of mixed commodities, and livestock. The majority of Matson’s Hawaii service revenue is derived from the westbound carriage of containerized freight and automobiles. 1 102_10K.pdf 4 2016-02-26 4:22 PM Alaska Service: Matson’s Alaska service, which Matson acquired on May 29, 2015 as part of the Horizon Acquisition, provides ocean freight services (lift-on/lift-off and conventional services) between the port of Tacoma, Washington, and the ports of Anchorage, Kodiak, and Dutch Harbor in Alaska. The Company also provides a barge service between Dutch Harbor and Akutan, and other transportation services to smaller locations in Alaska. Matson’s northbound cargo to Alaska includes dry containers of mixed commodities, refrigerated commodities, packaged foods, household goods, and automobiles. Matson’s southbound cargo from Alaska primarily consists of household goods, automobiles and seafood. China Service: Matson’s China service is part of an integrated Hawaii/Guam/China service. This service carries cargo from Long Beach to Honolulu and then to Guam. The vessels continue to the ports of Xiamen, Ningbo and Shanghai in China, where they are loaded with cargo to be discharged in Long Beach. These vessels also carry cargo destined to and originating from the Guam and Micronesia services. China cargo consists mainly of garments, footwear, and other retail merchandise. Guam Service: Matson’s Guam service provides weekly container and conventional freight services carrying mainly general sustenance cargo between the U.S. West Coast and Guam. Additionally, Matson provides freight services from Guam to the Commonwealth of the Northern Mariana Islands. Micronesia Service: Matson’s Micronesia service provides container and conventional freight services carrying mainly general sustenance cargo between the U.S. West Coast and the islands of Kwajalein, Ebeye and Majuro in the Republic of the Marshall Islands, the islands of Yap, Pohnpei, Chuuk and Kosrae in the Federated States of Micronesia, and the Republic of Palau. Cargo destined for these locations is transshipped through Guam. South Pacific Service: Matson’s South Pacific service provides container and conventional freight services carrying general sustenance cargo between New Zealand and other South Pacific Islands including Fiji, Samoa, American Samoa, Tonga, the Cook Islands, Niue, Vanuatu, Nauru, and the Solomon Islands. Matson’s Vessel Information: Matson’s fleet includes 23 owned and three chartered vessels. The Matson-owned fleet represents an initial investment of approximately $1.4 billion and consists of: 17 containerships; two combination container/roll-on/roll-off ships; one roll-on/roll-off barge; and three container barges equipped with cranes (see Critical Accounting Estimates in Item 7 of Part II below for additional information about vessel costs and net book values). The majority of vessels in the Matson-owned fleet have been acquired with the assistance of withdrawals from a Capital Construction Fund (“CCF”) established under Section 607 of the Merchant Marine Act of 1936 (see Note 7 to the consolidated financial statements in Item 8 of Part II below for additional information about the CCF). During the fourth quarter of 2013, MatNav and Philly Shipyard (formerly known as Aker Philadelphia Shipyard, Inc.) entered into definitive agreements pursuant to which Philly Shipyard will construct two new 3,600 twenty-foot equivalent unit (“TEU”) Aloha- class containerships with dual-fuel capable engines, which are expected to be delivered during the third quarter of 2018 and the first quarter of 2019 (the “Shipbuilding Agreements”), at a total cost of approximately $418.0 million. Philly Shipyard’s obligations under the Shipbuilding Agreements are guaranteed by Aker Philadelphia Shipyard ASA, a publicly listed company on the OSLO Stock Exchange. As a complement to its fleet, as of December 31, 2015, Matson owns approximately 37,400 containers and 12,200 chassis, which represents an initial investment of approximately $295 million, and miscellaneous other equipment. Matson also leases approximately 13,700 containers and 11,100 chassis. Matson’s U.S. flagged vessels must meet specified seaworthiness standards established by U.S. Coast Guard rules and classification society requirements. These standards require that our ships undergo two dry-docking inspections within a five-year period. The majority of Matson’s U.S. flagged vessels are enrolled in the U.S. Coast Guard’s Underwater Survey in Lieu of Dry-docking (“UWILD”) program. The UWILD program allows eligible ships to meet their intermediate dry-docking requirement with a less costly underwater inspection. Matson operates four non-U.S. flagged vessels (one owned; one under a bareboat charter arrangement; and two on time charter arrangements) in the Micronesia and South Pacific services. Matson is responsible for ensuring that the owned and bareboat chartered vessels meet international standards for seaworthiness, which among other requirements generally mandate that Matson perform two dry-docking inspections every five years. The dry-dockings of Matson’s time chartered vessels are the responsibility of the ships’ owners. 2 102_10K.pdf 5 2016-02-26 4:22 PM Vessels owned and chartered by Matson as of December 31, 2015 are as follows: Name of Vessels (1) Diesel-Powered - Owned MAUNALEI ..................................... MANULANI .................................... MAUNAWILI .................................. MANUKAI ....................................... OLOMANA (3) ................................ R.J. PFEIFFER ................................. MATSON KODIAK (6)................... HORIZON ANCHORAGE (6) ........ HORIZON TACOMA (6) ................ MOKIHANA .................................... MANOA ........................................... MAHIMAHI ..................................... Owned/ Chartered Official Number Owned Owned Owned Owned Owned Owned Owned Owned Owned Owned Owned Owned 1181627 1168529 1153166 1141163 1559 979814 910308 910306 910307 655397 651627 653424 Diesel-Powered - Chartered IMUA II (3) ...................................... LILOA (3) ........................................ MANA (3) ........................................ Chartered Chartered Chartered 9184237 4681 4958 Steam-Powered KAUAI ............................................. MAUI ............................................... MATSON PRODUCER (6) ............. MATSONIA ..................................... HORIZON CONSUMER (6) ........... MATSON NAVIGATOR (6) .......... LIHUE .............................................. Barges WAIALEALE (4) ............................. MAUNA KEA (5) ........................... MAUNA LOA (5) ............................ HALEAKALA (5) ............................ Owned Owned Owned Owned Owned Owned Owned Owned Owned Owned Owned 621042 591709 552819 553090 552818 541868 530137 978516 933804 676973 676972 Year Built 2006 2005 2004 2003 1999 1992 1987 1987 1987 1983 1982 1982 2005 2003 1997 1980 1978 1974 1973 1973 1972 1971 1991 1988 1984 1984 Length 681’ 1” 712’ 0” 711’ 9” 711’ 9” 381’5” 713’ 6” 710 710 710 860’ 2” 860’ 2” 860’ 2” 388’ 6” 358’ 11” 329’ 9” 720’ 5” 720’ 5” 720 760’ 0” 720 813 787’ 8” 345’ 0” 372’ 0” 350’ 0” 350’ 0” Maximum Maximum Containers Vehicles Speed (Knots) Deadweight (Long Tons) Reefer Slots TEUs (2) Autos Usable Cargo Capacity 22 23 23 23 14 23 20 20 20 23 23 23 15 15 13 22 22 22 21 22 21 21 — — — — 33,771 29,517 29,517 29,517 5,364 27,100 37,473 37,473 37,473 29,484 30,187 30,167 8,071 5,934 4,508 26,308 26,623 38,858 22,501 38,858 47,790 38,656 5,621 6,837 4,658 4,658 328 284 326 326 68 300 280 280 280 354 408 408 90 30 60 276 252 170 258 170 188 188 36 70 78 78 1,992 2,378 2,378 2,378 521 2,245 1,668 1,668 1,668 1,994 2,824 2,824 630 513 384 1,644 1,644 1,680 1,727 1,690 2,250 2,018 — 379 335 335 — — — — — — — — — 1,323 — — — — — 44 — — 450 — — — 230 — — — (1) Excludes two inactive vessels to be recycled. (2) Twenty-foot Equivalent Units (“TEU”) is a standard measure of cargo volume correlated to a standard 20-foot dry cargo container volume. (3) Except for these four foreign-flagged vessels, all vessels are U.S. flagged and Jones Act qualified vessels. (4) Roll-on/roll-off barge. (5) Container barges equipped with cranes. (6) Vessels acquired as part of the Horizon Acquisition on May 29, 2015. Terminals Matson provides container stevedoring, container equipment maintenance and other terminal services for MatNav and another ocean carrier at terminals located on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai; and in the Alaska terminal locations of Anchorage, Kodiak, and Dutch Harbor. In addition, SSAT provides terminal and stevedoring services to various carriers at six terminal facilities on the U.S. West Coast and to MatNav at three of those facilities, including Long Beach and Oakland, California, and Seattle, Washington. Matson records its share of income in the joint venture in operating expenses within the Ocean Transportation segment due to the nature of SSAT’s operations. Furthermore, APM Terminals provides terminal and stevedoring services to MatNav in Tacoma, Washington. Logistics and Other Services Matson Logistics is a transportation intermediary that provides intermodal rail services, highway, warehousing and distribution, and other third-party logistics services for North American customers and international ocean carrier customers, including MatNav. Matson Logistics also provides freight forwarding, consolidation, customs brokerage, purchase order management and non-vessel operating common carrier services. Matson Logistics Warehousing provides warehousing and distribution services in Northern and Southern California, and in Georgia. Through Matson Logistics Warehousing, Matson Logistics provides its customers with a full suite of rail, highway, warehousing and distribution services. Matson Logistics is able to reduce transportation costs for its customers through volume purchases of rail, motor carrier and ocean transportation services, augmented by such services as shipment tracking and tracing, and single-vendor invoicing. Matson Logistics operates six customer service centers, including one in China (for supply chain services), and has sales offices throughout the United States. 3 102_10K.pdf 6 2016-02-26 4:22 PM (2) Maritime Laws and the Jones Act Maritime Laws: All interstate and intrastate marine commerce within the U.S. falls under the Merchant Marine Act of 1920 (commonly referred to as the Jones Act). The Jones Act is a long-standing cornerstone of U.S. maritime policy. Under the Jones Act, all vessels transporting cargo between covered U.S. ports must, subject to limited exceptions, be built in the U.S., registered under the U.S. flag, be manned predominantly by U.S. crews, and owned and operated by U.S.-organized companies that are controlled and 75 percent owned by U.S. citizens. U.S. flagged vessels are generally required to be maintained at higher standards than foreign flagged vessels and are subject to rigorous supervision and inspections by, or on behalf of, the U.S. Coast Guard, which requires appropriate certifications and background checks of the crew members. Under Section 27 of the Jones Act, the carriage of cargo between the U.S. West Coast, Hawaii and Alaska on foreign-built or foreign-documented vessels is prohibited. During 2015, approximately 67 percent of Matson’s revenues generated by ocean transportation services, including Hawaii and Alaska, came from trades that were subject to the Jones Act. Matson’s Hawaii and Alaska trade routes are included within the non- contiguous Jones Act market. Hawaii, as an island economy, and Alaska due to its geographical location, are both dependent on ocean transportation. The Jones Act ensures frequent, reliable, roundtrip service to these locations. Matson’s vessels operating in these trade routes are fully Jones Act qualified. Matson is a member of the American Maritime Partnership (“AMP”), which supports the retention of the Jones Act and similar cabotage laws. The Jones Act has broad support from both houses of Congress. Matson also believes that the ongoing war on terrorism has further solidified political support for U.S. flagged vessels because a vital and dedicated U.S. merchant marine is a cornerstone for a strong homeland defense, as well as a critical source of trained U.S. mariners for wartime support. AMP seeks to inform elected officials and the public about the economic, national security, commercial, safety and environmental benefits of the Jones Act and similar cabotage laws. Repeal of the Jones Act would allow foreign-flag vessel operators that do not have to abide by all U.S. laws and regulations to sail between U.S. ports in direct competition with Matson and other U.S. domestic operators that must comply with all such laws and regulations. Other U.S. maritime laws require vessels operating between Guam, a U.S. territory, and U.S. ports to be U.S. flagged and predominantly U.S. crewed, but not U.S. built. Cabotage laws are not unique to the United States, and similar laws exist around the world in over 50 countries, including regions in which Matson provides ocean transportation services. Any changes in such laws may have an impact on the services provided by Matson in those regions. (3) Competition Hawaii Service: Matson’s Hawaii service has one major containership competitor, Pasha Hawaii (“Pasha”), which operates container and roll-on/roll-off services between the ports of San Diego, Long Beach and Oakland, California, to Honolulu, Hawaii. There also are two barge operators, Aloha Marine Lines and Sause Brothers, which offer barge service between the Pacific Northwest and Hawaii. Foreign-flag vessels carrying cargo to Hawaii from non-U.S. locations also provide competition for Matson’s Hawaii service. Asia, Australia, New Zealand, and the South Pacific islands have direct foreign-flag services to Hawaii. Mexico, South America and Europe have indirect foreign-flag services to Hawaii. Other competitors in the Hawaii service include proprietary operators and contract carriers of bulk cargo. Air freight competition for time-sensitive and perishable cargo exists; however, inroads by such competition in terms of cargo volume are limited by the amount of cargo space available in passenger aircrafts and by relatively high air freight rates. Matson vessels are operated on schedules that provide shippers and consignees regular day-of-the-week sailings from the U.S. West Coast and day-of-the-week arrivals in Hawaii. Matson generally offers an average of three to four westbound sailings per week, though this amount may be adjusted according to seasonal demand and market conditions. Matson provides over 150 westbound sailings per year, which is greater than its domestic liner ocean competitors’ combined sailings. One of Matson’s westbound sailings each week continues on to Guam and China, so the number of eastbound sailings from Hawaii to the U.S. Mainland averages two to three per week. This service is attractive to customers because more frequent arrivals permit customers to reduce inventory costs. Matson also competes by offering a more comprehensive service to customers, supported by the scope of its container equipment, a dedicated neighbor islands barge network, its efficiency and experience in handling cargo of all types, and competitive pricing. 4 102_10K.pdf 7 2016-02-26 4:22 PM Alaska Service: Matson’s Alaska service has one major competitor, Totem Ocean Trailer Express, Inc., which operates a roll-on/roll off service between Tacoma, Washington and Anchorage, Alaska. There are also two barge operators, Alaska Marine Lines which mainly serves Seattle, Washington to the main ports of Anchorage and Dutch Harbor, and other locations in Alaska, and Samson Tug & Barge which mainly serves Seattle, Washington to many other locations in Alaska. The barge operators have historically shipped lower value bulk commodities and construction materials that can accommodate a longer transit time. Matson offers customers twice weekly scheduled services from Tacoma, Washington to Anchorage and Kodiak, Alaska and weekly service to Dutch Harbor, Alaska. The Company also provides a weekly barge service between Dutch Harbor and Akutan. Matson is the only Jones Act containership operator providing service to Kodiak and Dutch Harbor, which are the primary loading ports for southbound seafood volume. China Service: Major competitors to Matson’s China service include large international carriers such as Maersk, Hanjin, MSC, CMA CGM, Evergreen, China COSCO Shipping Corporation, APL, “K” Line, OOCL, Hyundai and NYK Line. Matson competes by offering fast and reliable freight availability from the ports of Xiamen, Ningbo and Shanghai in China to Long Beach, California, providing fixed day arrivals and next-day cargo availability. Matson’s service is further differentiated by offering a dedicated Long Beach marine terminal, an off-dock container yard providing fast truck turn times, one-stop intermodal connections, and providing state-of-the-art technology and world-class customer service. Matson has offices in Hong Kong, Shenzhen, Xiamen, Ningbo and Shanghai, and has contracted with terminal operators in Xiamen, Ningbo and Shanghai. Guam Service: Matson’s Guam service competes with several foreign carriers that call at Guam with less frequent service, along with Waterman Steamship Corporation, a U.S. flagged carrier, which periodically calls at Guam. At the beginning of 2016, American President Lines (APL) launched a U.S. flagged container feeder bi-weekly service connecting the U.S. West Coast to Guam and Saipan, via transshipments over Yokohama, Japan. Micronesia and the South Pacific Services: Matson’s Micronesia and South Pacific services have competition from a variety of local and international carriers that provide freight services to the area. Logistics: Matson Logistics competes with hundreds of local, regional, national and international companies that provide transportation and third-party logistics services. The industry is highly fragmented and, therefore, competition varies by geography and areas of service. Matson Logistics competes most directly with C.H. Robinson Worldwide, the Hub Group, and other freight brokers and intermodal marketing companies, and asset-invested market leaders such as JB Hunt. Competition is differentiated by the depth, scale and scope of customer relationships; vendor relationships and rates; network capacity; and real-time visibility into the movement of customers’ goods and other technology solutions. Additionally, while Matson Logistics primarily provides surface transportation brokerage, it also competes to a lesser degree with other forms of transportation for the movement of cargo, including air freight services. (4) Customers and Rate Regulations Customers: Matson serves customers in numerous industries and carries a wide variety of cargo, mitigating its dependence upon any single customer or single type of cargo. In 2015, the Company’s 10 largest Ocean Transportation customers accounted for approximately 23 percent of the Company’s Ocean Transportation revenue, and the Company’s 10 largest Logistics customers accounted for approximately 23 percent of the Company’s Logistics revenue. None of these customers accounted for more than 10 percent of the Company’s revenues in their respective operating segments. Rate Regulations: Matson is subject to the jurisdiction of the Surface Transportation Board with respect to its domestic ocean rates. A rate in the non-contiguous domestic trade is presumed reasonable and will not be subject to investigation if the aggregate of increases and decreases is not more than 7.5 percent above, or more than 10 percent below, the rate in effect one year before the effective date of the proposed rate, subject to increase or decrease by the percentage change in the U.S. Producer Price Index. Matson generally provides a 30 day notice to customers of any increases in general rates and terminal handling charges, and passes along decreases as soon as possible. Matson’s Ocean Transportation services engaged in U.S. foreign commerce are subject to the jurisdiction of the Federal Maritime Commission (“FMC”). The FMC is an independent regulatory agency that is responsible for the regulation of ocean-borne international transportation of the U.S. Conducting business in foreign shipping markets subjects the Company to certain risks (see Item 1A of Part I below for additional information about such risks). 5 102_10K.pdf 8 2016-02-26 4:22 PM (5) Fuel Costs Matson purchases fuel oil, lubricants and gasoline for its operations; and also pays fuel surcharges to drayage providers and rail carriers. The cost of fuel oil is by far Matson’s largest energy-related expense. Matson applies a fuel surcharge rate to its Hawaii, Alaska, Guam, China, Micronesia and South Pacific customers. Changes in the fuel surcharge levels are correlated to prevailing market rates for bunker fuel prices along with other fuel related cost factors. In markets excluding China, Matson generally provides a 30-day notice to customers of increases in fuel surcharge rates. In the China market, Matson adjusts the fuel surcharge quarterly. (6) Seasonality Matson’s Ocean Transportation services typically experience seasonality in volume, generally following a pattern of increasing volumes starting in the second quarter of each year, culminating in a peak season throughout the third quarter, with subsequent decline in demand during the fourth and first quarters. This seasonality trend is amplified in the Alaska service primarily due to winter weather and the timing of southbound seafood trade. As a result, earnings tend to follow a similar pattern, offset by periodic vessel dry-docking and other episodic cost factors, which can lead to earnings variability. In addition, in the China trade, volume is driven primarily by U.S. consumer demand for goods during key retail selling seasons while freight rates are impacted mainly by macro supply and demand variables. Matson’s Logistics services are not significantly impacted by seasonality factors. (7) Emissions Matson is focused on reducing transportation emissions, including carbon dioxide, nitrous oxide, particulate matter, and sulfur dioxide, through improvements in vessel fuel consumption and truck efficiency; and the development of more fuel-efficient transportation solutions. The global sulfur emissions cap of 4.5 percent was reduced to 3.5 percent effective January 1, 2012, and is planned to be reduced to as low as 0.5 percent by 2020. With respect to North America, the U.S Environmental Protection Agency (“EPA”) received approval from the International Maritime Organization, in coordination with Environment Canada, to designate all waters, with certain limited exceptions, within 200 nautical miles of U.S. and Canadian coast lines as designated emission control areas (“ECAs”). Most of Matson’s vessels operate a portion of their voyages in ECAs while Matson’s Alaska vessels operate a substantial portion of their voyages in ECAs. The North American ECA went into effect on August 1, 2012, limiting the sulfur emissions to 1.0 percent, with scheduled reductions in future years. Maximum sulfur emissions permitted in designated ECA’s were reduced to 0.1 percent on January 1, 2015. In 2014, Matson received a conditional waiver from the EPA ECA regulations for three diesel-powered vessels used in the Hawaii service that permits the continued use of 1.0 percent sulfur content fuel for a limited time, subject to the development of technologies that monitor main engine performance and promote full power operations on fuels with a sulfur content of less than 0.1 percent. Effective in 2015, Horizon received a conditional waiver (subsequently transferred to Matson pursuant to the Horizon Acquisition) from the EPA ECA regulations for three diesel-powered vessels used in the Alaska service that permits the use of 2.0 percent sulfur content fuel on these vessels for a limited time, subject to the installation and testing of an exhaust gas cleaning system (known as ‘scrubbers’) on such vessels. The conditional waiver includes a schedule by which such installation and testing is to be completed, with dates of installation ranging from the second half of 2015 to the end of 2016. The estimated costs for the installation of scrubbers on all three vessels is approximately $27.7 million, of which approximately $10.1 million was incurred as of December 31, 2015 related to the installation on one vessel. The Company expects the installation of the other two vessels to be completed later in 2016. These capital expenditures are related to the Ocean Transportation segment. B. EMPLOYEES AND LABOR RELATIONS As of December 31, 2015, Matson and its subsidiaries had 1,663 employees, of which 650 employees were covered by collective bargaining agreements with shoreside and offshore unions. These numbers do not include billets on vessels discussed below, or employees of SSAT or non-employees such as agents, temporary workers and contractors. Matson and SSAT are members of the Pacific Maritime Association (“PMA”), which on behalf of its members negotiates collective bargaining agreements with the International Longshore and Warehouse Union (“ILWU”) on the U.S. Pacific Coast. The PMA/ILWU collective bargaining agreements cover substantially all U.S. West Coast longshore labor. Matson also has collective bargaining agreements with other shoreside unions that expire at various dates in the future. 6 102_10K.pdf 9 2016-02-26 4:22 PM Matson’s active fleet employed seagoing personnel in 325 billets at December 31, 2015. Each billet corresponds to a position on a vessel that typically is filled by two or more employees because seagoing personnel rotate between active sea-duty and time ashore. Matson’s seagoing employees are represented by unions for both unlicensed crew members and licensed crew members. Matson has collective bargaining agreements with these unions that expire at various dates in the future. While Matson believes that it will be able to renegotiate collective bargaining agreements with its various unions as they expire without any significant impact on its operations; no assurance can be given that such agreements will be reached without slow-downs, strikes, lock-out or other disruptions that may adversely impact Matson’s operations. Matson contributes to a number of multi-employer pension plans. If Matson were to withdraw from or significantly reduce its obligation to contribute to any one of the plans, Matson would review and evaluate data, actuarial assumptions, calculations and other factors used in determining its withdrawal liability, if any. If any third-parties materially disagree with Matson’s determination, Matson would pursue the various means available to it under federal law for the adjustment or removal of its withdrawal liability. Matson has no present intention of withdrawing from, and does not anticipate the termination of any of the multi-employer pension plans that it contributes to except for the ILA-PRSSA pension fund in Puerto Rico (see Notes 11 and 12 to the consolidated financial statements in Item 8 of Part II below for a discussion of withdrawal liabilities under certain multi-employer pension plans). C. AVAILABLE INFORMATION Matson makes available, free of charge on or through its Internet website, Matson’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the U.S. Securities and Exchange Commission (“SEC”). The address of Matson’s Internet website is www.matson.com. The contents of our website are not incorporated by reference into this Form 10-K. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding Matson and other issuers that file electronically with the SEC. The public may read and copy any materials Matson files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The address of the SEC’s Internet website is www.sec.gov. ITEM 1A. RISK FACTORS The Company’s business faces the risks set forth below, which may adversely affect our business, financial condition and operating results. All forward-looking statements made by the Company or on the Company’s behalf are qualified by the risks described below. Risks Relating To Operations Changes in U.S., global, or regional economic conditions that result in a decrease in consumer confidence or market demand for the Company’s services and products in Hawaii and Alaska, the U.S. Mainland, Guam, Asia or the South Pacific may adversely affect the Company’s financial position, results of operations, liquidity, or cash flows. A weakening of domestic or global economies may adversely impact the level of freight volumes and freight rates. Within the U.S., a weakening of economic drivers in Hawaii and Alaska, which include tourism, military spending, construction starts, personal income growth and employment, or the weakening of consumer confidence, market demand, the economy in the U.S. Mainland, or the effect of a change in the strength of the U.S. dollar against other foreign currencies, may further reduce the demand for goods to and from Asia, Hawaii and Alaska, adversely affecting inland and ocean transportation volumes or rates. In addition, overcapacity in the global or transpacific ocean transportation markets or a change in the cost of goods or currency exchange rates may adversely affect freight volumes and rates in the Company’s China service. The Company may face new or increased competition. The Company may face new competition by established or start-up shipping operators that enter the Company’s markets. The entry of a new competitor or the addition of new vessels or capacity by existing competition on any of the Company’s routes could result in a significant increase in available shipping capacity that could have an adverse effect on volumes and rates. The Company’s major competitor in the Hawaii market introduced a new vessel in 2015, and also acquired Horizon’s Hawaii service, which could adversely impact the Company’s Hawaii service. In addition, at the beginning of 2016, American President Lines (APL) launched a U.S. flagged feeder containership bi-weekly service connecting the U.S. West Coast to Guam and Saipan via transshipments over Yokohama, Japan. As a result of these and other competitor actions, the Company could experience some competition related volume losses. 7 102_10K.pdf 10 2016-02-26 4:22 PM The loss of or damage to key vendor, agent and customer relationships may adversely affect the Company’s business. The Company’s businesses are dependent on their relationships with key vendors, agents and customers, and derive a significant portion of their revenues from the Company’s largest customers. The Company could be adversely affected by any changes in the services provided, or changes to the costs of services provided by key vendors and agents. Relationships with railroads and shipping companies and agents are important in the Company’s intermodal business. The Company’s business also relies on its relationships with the military, freight forwarders, large retailers and consumer goods and automobile manufacturers, as well as other larger customers. In 2015, the Company’s Ocean Transportation segment’s 10 largest customers accounted for approximately 23 percent of the business’ revenue. In 2015, the Company’s Logistics segment’s 10 largest customers accounted for approximately 23 percent of the business’ revenue. The loss of or damage to any of these key relationships may adversely affect the Company’s business and revenue. An increase in fuel prices, or changes in the Company’s ability to collect fuel surcharges, may adversely affect the Company’s profits. Fuel is a significant operating expense for the Company’s Ocean Transportation business. The price and supply of fuel are unpredictable and fluctuate based on events beyond the Company’s control. Increases in the price of fuel may adversely affect the Company’s results of operations based on market and competitive conditions. Increases in fuel costs also can lead to increases in other expenses, for example: increased energy costs, and the costs of purchased outside transportation services. In the Company’s Ocean Transportation and Logistics services segments, the Company is able to utilize fuel surcharges to partially recover increases in fuel expense, although increases in the fuel surcharge may adversely affect the Company’s competitive position and may not correspond exactly with the timing of increases in fuel expense. Changes in the Company’s ability to collect fuel surcharges also may adversely affect its results of operations. Work stoppages or other labor disruptions caused by unionized workers of the Company, other workers or their unions in related industries may adversely affect the Company’s operations. As of December 31, 2015, Matson and its subsidiaries had 1,663 regular employees, of which 650 employees were covered by collective bargaining agreements with unions. In addition, at December 31, 2015, the active Matson fleet employed seagoing personnel in 325 billets. Each billet corresponds to a position on a vessel that typically is filled by two or more employees, because seagoing personnel rotate between active sea-duty and time ashore. Such employees are also subject to collective bargaining agreements. Furthermore, the Company relies on the services of third-parties including SSAT and its parent company, SSA, that employ persons covered by collective bargaining agreements. For additional information on collective bargaining agreements with unions, see Item 1. B. Employees and Labor Relations of Part I above. The Company could be adversely affected by actions taken by employees of the Company or other companies in related industries against efforts by management to control labor costs, restrain wage or benefit increases or modify work practices. Strikes and disruptions may occur as a result of the failure of Matson or other companies in its industry to negotiate collective bargaining agreements with such unions successfully. In addition, any slow-downs, strikes, lock-outs or other disruptions, including limits to availability of labor through trade union hiring halts could have an adverse impact on Matson’s or SSAT’s operations The Company is susceptible to weather and natural disasters. The Company’s operations are vulnerable to disruption as a result of weather and natural disasters such as bad weather at sea, hurricanes, typhoons, tsunamis, floods and earthquakes. Such events will interfere with the Company’s 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 Company’s terminal operations, and may cause serious damage to its vessels and cranes, loss or damage to containers, cargo and other equipment, and loss of life or physical injury to its employees, all of which could have an adverse effect on the Company’s business. The Company maintains casualty and liability insurance policies, which are generally subject to large retentions and deductibles. Some types of losses, such as losses resulting from a port blockage, generally, are not insured. In some cases the Company retains the entire risk of loss because it is not economically prudent to purchase insurance coverage or because of the perceived remoteness of the risk. Other risks are uninsured because insurance coverage may not be commercially available. Finally, the Company retains all risk of loss that exceeds the limits of its insurance. 8 102_10K.pdf 11 2016-02-26 4:22 PM The Company’s significant operating agreements and leases could be replaced on less favorable terms or may not be replaced. The significant operating agreements and leases of the Company in its various businesses expire at various points in the future and may not be replaced or could be replaced on less favorable terms, thereby adversely affecting the Company’s future financial position, results of operations and cash flows. The Company is currently in the process of renewing its terminal lease facilities at Anchorage, Alaska. If we are not able to use our information technology and communications systems effectively, our ability to conduct business might be negatively impacted. The Company is highly dependent on the proper functioning of our information technology systems to enable operations and compete effectively. Our information technology systems rely on third-party service providers for access to the Internet, satellite-based communications systems, the electric grid, database storage facilities and telecommunications providers. We have no control over the operations of these third-party service providers. If our information technology and communications systems experience reliability issues, integration or compatibility concerns or if our third-party providers are unable to perform effectively or experience disruptions or failures, there could be an adverse impact on the availability and functioning of our information technology and communications systems, which could lead to business disruption or inefficiencies, reputational harm or loss of customers that could have an adverse effect on our business. Our information technology systems may be exposed to cybersecurity risks and other disruptions that could impair the Company’s ability to operate and adversely affect its business. The Company relies extensively on its information technology systems and third-party service providers, including for accounting, billing, disbursement, cargo booking and tracking, vessel scheduling and stowage, equipment tracking, customer service, banking, payroll and employee communication systems. Despite our continuous efforts to make investments in our information technology systems, the implementation of security measures to protect our data and infrastructure against breaches and other cyber threats, and our use of internal processes and controls designed to protect the security and availability of our systems, our information technology and communication systems may be vulnerable to cybersecurity risks faced by other large companies in our industry. Our systems may be susceptible to computer viruses, hacking, malware, denial of service attacks, cyber terrorism, circumvention of security systems, malfeasance, breaches due to employee error, natural disasters, telecommunications failure, or other catastrophic events at the Company’s facilities, aboard its vessels or at third-party locations. Any failure, breach or unauthorized access to the Company’s or third-party systems could result in the loss of confidential, sensitive or proprietary information, interruptions in its service or production or otherwise impact our ability to conduct business operations, and could result in potential reductions in revenue and profits, damage to its reputation or liability. Loss of the Company’s key personnel could adversely affect its business. The Company’s future success will depend, in significant part, upon the continued services of its key personnel, including its senior management and skilled employees. The loss of the services of key personnel could adversely affect the Company’s future operating results because of such employees’ experience and knowledge of the Company’s business and customer relationships. If key employees depart, the Company may incur significant costs to replace them. Additionally, the Company’s ability to execute its business model could be impaired if it cannot replace them in a timely manner. The Company does not maintain key person insurance on any of its key personnel. The Company is involved in a joint venture and is subject to risks associated with joint venture relationships. The Company is involved in a terminal joint venture, SSAT, and may initiate future joint venture projects. A joint venture involves certain risks such as: • • • • • • The Company may not have voting control over the joint venture; The Company may not be able to maintain good relationships with its joint venture partner; The joint venture partner at any time may have economic or business interests that are inconsistent with the Company’s; The joint venture partner may fail to fund its share of capital for operations or to fulfill its other commitments, including providing accurate and timely accounting and financial information to the Company; The joint venture may experience operating difficulties and financial losses, which may lead to asset write-downs or impairment charges that could negatively impact the operating results of the joint venture and the Company; The joint venture or venture partner could lose key personnel; 9 102_10K.pdf 12 2016-02-26 4:22 PM • The joint venture partner could become bankrupt requiring the Company to assume all risks and capital requirements related to the joint venture project, and the related bankruptcy proceedings could have an adverse impact on the operation of the partnership or joint venture; and • Actions of the joint venture may result in reputational harm to the Company. In addition, the Company relies on the terminal joint venture, SSAT, and SSA for its stevedoring services on the U.S. West Coast. The Company could be adversely affected by any changes in the services provided, or to the costs of such services provided by the Company’s terminal joint venture, SSAT, and SSA. The Company is subject to risks associated with conducting business in foreign shipping markets. Matson’s China, Micronesia and South Pacific services are subject to risks associated with conducting business in a foreign shipping market, which include: • Challenges associated with operating in foreign countries and doing business and developing relationships with foreign companies; • Challenges in working with and maintaining good relationships with joint venture partners in our foreign operations; • Difficulties in staffing and managing foreign operations; • Our ability to be in compliance with U.S. and foreign legal and regulatory restrictions, including compliance with the Foreign Corrupt Practices Act and foreign laws that prohibit corrupt payments to government officials; • Global vessel overcapacity that may lead to decreases in volumes and shipping rates; • Not having continued access to existing port facilities; • Competition with established and new carriers; • Currency exchange rate fluctuations and our ability to manage these fluctuations; • • • Challenges caused by cultural differences. Political and economic instability; Protectionist measures that may affect the Company’s operation of its wholly-owned foreign enterprise; and Any of these risks has the potential to adversely affect the Company’s operating results. The Company’s Logistics segment is dependent upon third-parties for equipment, capacity and services essential to operate its business, and if the Company fails to secure sufficient third-party services, its business could be adversely affected. The Company’s Logistics segment is dependent upon rail, truck and ocean transportation services provided by independent third- parties. If the Company cannot secure sufficient transportation equipment, capacity or services from these third-parties at reasonable rates to meet its customers’ needs and schedules, customers may seek to have their transportation and logistics needs met by other third-parties on a temporary or permanent basis. As a result, the Company’s business, consolidated results of operations and financial condition could be adversely affected. The Company is subject to risks related to a marine accident or spill event. The Company’s vessel and terminal operations could be faced with a maritime accident, oil or other spill, or other environmental mishap. Such event may lead to personal injury, loss of life, damage of property, pollution and suspension of operations. As a result, such event could have an adverse effect on the Company’s business. The Company’s Shipbuilding Agreements with Philly Shipyard are subject to risks. On November 6, 2013, MatNav and Philly Shipyard (formerly known as Aker Philadelphia Shipyard, Inc.) entered into definitive agreements pursuant to which APSI will construct two new 3,600-TEU Aloha-class dual-fuel capable containerships, with expected delivery dates during the third quarter of 2018 and the first quarter of 2019. Failure of either party to the shipbuilding agreements to fulfill its obligations under the agreements could have an adverse effect on the Company’s financial position and results of operations. Heightened security measures, war, actual or threatened terrorist attacks, efforts to combat terrorism and other acts of violence may adversely impact the Company’s operations and profitability. War, terrorist attacks and other acts of violence may cause consumer confidence and spending to decrease, or may affect the ability or willingness of tourists to travel to Hawaii, thereby adversely affecting Hawaii’s economy and the Company. Additionally, future terrorist attacks could increase volatility in the U.S. and worldwide financial markets. Acts of war or terrorism may be directed at the Company’s shipping operations, or may cause the U.S. government to take control of Matson’s vessels for military operation. Heightened security measures potentially slow the movement and increase the cost of freight through U.S. or foreign ports, across borders or on U.S. or foreign railroads or highways and could adversely affect the Company’s business and results of operations. 10 102_10K.pdf 13 2016-02-26 4:22 PM Acquisitions may have an adverse effect on the Company’s business. The Company’s growth strategy includes expansion through acquisitions. Acquisitions may result in difficulties in assimilating acquired assets or companies, and may result in the diversion of the Company’s capital and its management attention from other business issues and opportunities. The Company may not be able to integrate companies that it acquires successfully, including their personnel, financial systems, distribution, operations and general operating procedures. The Company may also encounter challenges in achieving appropriate internal control over financial reporting in connection with the integration of an acquired company. The Company may pay a premium for an acquisition, resulting in goodwill that may later be determined to be impaired, adversely affecting the Company’s financial condition and results of operations. Higher than expected costs associated with the continuing integration of Horizon could adversely impact our results, financial position, liquidity or cash flow. The Company expects to benefit from various cost saving initiatives as part of the integration process related to the Horizon Acquisition. Integration cost savings expectations are in the areas of corporate office closures and headcount reductions, information technology expense reductions, as well as customer service and marketing expense reductions. There can be no assurance that the Company will be able to achieve the expected integration cost savings or that the cost savings will be achieved within the planned 24- month post-closing period. The lack of or delay in integration cost savings could have a materially adverse effect upon our business and results of operations. The Horizon Acquisition may expose us to unknown liabilities. We acquired Horizon subject to all of the liabilities and obligations of its non-Hawaii business, including any remaining liabilities and obligations associated with its Puerto Rico operations, which Horizon ceased during the first quarter of 2015. Such liabilities include the estimated cost of the multi-employer withdrawal liability related to the ILA-PRSSA pension plan (See Note 3 and Note 12 to the consolidated financial statements in Item 8 of Part II below). The disposition of these liabilities, and any other obligations that are unknown to the Company, including contingent liabilities, could have an adverse effect on the Company’s financial condition and results of operations. We may continue to be exposed to risks and liabilities related to Horizon’s former Hawaii business. Pasha acquired Horizon’s former Hawaii business immediately before we acquired Horizon, and Pasha assumed substantially all liabilities and obligations related to Horizon’s Hawaii business and agreed to perform various covenants. In some cases however, Horizon, as the original contracting party, may remain primarily responsible for such assumed Hawaii liabilities and obligations. The Company may incur losses related to such assumed Hawaii liabilities and obligations. We may be required to record a significant charge to earnings if recorded intangible assets associated with the Horizon Acquisition become impaired. We recorded significant intangible assets related to goodwill and customer relationships arising from the Horizon Acquisition. We are required to test goodwill for impairment annually, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Factors that could lead to an impairment of goodwill or intangible customer relationships include any significant adverse changes affecting the reporting unit’s financial condition, results of operations, and future cash flows. We may be required to record future charges to earnings if goodwill associated with the Horizon Acquisition become impaired. Any such charge would adversely impact our financial results. Risks Relating to Financial Matters A deterioration of the Company’s credit profile or disruptions of the credit markets could restrict its ability to access the debt capital markets or increase the cost of debt. Deterioration in the Company’s credit profile may have an adverse effect on the Company’s ability to access the private or public debt markets and also may increase its borrowing costs. If the Company’s credit profile deteriorates significantly, its access to the debt capital markets or its ability to renew its committed lines of credit may become restricted, or the Company may not be able to refinance debt at the same levels or on the same terms. Because the Company relies on its ability to draw on its revolving credit facilities to support its operations, when required, any volatility in the credit and financial markets that prevents the Company from accessing funds (for example, a lender that does not fulfill its lending obligation) could have an adverse effect on the Company’s financial condition and cash flows. Additionally, the Company’s credit agreements generally include an increase in borrowing rates if the Company’s credit profile deteriorates. Furthermore, the Company incurs interest under its revolving credit facilities based on floating rates. Floating rate debt creates higher debt service requirements if market interest rates increase, which would adversely affect the Company’s cash flow and results of operations. 11 102_10K.pdf 14 2016-02-26 4:22 PM Failure to comply with certain restrictive financial covenants contained in the Company’s credit facilities could preclude the payment of dividends, impose restrictions on the Company’s business segments, capital resources or other activities or otherwise adversely affect the Company. The Company’s credit facilities contain certain restrictive financial covenants, the most restrictive of which include the maintenance of minimum shareholders’ equity levels, a maximum ratio of debt to earnings before interest, taxes, depreciation and amortization, and the maintenance of no more than a maximum amount of priority debt as a percentage of consolidated tangible assets. If the Company does not maintain the required covenants, and that breach of covenants is not cured timely or waived by the lenders, resulting in default, the Company’s access to credit may be limited or terminated, dividends may be suspended, and the lenders could declare any outstanding amounts due and payable. The Company’s continued ability to borrow under its credit facilities is subject to compliance with these financial and other non-financial covenants. The Company’s effective income tax rate may vary. Various internal and external factors may have favorable or unfavorable, material or immaterial effects on the Company’s effective income tax rate and, therefore, impact the Company’s net income and earnings per share. These factors include, but are not limited to changes in tax rates; changes in tax laws, regulations, and rulings; changes in interpretations of existing tax laws, regulations and rulings; changes in the evaluation of the Company’s ability to realize deferred tax assets, and changes in uncertain tax positions; changes in accounting principles; changes in current pre-tax income as well as changes in forecasted pre-tax income; changes in the level of CCF deductions, non-deductible expenses, and expenses eligible for tax credits; changes in the mix of earnings among countries with varying tax rates; acquisitions and changes in the Company’s corporate structure. These factors may result in periodic revisions to our effective income tax rate, which could affect the Company’s cash flow and results of operations. Changes in the value of pension assets, or a change in pension law or key assumptions, may adversely affect the Company’s financial performance. The amount of the Company’s employee pension and post-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, changes in discount rates, higher health care costs, or lower actual or expected returns on plan assets, may adversely affect the Company’s operating results, cash flows, and financial condition. In addition, a change in federal law, including changes to the Employee Retirement Income Security Act or Pension Benefit Guaranty Corporation premiums, may adversely affect the Company’s single- employer and multi-employer pension plans and plan funding. These factors, as well as a decline in the fair value of pension plan assets, may put upward pressure on the cost of providing pension and medical benefits and may increase future pension expense and required funding contributions. There can be no assurance that the Company will be successful in limiting future cost and expense increases, and continued upward pressure in costs and expenses could further reduce the profitability of the Company’s businesses. The Company may have exposure under its multi-employer pension and post-retirement plans in which it participates that extends beyond its funding obligation with respect to the Company’s employees. The Company contributes to various multi-employer pension plans. In the event of a partial or complete withdrawal by the Company from any plan that is underfunded, the Company would be liable for a proportionate share of such plan’s unfunded vested benefits (See Note 11 to the consolidated financial statements in Item 8 of Part II below). Based on the limited information available from plan administrators, which the Company cannot independently validate, the Company believes that its portion of the contingent liability in the case of a full withdrawal or termination may be material to its financial position and results of operations. If any other contributing employer withdraws from any plan that is underfunded, and such employer (or any member of its controlled group) cannot satisfy its obligations under the plan at the time of withdrawal, then the Company, along with the other remaining contributing employers, would be liable for its proportionate share of such plan’s unfunded vested benefits. In addition, if a multi-employer plan fails to satisfy the minimum funding requirements, the Internal Revenue Service will impose certain penalties and taxes. Risks Relating to Legal and Legislative Matters Compliance with safety and environmental protection and other governmental requirements may adversely affect our operations. The shipping industry in general, our business and the operation of our vessels and terminals in particular are affected by extensive and changing safety, environmental protection and other international, national, State and local governmental laws and regulations, including the following: laws pertaining to air emissions; wastewater discharges; the transportation, handling and disposal of solid and hazardous materials, oil and oil-related products, hazardous substances and wastes; the investigation and remediation of 12 102_10K.pdf 15 2016-02-26 4:22 PM contamination; and health, safety and the protection of the environment and natural resources. For example, our U.S. flagged vessels generally must be maintained “in class” and are subject to periodic inspections by ABS Quality Evaluation, Inc., or similar classification societies, and must be periodically inspected by, or on behalf of, the United States Coast Guard. Federal environmental laws and certain State laws require us, as a vessel operator, to comply with numerous environmental regulations and to obtain certificates of financial responsibility and to adopt procedures for oil and hazardous substance spill prevention, response and clean up. In complying with these laws, we have incurred expenses and may incur future expenses for vessel modifications and changes in operating procedures. Changes in enforcement policies for existing requirements and additional laws and regulations adopted in the future could limit our ability to do business or further increase the cost of our doing business. Our vessels’ operating certificates and licenses are renewed periodically during the required annual surveys of the vessels. However, there can be no assurance that such certificates and licenses will be renewed, even though Matson maintains extensive programs and policies to ensure such renewal. Also, in the future, we may have to alter existing equipment, add new equipment, or change operating procedures for our vessels to comply with changes in governmental regulations, safety or other equipment standards to meet our customers’ changing needs. If any such costs are material, they could adversely affect our financial condition. We are subject to regulation and liability under environmental laws that could result in substantial fines and penalties that may have a material adverse effect on our results of operations. The U.S. Act to Prevent Pollution from vessels, which implements the International Maritime Pollution (MARPOL) treaty, and the Oil Pollution Action of 1990 (OPA-90), among many other laws, treaties and regulations, provides for severe civil and criminal penalties related to vessel-generated pollution for incidents in U.S. waters within three nautical miles and in some cases within the 200-mile exclusive economic zone. The EPA requires vessels to obtain coverage under a general permit and to comply with inspection, monitoring, discharge, recordkeeping and reporting requirements. Matson’s vessels operate within surplus emission control areas (SECAs) or emission control areas (ECAs). If our vessels are not operated in accordance with these requirements, including record keeping and other reporting requirements, such violations could result in substantial fines or penalties that could have a material adverse effect on our results of operations and our business. If we are unable to comply with changing EPA regulations regarding fuel and emissions, it may adversely impact our ongoing operations. Most of Matson’s vessels operate a portion of their voyages in designated ECAs, while Matson’s Alaska vessels operate a substantial portion of their voyages in ECAs. Beginning January 2012, the EPA issued new regulations regarding the sulfur content of fuel oils utilized by vessels operating in ECAs. Beginning January 1, 2015, these emission regulations require the sulfur content of fuel oil utilized by vessels operating inside ECAs not to exceed 0.1 percent. In 2014, Matson received a conditional waiver from the EPA ECA regulations for three diesel-powered vessels used in the Hawaii service that permits the continued use of 1percent sulfur fuel for a limited time, subject to our development of technologies that monitor main engine performance and promote full power operation on diesel fuels with a sulfur content of less than 0.1 percent. Effective in 2015, Horizon received a conditional waiver (subsequently transferred to Matson pursuant to the Horizon Acquisition) from the EPA ECA regulations for three diesel-powered vessels used in the Alaska service that permits the continued use of these vessels burning higher sulfur content fuel for a limited time, subject to the installation and testing of an exhaust gas cleaning system (known as ‘scrubbers’) on such vessels. The conditional waiver includes a schedule by which such installation and testing to be completed, with dates of installation ranging from the second half of 2015 to the end of 2016. If we are not able to install the scrubbers by the applicable deadline, or we are otherwise unable to comply with our obligations under the conditional waiver, the conditional waiver may terminate. Even if we are able to meet the requirements of the conditional waiver, there is no assurance that the scrubbers will be successful in reducing emissions and producing results that comply with the EPA ECA regulations. In such situation, the Company would be required to operate these vessels utilizing low sulfur fuel, which could risk damaging the existing engines unless they are run at low speeds. Lower speeds, however, could cause schedule delays or require us to operate additional vessels in Alaska and incur additional costs, which could have a material adverse effect on our business and results of operations. Also, the operation of scrubbers involves the transportation of hazardous materials that in themselves create a risk. The Company is subject to risks related to removal of the molasses tank farm and pier risers at Sand Island Terminal in Honolulu. Pursuant to the Company’s settlement with the State of Hawaii to resolve all of the State’s claims arising from the discharge of molasses into the Honolulu Harbor in September 2013, the Company agreed to remove the molasses tank farm and pier risers at the Sand Island Terminal in Honolulu. The Company hired an engineering consulting firm to develop plans to remove the items safely and developed a Spill Prevention and Response Plan. Despite these precautions, molasses could be released into the environment during demolition activities. This could lead to suspension of operations, third-party or governmental agency claims, disputes, legal or other proceedings, fines, penalties, natural resource damages, inquiries or investigations or other regulatory actions. As a result, such event could have an adverse effect on the Company’s business. 13 102_10K.pdf 16 2016-02-26 4:22 PM The Company is subject to, and may in the future be subject to disputes, legal or other proceedings, and government inquiries or investigations that could have an adverse effect on the Company. The nature of the Company’s business exposes it to the potential for disputes, legal or other proceedings, and government inquiries or investigations, relating to antitrust matters, labor and employment matters, personal injury and property damage, environmental and other matters, as discussed in the other risk factors disclosed in this section or in other Company filings with the SEC. For example, 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 or judicial proceedings. If these disputes develop into proceedings, these proceedings, individually or collectively, could involve or result in significant expenditures or losses by the Company, or result in significant changes to Matson’s tariffs, rates, rules and practices in dealing with its customers, all of which could have an adverse effect on the Company’s future operating results, including profitability, cash flows, and financial condition. Repeal, substantial amendment, or waiver of the Jones Act or its application would have an adverse effect on the Company’s business. If the Jones Act was to be repealed, substantially amended, or waived and, as a consequence, competitors were to enter the Hawaii or Alaska markets with lower operating costs by utilizing their ability to acquire and operate foreign-flag and foreign-built vessels, the Company’s business would be adversely affected. In addition, the Company’s advantage as a U.S. citizen operator of Jones Act vessels could be eroded by periodic efforts and attempts by foreign interests to circumvent certain aspects of the Jones Act. If maritime cabotage services were included in the General Agreement on Trade in Services, the North American Free Trade Agreement or other international trade agreements, or if the restrictions contained in the Jones Act were otherwise altered, the shipping of cargo between covered U.S. ports could be opened to foreign-flag or foreign-built vessels. Non-compliance with, or changes to, federal, state or local law or regulations, including passage of climate change legislation or regulation, may adversely affect the Company’s business. The Company is subject to federal, state and local laws and regulations, including cabotage laws, government rate regulations, and environmental regulations including those relating to air quality initiatives at port locations, including but not limited to, the Oil Pollution Act of 1990, the Comprehensive Environmental Response Compensation & Liability Act of 1980, the Rivers and Harbors Act of 1899, the Clean Water Act, the Invasive Species Act and the Clean Air Act. Continued compliance with these laws and regulations may result in additional costs and changes in operating procedures that may adversely affect the Company’s business. Non-compliance with, or changes to, the laws and regulations governing the Company’s business could impose significant additional costs on the Company and adversely affect the Company’s financial condition and results of operations. In addition, changes in environmental laws impacting the business, including passage of climate change legislation or other regulatory initiatives that restrict emissions of greenhouse gasses such as a “cap and trade” system of allowances and credits, if enacted, may require costly vessel modifications, the use of higher-priced fuel and changes in operating practices that may not be recoverable through increased payments from customers. Further changes to these laws and regulations could adversely affect the Company. Risks Related to Capital Structure The Company’s business could be adversely affected if the Company were determined not to be a U.S. citizen under the Jones Act. Certain provisions of the Company’s articles of incorporation protect the Company’s ability to maintain its status as a U.S. citizen under the Jones Act. Although the Company is a U.S. citizen under the Jones Act, if non-U.S. citizens were able to defeat such articles of incorporation restrictions and own in the aggregate more than 25 percent of the Company’s common stock, the Company would no longer be considered as a U.S. citizen under the Jones Act. Such an event could result in the Company’s ineligibility to engage in coastwise trade and the imposition of substantial penalties against it, including seizure or forfeiture of its vessels, which could have an adverse effect on the Company’s financial condition and results of operation. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 14 102_10K.pdf 17 2016-02-26 4:22 PM ITEM 2. PROPERTIES Matson leases terminal facilities including office and storage space at the following locations: Terminal Location Honolulu, Hawaii ............................................... West Oahu, Hawaii ............................................ Tacoma, Washington ......................................... Anchorage, Alaska ............................................. Kodiak, Alaska ................................................... Dutch Harbor, Alaska ........................................ Polaris Point, Guam ........................................... Acreage 105 7 18 38 6 18 30 Expiration Date September 2018 June 2017 December 2015 December 2015 February 2020 December 2015 June 2060 The Company is currently renewing leases that are past expiration date. The Company’s other primary terminal facilities located at the Port of Seattle, Washington, and the Ports of Oakland and Long Beach, California, are leased by the Company’s terminal joint venture partner, SSAT. The Company’s other significant office locations, warehouses and storage facilities are as follows: Office and Other Location U.S. Locations Honolulu, Hawaii ........................................................................................ Irving, Texas ............................................................................................... Oakland, California ..................................................................................... Phoenix, Arizona ........................................................................................ Oakbrook Terrace, Illinois .......................................................................... Concord, California .................................................................................... Renton, Washington .................................................................................... Atlanta, Georgia .......................................................................................... Akron, Ohio ................................................................................................ Tamuning, Guam ........................................................................................ Portland, Oregon ......................................................................................... Elizabeth, New Jersey ................................................................................. Foreign Locations .......................................................................................... Shanghai, China .......................................................................................... Auckland, New Zealand .............................................................................. Hong Kong, China ...................................................................................... Ningbo, China ............................................................................................. Xiamen, China ............................................................................................ Shenzhen, China ......................................................................................... Warehouses and Storage Facility .................................................................. Pooler, Georgia ........................................................................................... Oakland, California ..................................................................................... Pooler, Georgia ........................................................................................... Rancho Dominguez, California................................................................... Oakland, California ..................................................................................... Onehunga, New Zealand ............................................................................. Alameda, California .................................................................................... ITEM 3. LEGAL PROCEEDINGS Description of Facility Square Footage Corporate headquarters Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Warehouse Warehouse Warehouse Warehouse Warehouse Warehouse Storage facility 16,444 51,989 48,162 27,986 17,004 7,974 5,162 3,685 3,500 3,500 3,203 1,844 7,240 3,832 2,911 2,103 1,399 1,065 710,844 400,000 324,832 141,000 132,000 17,577 53,785 The Company’s Ocean Transportation business has certain risks that could result in expenditures for environmental remediation. The Company believes that based on all information available to it, the Company is currently in compliance, in all material respects, with applicable environmental laws and regulations. The Company and its subsidiaries are parties to, or may be contingently liable in connection with other legal actions arising in the normal course of their businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on the Company’s financial condition, results of operations, or cash flows. ITEM 4. MINE SAFETY DISCLOSURES 15 102_10K.pdf 18 2016-02-26 4:22 PM Not Applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES General Information: Matson’s common stock is traded on the New York Stock Exchange under the ticker symbol “MATX”. As of February 23, 2016, there were 2,413 shareholders of record of Matson common stock. In addition, Cede & Co., which appears as a single record holder, represents the holdings of thousands of beneficial owners of Matson common stock. Stockholder Return Performance Graph and Other Information: The following information in this Item 5 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933. The cumulative total return listed below assumed an initial investment of $100 and reinvestment of dividends at each fiscal end and measures the performance of this investment as of the last trading day in the month of December for each of the five years ended December 31, 2015. The graph is a historical representation of past performance only and is not necessarily indicative of future performance. * $100 invested on December 31, 2010 in stock or index, including reinvestment of dividends. Trading volume averaged 240,996 shares a day in 2015, compared with 273,309 shares a day in 2014 and 228,479 shares a day in 2013. The quarterly intra-day high and low sales prices and end of quarter closing prices, as reported by the New York Stock Exchange, and cash dividends paid per share of common stock, for each fiscal quarter during 2015 and 2014, were as follows: Dividends Paid High Market Price Low Close 2015 First Quarter .............................................................................................. Second Quarter ......................................................................................... Third Quarter ............................................................................................ Fourth Quarter ........................................................................................... $ $ $ $ 0.17 0.17 0.18 0.18 $ $ $ $ 42.55 43.84 43.80 53.18 $ $ $ $ 32.41 39.79 35.03 38.27 $ $ $ $ 42.16 42.04 38.49 42.63 16 102_10K.pdf 19 2016-02-26 4:22 PM  Dividends Paid High Market Price Low Close 2014 First Quarter .............................................................................................. Second Quarter ......................................................................................... Third Quarter ............................................................................................ Fourth Quarter ........................................................................................... $ $ $ $ 0.16 0.16 0.17 0.17 $ $ $ $ 26.88 26.91 29.54 36.73 $ $ $ $ 22.50 22.48 25.02 24.48 $ $ $ $ 24.69 26.84 25.03 34.52 Dividends: The Company declared and paid the following dividends during 2015: 2015 First Quarter ............................................................................... Second Quarter .......................................................................... Third Quarter ............................................................................. Fourth Quarter ............................................................................ $ $ $ $ Dividends Declared 0.17 0.17 0.18 0.18 Shareholders of Record Date February 12, 2015 May 7, 2015 August 6, 2015 November 5, 2015 Date Paid March 5, 2015 June 4, 2015 September 3, 2015 December 3, 2015 Matson’s Board of Directors also declared a cash dividend of $0.18 per share for the first quarter 2016, payable on March 3, 2016 to shareholders of record on February 11, 2016. Although Matson expects to continue paying quarterly cash dividends on its common stock, the declaration and payment of dividends are subject to the discretion of the Board of Directors and will depend upon Matson’s financial condition, results of operations, cash requirements and other factors deemed relevant by the Board of Directors. Share Repurchases: The following is a summary of the stock repurchased during the three months ended December 31, 2015: Period October 1 — 31, 2015 .......................................... November 1 — 30, 2015 ...................................... December 1 — 31, 2015 ...................................... Total ................................................................. Total Number of Shares Purchased Average Price Paid per Share — 18,000 112,000 130,000 $ $ $ — 51.77 44.76 45.73 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares that May Be Purchased Under the Plans or Programs — 18,000 112,000 130,000 — 2,982,000 2,870,000 (1) On November 4, 2015, the Company announced that Matson’s Board of Directors had approved a share repurchase program of up to 3.0 million shares of common stock through November 2, 2018. Shares will be repurchased in the open market from time to time, and may be made pursuant to a trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The Company did not repurchase any of its common stock in 2014 or 2013. Securities Issued under Equity Compensation Plans: See the subsection captioned “Equity Compensation Plan Information” in Matson’s 2016 Proxy Statement for information regarding securities authorized for issuance under the Company’s equity compensation plans, which subsection is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The following should be read in conjunction with Item 8, “Financial Statements and Supplementary Data,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (dollars and shares in millions, except shareholders of record and per-share amounts): Operating Revenue: Ocean Transportation .................................... Logistics ........................................................ Total Operating Revenue .............................. Operating Income: Ocean Transportation (1) .............................. Logistics ........................................................ Total Operating Income .................................... 2015 2014 2013 2012 2011 $ $ $ $ $ $ 1,278.4 435.8 1,714.2 131.1 8.9 140.0 $ $ $ 1,229.4 407.8 1,637.2 94.3 6.0 100.3 $ $ $ 1,189.8 370.2 1,560.0 96.6 0.1 96.7 1,076.2 386.4 1,462.6 73.7 4.9 78.6 $ $ $ 1,498.0 386.9 1,884.9 187.8 8.5 196.3 17 102_10K.pdf 20 2016-02-26 4:22 PM Interest expense ............................................. 2015 (18.5) 2014 (17.3) Income before Income Taxes ............................ Income tax expense ....................................... Net Income from Continuing Operations .......... Loss From Discontinued Operations (net of income taxes) ........................................ Net Income ........................................................ Identifiable Assets: Ocean Transportation (2) .............................. Logistics ........................................................ Other (3) ........................................................ Total Assets ...................................................... Capital Expenditure from Continuing Operations (4): Ocean Transportation .................................... Logistics ........................................................ Total Capital Expenditures ............................... Depreciation and Amortization from Continuing Operations: Ocean Transportation .................................... Logistics ........................................................ Total Depreciation and Amortization ............... Earnings Per Share in Income from continuing operations: Basic ............................................................. Diluted .......................................................... Earnings Per Share in Net Income: Basic ............................................................. Diluted .......................................................... Cash dividends per share declared .................... As of December 31: Shareholders of record .................................. Shares outstanding ........................................ Long-term debt — non-current ..................... 177.8 (74.8) 103.0 — 103.0 1,601.0 68.8 — 1,669.8 67.5 0.3 67.8 81.4 2.0 83.4 2.37 2.34 2.37 2.34 0.70 2,406 43.5 407.9 $ $ $ $ $ $ $ $ $ $ $ $ $ 122.7 (51.9) 70.8 — 70.8 1,313.9 87.9 — 1,401.8 27.8 0.1 27.9 66.6 3.1 69.7 1.65 1.63 1.65 1.63 0.66 2,509 43.2 352.0 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2013 2012 2011 (14.4) 85.9 (32.2) 53.7 — 53.7 1,168.6 79.7 — 1,248.3 33.8 1.4 35.2 66.4 3.3 69.7 1.26 1.25 1.26 1.25 0.62 2,607 42.8 273.6 $ $ $ $ $ $ $ $ $ $ $ $ $ (11.7) 85.0 (33.0) 52.0 (6.1) 45.9 1,097.2 77.1 — 1,174.3 37.0 1.1 38.1 69.1 3.4 72.5 1.23 1.22 1.09 1.08 0.93 2,729 42.6 302.7 $ $ $ $ $ $ $ $ $ $ $ $ $ (7.7) 70.9 (25.1) 45.8 (11.6) 34.2 1,083.9 76.4 1,384.0 2,544.3 44.2 3.0 47.2 68.4 3.2 71.6 1.10 1.09 0.82 0.81 1.26 2,923 41.7 180.1 (1) (2) The Ocean Transportation segment includes $16.5 million, $6.6 million, $(2.0) million, $3.2 million and $8.6 million of equity in income/(loss) from the Company’s terminal joint venture, SSAT, for 2015, 2014, 2013, 2012 and 2011, respectively. The Ocean Transportation segment includes $66.4 million, $64.4 million, $57.6 million, $59.6 million and $56.5 million, related to the Company’s terminal joint venture equity investment in SSAT as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively. (3) Other identifiable assets related to discontinued operations from the Company’s former parent company and the Company’s second China Long Beach Express Service (“CLX2”) of $1.4 billion as of December 31, 2011. (4) Excludes expenditures related to Matson’s acquisitions, which are classified as payments for acquisitions in Cash Flows used in Investing Activities from Continuing Operations within the Consolidated Statements of Cash Flows. 18 102_10K.pdf 21 2016-02-26 4:22 PM ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS AND RISK FACTORS The Company, from time to time, may make or may have made certain forward-looking statements, whether orally or in writing, such as forecasts and projections of the Company’s future performance or statements of management’s plans and objectives. These statements are “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be contained in, among other things, SEC filings, such as the Forms 10-K, 10-Q and 8-K, the Annual Report to Shareholders, press releases made by the Company, the Company’s Internet Websites (including Websites of its subsidiaries), and oral statements made by the officers of the Company. Except for historical information contained in these written or oral communications, such communications contain forward-looking statements. These include, for example, all references to 2016 or future years. New risk factors emerge from time to time and it is not possible for the Company to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including but not limited to the factors that are described in Part I, Item 1A under the caption of “Risk Factors” of this Form 10-K, which section is incorporated herein by reference. The Company is not required, and undertakes no obligation, to revise or update forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, or circumstances occurring after the date of this report. OVERVIEW Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a discussion of the Company’s financial condition, results of operations, liquidity and certain other factors that may affect its future results from the perspective of management. The discussion that follows is intended to provide information that will assist in understanding the changes in the Company’s consolidated financial statements from year to year, the primary factors that accounted for those changes, and how certain accounting principles, policies and estimates affect the Company’s consolidated financial statements. MD&A is provided as a supplement to, and should be read in conjunction with the consolidated financial statements and the accompanying notes to the consolidated financial statements in Item 8 of Part II below. MD&A is presented in the following sections: • Business Outlook • Consolidated Results of Operations • Analysis of Operating Revenue and Income by Segment • • Contractual Obligations, Commitments, Contingencies and Off-Balance Sheet Arrangements • Critical Accounting Estimates • Other Matters Liquidity and Capital Resources BUSINESS OUTLOOK The following is the Company’s fourth quarter 2015 discussion and 2016 Outlook: In the fourth quarter 2015, the Hawaii trade experienced modest westbound market growth and, as expected, Matson achieved meaningful volume gains as it deployed additional vessels in response to a competitor’s service reconfiguration. The Company believes that the Hawaii economy remains healthy and expects the continued progress of the construction cycle in urban Honolulu to generate modest volume growth. As a result, for the full year 2016, the Company expects its Hawaii container volume to be moderately higher than 2015. In the China trade, despite freight rates for other ocean carriers reaching historic lows, the Company achieved average freight rates that approximated the strong rates achieved in the fourth quarter 2014. And, as expected, the Company’s China volume in the fourth quarter 2015 was moderately lower due to one fewer sailing, the absence of the extraordinarily high demand experienced in the fourth quarter 2014 during the U.S. West Coast labor disruptions, and market softness. In 2016, international vessel overcapacity is expected to persist with vessel deliveries outpacing demand growth and putting continued pressure on international ocean carrier freight rates. The Company expects its expedited service to continue to realize a sizable premium and maintain high vessel utilization in 2016, albeit at average freight rates that are significantly lower than 2015. 19 102_10K.pdf 22 2016-02-26 4:22 PM In Guam, economic activity in the fourth quarter 2015 was stable and the Company achieved modest volume growth as the expected launch of a new competitor’s bi-weekly U.S. flagged containership service to Guam was delayed until early 2016. For the full year 2016, the Company expects to experience competitive volume losses to this new service. In Alaska, volume for the fourth quarter 2015 was approximately 14,200 containers. In 2016, the Company expects Alaska volume to be modestly lower than the total 67,300 containers carried by Horizon and Matson in 2015. The Company intends to operate a base deployment of three containerships in Alaska and expects to complete the installation of exhaust gas scrubbers on those ships in 2016. The Company’s integration of the Alaska operations is progressing well and is expected to be substantially complete by the end of the third quarter 2016. Selling, general and administrative expenses related to the Horizon Acquisition are not expected to materially exceed the incremental run-rate target of $15.0 million per year in 2016. Further, the Company continues to expect to achieve its earnings and cash flow accretion targets for the Horizon Acquisition by mid-2017. The Company’s terminal joint venture, SSAT, continued to benefit from improved lift volume during the fourth quarter. For the full year 2016, the Company expects SSAT to contribute profits modestly lower than the $16.5 million contributed in 2015, primarily due to the absence of factors related to the clearing of international cargo backlog in the first half of 2015 that resulted from the U.S. West Coast labor disruptions. For the full year 2016, the Company expects that Ocean Transportation operating income to be modestly lower than the $187.8 million achieved in 2015. In the first quarter 2016, the Company expects operating income to be approximately 25 percent lower than the first quarter 2015 level of $43.9 million. Logistics: Volume declines in Logistics’ businesses extended into the fourth quarter 2015 and the Company achieved an operating income margin of 2.5 percent. The Company expects 2016 operating income to modestly exceed the 2015 level of $8.5 million, driven by volume growth and continued expense control. Interest Expense: The Company expects its interest expense in 2016 to be approximately $19.0 million. Income Tax Expense: The Company expects its effective tax rate for the full year 2016 to be approximately 39.0 percent. Capital Spending and Vessel Dry-docking: For the full year 2015, the Company made maintenance capital expenditures of $46.9 million, scheduled contract payments for its two vessels under construction of $20.9 million, and dry-docking payments of $25.7 million. For the full year 2016, the Company expects to make maintenance capital expenditures of approximately $65 million, scheduled new vessel construction progress payments of $67.2 million, and dry-docking payments of approximately $60 million. For the full year 2016, the Company expects depreciation and amortization to total approximately $133 million compared to $105.8 million in 2015, inclusive of dry-docking amortization of approximately $35 million expected in 2016 and $23.1 million in 2015. CONSOLIDATED RESULTS OF OPERATIONS The following analysis of the financial condition and results of operations of Matson should be read in conjunction with the consolidated financial statements in Item 8 of Part II below. Consolidated Results: 2015 compared with 2014: (dollars in millions, except per share amounts) Operating revenue ...................................................................................... Operating costs and expenses .................................................................... Operating income ....................................................................................... Interest expense .......................................................................................... Income before income taxes ...................................................................... Income tax expense .................................................................................... Net income ................................................................................................. Basic earnings per share ............................................................................. Diluted earnings per share ......................................................................... $ $ $ $ Years Ended December 31, 2015 2014 Change 1,884.9 (1,688.6) 196.3 (18.5) 177.8 (74.8) 103.0 2.37 2.34 $ $ $ $ 1,714.2 (1,574.2) 140.0 (17.3) 122.7 (51.9) 70.8 1.65 1.63 10.0% 7.3% 40.2% 6.9% 44.9% 44.1% 45.5% 43.6% 43.6% 20 102_10K.pdf 23 2016-02-26 4:22 PM Consolidated Operating Revenue for the year ended December 31, 2015 increased $170.7 million, or 10.0 percent, compared to the prior year. This increase was due to an increase of $219.6 million for Ocean Transportation, partially offset by a decrease of $48.9 million for Logistics. Operating Costs and Expenses for the year ended December 31, 2015 increased $114.4 million, or 7.3 percent, compared to the prior year. The increase was due to an increase of $162.9 million for Ocean Transportation, partially offset by a decrease of $48.5 million for Logistics. Operating Income during the year ended December 31, 2015 increased $56.3 million, or 40.2 percent, compared to the prior year. The increase was due to an increase of $56.7 million for Ocean Transportation, partially offset by a decrease of $0.4 million for Logistics. The reasons for changes in operating revenue, operating costs and expenses, and operating income are described below, by business segment, in the Analysis of Operating Revenue and Income by Segment. Income Tax Expense during the year ended December 31, 2015 was $74.8 million, or 42.1 percent, of income before income taxes, as compared to $51.9 million, or 42.3 percent of income before income taxes, in the prior year. Net Income during the year ended December 31, 2015 increased $32.2 million, or 45.5 percent, compared to the prior year. Consolidated Results: 2014 compared with 2013: (dollars in millions, except per share amounts) Operating revenue ...................................................................................... Operating costs and expenses .................................................................... Operating income ....................................................................................... Interest expense .......................................................................................... Income from continuing operations before income taxes .......................... Income tax expense .................................................................................... Net income ................................................................................................. Basic earnings per share ............................................................................. Diluted earnings per share ......................................................................... $ $ $ $ Years Ended December 31, 2014 2013 Change 1,714.2 (1,574.2) 140.0 (17.3) 122.7 (51.9) 70.8 1.65 1.63 $ $ $ $ 1,637.2 (1,536.9) 100.3 (14.4) 85.9 (32.2) 53.7 1.26 1.25 4.7% 2.4% 39.6% 20.1% 42.8% 61.2% 31.8% 31.0% 30.4% Consolidated Operating Revenue for the year ended December 31, 2014 increased $77.0 million, or 4.7 percent, compared to the prior year. This increase was due to $49.0 million and $28.0 million higher revenues for Ocean Transportation and Logistics, respectively. Operating Costs and Expenses for the year ended December 31, 2014 increased $37.3 million, or 2.4 percent, compared to the prior year. The increase was due to increases of $12.2 million and $25.1 million in costs for Ocean Transportation and Logistics, respectively. Operating Income during the year ended December 31, 2014 increased $39.7 million, or 39.6 percent, compared to the prior year. The increase was due to increases of $36.8 million and $2.9 million for Ocean Transportation and Logistics, respectively. The reasons for changes in operating revenue, operating costs and expenses, and operating income are described below, by business segment, in the Analysis of Operating Revenue and Income by Segment. Income Tax Expense during the year ended December 31, 2014 was $51.9 million, or 42.3 percent of income before income taxes, as compared to $32.2 million, or 37.5 percent of income before income taxes, in the prior year. The increase in income tax rate was principally due to a non-cash valuation allowance recorded against deferred tax assets related to foreign operations, and non- deductible charges related to the Horizon Acquisition, partially offset by the release of uncertain tax positions. Net Income during the year ended December 31, 2014 increased $17.1 million, or 31.8 percent, compared to the prior year. ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT Additional detailed information related to the operations and financial performance of the Company’s Reportable Segments is included in Part II Item 6 and Note 15 to the consolidated financial statements in Item 8 of Part II below. The following information should be read in relation to the information contained in those sections. 21 102_10K.pdf 24 2016-02-26 4:22 PM Ocean Transportation: 2015 compared with 2014: (dollars in millions) Ocean Transportation revenue ............................................................... Operating costs and expenses ................................................................ Operating income ................................................................................... Operating income margin ...................................................................... $ $ Volume (Units) (1) ................................................................................. Hawaii containers .............................................................................. Hawaii automobiles ........................................................................... Alaska containers (2) ......................................................................... China containers ................................................................................ Guam containers ................................................................................ Micronesia/South Pacific Containers ................................................ 2015 Years Ended December 31, 2014 Change 1,498.0 (1,310.2) 187.8 12.5% $ $ 1,278.4 (1,147.3) 131.1 10.3% 149,500 70,000 39,100 59,200 24,200 14,000 138,300 70,600 — 62,000 24,600 14,800 17.2% 14.2% 43.2% 8.1% (0.8)% — (4.5)% (1.6)% (5.4)% (1) Approximate container volumes included for the period are based on the voyage departure date, but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages that straddle the beginning or end of each reporting period. (2) Alaska container volume represents operations from the date of Horizon Acquisition on May 29, 2015. Ocean Transportation revenue increased $219.6 million, or 17.2 percent, during the year ended December 31, 2015 compared with the year ended December 31, 2014. This increase was primarily due to the inclusion of revenue from the Company’s acquired Alaska operations, higher container volume and yield in Hawaii, and higher freight rates in the Company’s China service, partially offset by lower fuel surcharge revenue and lower volume in the South Pacific and China. Alaska volume included in the Company results reflects operations from May 29, 2015. On a year over year basis, Hawaii container volume increased by 8.1 percent primarily due to volume gains resulting from a competitor’s service reconfiguration, and modest market growth; China volume was 4.5 percent lower due to one fewer sailing, the absence of the extraordinarily high demand experienced in the fourth quarter 2014 during the U.S. West Coast labor disruptions, and market softness in the fourth quarter 2015; Guam volume declined by 1.6 percent due to the timing of select shipments; and Hawaii automobile volume was essentially flat. Ocean Transportation operating income increased $56.7 million during the year ended December 31, 2015 compared with the year ended December 31, 2014. The increase was primarily due to higher freight rates in China, container volume and yield improvements in Hawaii, the inclusion of operating results for the Alaska trade, and improved results at SSAT. Partially offsetting these favorable operating income items were additional selling, general and administrative expenses primarily due to the Horizon Acquisition, higher vessel operating expenses related to the deployment of additional vessels in the Hawaii trade, higher terminal handling expenses, lower China container volume, and costs related to the Company’s settlement with the State of Hawaii (the “Molasses Settlement”). The Company’s SSAT terminal joint venture investment contributed $16.5 million during the year ended December 31, 2015, compared to a $6.6 million contribution in the year ended December 31, 2014. The increase was primarily attributable to the clearing of international carrier cargo backlog and improved lift volume. Ocean Transportation: 2014 compared with 2013: (dollars in millions) Ocean Transportation revenue ................................................................ Operating costs and expenses ................................................................. Operating income .................................................................................... Operating income margin ....................................................................... $ $ Volume (Units) (1) .................................................................................. Hawaii containers ............................................................................... Hawaii automobiles ............................................................................ China containers ................................................................................. Guam containers ................................................................................. Micronesia/South Pacific Containers ................................................. 2014 Years Ended December 31, 2013 Change 1,278.4 (1,147.3) 131.1 10.3% $ $ 1,229.4 (1,135.1) 94.3 7.7% 138,300 70,600 62,000 24,600 14,800 138,500 81,500 61,300 24,100 12,800 4.0% 1.1% 39.0% (0.1)% (13.4)% 1.1% 2.1% 15.6% 22 102_10K.pdf 25 2016-02-26 4:22 PM (1) Approximate container volumes included for the period are based on the voyage departure date, but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages that straddle the beginning or end of each reporting period. Ocean Transportation revenue increased $49.0 million, or 4.0 percent during the year ended December 31, 2014 compared to the prior year. This increase was due partially to higher freight yields across major trade lanes, higher fuel surcharge revenue, and increased volume in the South Pacific, partially offset by lower automobile volume. During the year ended December 31, 2014, container volumes in Hawaii and China were relatively flat; Guam volume increased modestly due to timing of shipments; and Micronesia/South Pacific volume increased 15.6 percent reflecting a full year of operations and service reconfiguration in the South Pacific. Hawaii automobile volume decreased 13.4 percent partially due to certain customer losses. Ocean Transportation operating income increased $36.8 million, or 39.0 percent during the year ended December 31, 2014. The increase was partially due to higher freight yields across major trade lanes, the timing of fuel surcharge collections, lower outside transportation costs, and improved results at the Company’s terminal joint venture, SSAT, partially offset by higher terminal handling expenses and higher general and administrative expenses some of which were attributable to the Company’s then-pending Horizon Acquisition. In addition, the fourth quarter 2013 was negatively impacted by a $9.95 million litigation charge. In 2014, the Company incurred $4.6 million in penalties, legal and other expenses related to the molasses released into Honolulu Harbor in September 2013 compared to $3.0 million in 2013. The Company’s terminal joint venture, SSAT, contributed $6.6 million during the year ended December 31, 2014, compared to a $2.0 million loss in 2013. The increase was partially attributable to increased lift volume and the absence of transition costs related to the Oakland terminal expansion in 2013. Logistics: 2015 compared with 2014: (dollars in millions) Intermodal revenue ................................................................................. Highway revenue .................................................................................... Total Logistics Revenue ......................................................................... Operating costs and expenses ................................................................. Operating income .................................................................................... Operating income margin ....................................................................... $ $ 2015 Years Ended December 31, 2014 Change 209.0 177.9 386.9 (378.4) 8.5 2.2% $ $ 243.5 192.3 435.8 (426.9) 8.9 2.0% (14.2)% (7.5)% (11.2)% (11.4)% (4.5)% Logistics revenue decreased $48.9 million, or 11.2 percent, during the year ended December 31, 2015 compared to the year ended December 31, 2014. This decrease was primarily the result of lower intermodal and highway volume and lower fuel surcharge revenue, partially offset by favorable changes in business mix and increased warehouse revenue. Logistics operating income decreased $0.4 million during the year ended December 31, 2015 compared to the year ended December 31, 2014. The decrease was primarily due to lower intermodal and highway volume, partially offset by warehouse operating improvements and improved yield. Logistics: 2014 compared with 2013: (dollars in millions) Intermodal revenue ................................................................................. Highway revenue .................................................................................... Total Logistics Revenue ......................................................................... Operating costs and expenses ................................................................. Operating income .................................................................................... Operating income margin ....................................................................... $ $ 2014 Years Ended December 31, 2013 Change 243.5 192.3 435.8 (426.9) 8.9 2.0% $ $ 244.2 163.6 407.8 (401.8) 6.0 1.5% (0.3)% 17.5% 6.9% 6.2% 48.3% Logistics revenue increased $28.0 million, or 6.9 percent, during the year ended December 31, 2014 compared to 2013. This increase was partially due to higher highway and international intermodal volume, partially offset by lower domestic intermodal volume. 23 102_10K.pdf 26 2016-02-26 4:22 PM Logistics operating income increased $2.9 million during the year ended December 31, 2014 compared to 2013. The increase was partially due to increased highway yield and volume, warehouse operating improvements, and a favorable litigation settlement, partially offset by lower intermodal yield. LIQUIDITY AND CAPITAL RESOURCES The Company’s primary source of liquidity is cash flows generated by the Company’s operations. Changes in the cash and cash equivalents are as follows: Cash Flow Information (in millions) Net cash provided by operating activities Net cash used in investing activities Net cash (used in) provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of the period Cash and cash equivalents, end of the period 2015 2014 2013 2015-2014 2014-2013 $ $ 245.3 (63.8) (449.4) (267.9) 293.4 25.5 $ $ 165.7 (50.5) 63.7 178.9 114.5 293.4 $ $ 195.7 (40.0) (61.1) 94.6 19.9 114.5 $ $ $ 79.6 (13.3) (513.1) (446.8) 178.9 (267.9) $ (30.0) (10.5) 124.8 84.3 94.6 178.9 As of December 31, Change Net cash provided by operating activities: (dollars in millions) Increase in net income from operations .................................................................................... Increase (decrease) from adjustments for non-cash related charges, net .................................. Distributions from related party Terminal Joint Venture .......................................................... Change in accounts receivable .................................................................................................. Change in prepaid expenses and other assets ............................................................................ Change in accounts payable and accrued liabilities .................................................................. Increase in deferred dry-docking payments .............................................................................. Change in other liabilities ......................................................................................................... Total ...................................................................................................................................... $ $ Change 2015 to 2014 2014 to 2013 32.2 69.9 14.0 28.8 (30.5) (22.9) (11.6) (0.3) 79.6 $ $ 17.1 (72.2) — (7.7) 29.1 11.3 (0.1) (7.5) (30.0) Changes in accounts receivable, prepaid expenses and other assets, and accounts payable and accrued liabilities in 2015 compared to 2014 are partially due to the impact of the Horizon Acquisition and Alaska service activities, and also related to the timing of collections and payments. Increase in deferred dry-docking payments in 2015 compared to 2014 was partially due to the dry docking of additional vessels acquired as part of the Horizon Acquisition. Net decrease in income from operations in 2014 compared to 2013 resulted from non-cash adjustments related charges is partially due to a decrease in deferred income taxes of $54.8 million as a result of decreased cash contributions into the CCF (see Note 7 to the consolidated financial statements in Item 8 of Part II below for additional information on the CCF). Changes in account receivables in 2014 compared to 2013 are as a result of increased operating revenues in 2014. Prepaid expenses and other assets decreased due to lower prepaid fuel and a reduction in income tax receivable. Net cash used in investing activities: (dollars in millions) (Increase) decrease in capital expenditures ............................................................................... Increase in cash deposits into CCF ........................................................................................... Increase in cash withdrawals from CCF ................................................................................... Payments for Horizon Acquisition and other acquisitions ........................................................ Increase in proceeds from disposal of property and equipment ................................................ Total ...................................................................................................................................... $ $ Change 2015 to 2014 2014 to 2013 (39.9) $ (46.0) 101.0 (29.0) 0.6 (13.3) $ 7.3 (27.5) — 9.3 0.4 (10.5) Capital expenditures increased from $27.9 million in 2014 to $67.8 million in 2015. The increase was partially due to the installation of new scrubbers on one vessel acquired as part of the Horizon Acquisition, progress payments related to the construction of two new vessels, and increased capital expenditures on other vessels. In 2015, the Company increased its cash deposits into the CCF due to expected future qualified withdrawals to be made from the CCF as a result of the Horizon Acquisition and new vessel progress 24 102_10K.pdf 27 2016-02-26 4:22 PM payments. The increase in cash withdrawals from the CCF related to vessels acquired as part of the Horizon Acquisition that were processed through the CCF for income tax purposes as qualifying withdrawals (see Note 7 to the consolidated financial statements in Item 8 of Part II below for additional information on the CCF). In 2015, the Company paid $29.0 million in cash, net of cash received to acquire the common stock of Horizon (see Note 3 to the consolidated financial statements in Item 8 of Part II below). Capital expenditures decreased from $35.2 million in 2013 to $27.9 million in 2014. The decrease was primarily due to the timing of vessel related capital expenditures. There were no acquisition related payments in 2014, as compared to payments of $9.3 million paid in 2013. Net cash used in financing activities: (dollars in millions) Payments of Horizon debt and redemption of warrants ............................................................ (Decrease) increase in proceeds received from issuance of debt .............................................. (Increase) decrease in repayments of debt and capital leases ................................................... Change in borrowings under revolving credit facility, net ........................................................ Stock repurchase payments ....................................................................................................... (Decrease) increase in proceeds received from issuance of capital stock ................................. Increase in other payments, net ................................................................................................. Total ...................................................................................................................................... $ $ Change 2015 to 2014 2014 to 2013 (466.0) $ (25.0) (9.5) — (4.9) (3.6) (4.1) (513.1) $ — 79.0 34.1 11.0 — 4.1 (3.4) 124.8 In 2015, the Company repaid all of Horizon’s outstanding debt and redeemed the warrants related to the Horizon Acquisition (see Note 3 to the consolidated financial statements in Item 8 of Part II below). In 2015, the Company received $75.0 million of proceeds from the issuance of notes, compared to $100.0 million received in 2014. Repayment of debt and capital leases increased in 2015 as a result of increased borrowings and the timing of debt repayments. In 2015, the Company paid $4.9 million in share repurchases. There was no share repurchases in 2014 or 2013. Net cash provided by financing activities increased from $(61.1) million in 2013 to $63.7 million in 2014 partially due to the issuance of $100 million of 30-year senior unsecured notes in 2014 compared to $21.0 million in 2013, and the reduction of debt and capital lease repayments in 2014 compared to 2013. The change in borrowings under the revolver credit facility was partially due to reduced repayments of credit facility borrowings. Other Sources of Liquidity: Cash flows provided by operating activities are the Company’s primary source of liquidity. Additional sources of liquidity available to the Company at December 31, 2015 and 2014 are as follows: Sources of Liquidity (in millions) Cash and cash equivalents (1) ................................................................... Accounts receivable, net (2) ..................................................................... Capital Construction Fund deposits (3)..................................................... $ 2015 As of December 31, 2014 Change $ 25.5 214.3 — $ 293.4 197.6 27.5 (267.9) 16.7 (27.5) (1) (2) (3) The decrease in cash and cash equivalents was due partially due to the Horizon Acquisition related payments of $495.4 million (see Note 3 to the consolidated financial statements in Item 8 of Part II below for additional information related to the Horizon Acquisition), partially offset by net proceeds from debt of $75.0 million. The increase in accounts receivable was partially due to account receivables related to the Alaska service that was acquired in 2015 as part of the Horizon Acquisition, and increased revenue during 2015. The decrease in cash on deposit in the CCF deposits relates to progress payments made for the Jones Act vessels acquired as part of the Horizon Acquisition (see Note 7 to the consolidated financial statements in Item 8 of Part II below for additional information on the CCF). The Company had working capital of $(19.7) million at December 31, 2015, compared to $296.0 million at December 31, 2014. As of December 31, 2015, the Company had $389.0 million of availability under the revolving credit facility (see Note 8 to the consolidated financial statements in Item 8 of Part II below for additional information about debt). 25 102_10K.pdf 28 2016-02-26 4:22 PM CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS Contractual Obligations: At December 31, 2015, the Company had the following estimated contractual obligations (in millions): Contractual Obligations Capital expenditure obligations (1) ............................ Total debt obligations (2) ........................................... Estimated interest on debt (3) .................................... Purchase obligations (4) ............................................. Qualified defined benefit pension obligations (5) ...... Non-qualified pension obligations (6) ....................... Post-retirement benefit obligations (7)....................... Multi-employer withdrawal liability (8) .................... Operating lease obligations (9) .................................. Total ....................................................................... $ $ 2016 2017 - 2018 2019 - 2020 Thereafter Total Payment Due By Period 87.9 22.0 18.4 12.1 11.7 1.2 2.5 4.1 32.3 192.2 $ $ 313.5 61.6 33.4 — 24.6 1.3 5.3 8.3 43.3 491.3 $ $ 7.5 60.0 27.9 — 26.0 0.6 5.7 8.3 25.4 161.4 $ $ — 286.3 81.3 — 70.5 2.0 15.9 52.1 28.9 537.0 $ $ 408.9 429.9 161.0 12.1 132.8 5.1 29.4 72.8 129.9 1,381.9 (1) Capital expenditure obligations includes: (i) contractual project payments related to the construction of two new vessels; (ii) installation of scrubbers on two vessels; and (iii) other dry- docking related obligations. (2) Total debt obligations include principal repayments of outstanding debt and capital leases (see Note 8 to the consolidated financial statements in Item 8 of Part II below for additional information about debt). All of the Company’s outstanding debt is at fixed rate. (3) Estimated cash payments for interest on debt is determined based on the stated interest rate for fixed debt. (4) Purchase obligations include only non-cancellable contractual obligations for the purchases of goods and services. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Any amounts reflected on the consolidated balance sheets as accounts payable and accrued liabilities are excluded from the table above. (5) Qualified defined benefit pension benefit obligations include estimated payments for the next ten years. The $70.5 million noted in the column labeled “Thereafter” comprises estimated benefit payments for 2021 through 2025 (see Note 11 to the consolidated financial statements in Item 8 of Part II below, for additional information about the Company’s qualified defined benefit pension plans). (6) Non-qualified pension obligations include estimated payments to executives and directors under the Company’s four non-qualified plans for the next ten years. The $2.0 million noted in the column labeled “Thereafter” comprises estimated benefit payments for 2021 through 2025 (see Note 11 to the consolidated financial statements in Item 8 of Part II below, for additional information about the Company’s non-qualified pension plans). (7) Post-retirement benefit obligations include estimated payments to medical service providers in connection with providing benefits to the Company’s employees and retirees for the next ten years. The $15.9 million noted in the column labeled “Thereafter” comprises estimated post-retirement benefit payments for 2021 through 2025 (see Note 11 to the consolidated financial statements in Item 8 of Part II below, for additional information about the Company’s post-retirement benefit obligations). (8) Multi-employer withdrawal liability relates to mass withdrawal from the multi-employer ILA-PRSSA (see Note 12 to the consolidated financial statements in Item 8 of Part II below, for additional information about the Company’s multi-employer withdrawal liability). (9) Operating lease obligations include principally land, office and terminal facilities, containers and equipment under non-cancellable, long-term lease arrangements that do not transfer the rights and risks of ownership to the Company (see Note 9 to the consolidated financial statements in Item 8 of Part II below, for additional information about the Company’s leases). Estimated timing and amount of payments related to uncertain tax position liabilities of $22.1 million as of December 31, 2015, are excluded from the table due to the uncertainty of such timing and payments, if any. Commitments, Contingencies and Off-Balance Sheet Arrangements: Capital Spending and Vessel Dry-docking: For the full year 2016, the Company expects to make maintenance capital expenditures of approximately $65 million, and deferred dry-docking payments of approximately $60 million. A description of commitments and contingencies (including benefit plan withdrawal obligations for multi-employer pension plans in which the Company is a participant) is set forth in Note 14 to the consolidated financial statements in Item 8 of Part II below, and is incorporated herein by reference. The Company is not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results in operations or cash flows that are material. 26 102_10K.pdf 29 2016-02-26 4:22 PM Other Matters: Matson’s Board of Directors also declared a cash dividend of $0.18 per share for the first quarter 2016, payable on March 3, 2016 to shareholders of record on February 11, 2016. CRITICAL ACCOUNTING ESTIMATES The Company’s significant accounting policies are described in Note 2 to the consolidated financial statements. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, 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 consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with certainty and actual results will, inevitably, differ from those critical accounting estimates. These differences could be material. The Company considers an accounting estimate to be critical if: (i)(a) the accounting estimate requires the Company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made, (b) changes in the estimate are reasonably likely to occur in periods after the period in which the estimate was made, or (c) use of different estimates by the Company could have been used, and (ii) changes in those assumptions or estimates would have had a material impact on the financial condition or results of operations of the Company. The critical accounting estimates inherent in the preparation of the Company’s consolidated financial statements are described below. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. Business Combinations: The Company accounts for acquired businesses when it obtains control of the business using the acquisition method of accounting. Assets acquired and liabilities assumed are recorded based upon the estimated fair value as of the acquisition date. Estimated fair values are generally determined using a market-based income approach which determines the estimated price that would be paid by a third party market participant based upon the highest and best use of the assets acquired or liabilities assumed. The determination of the fair value of assets acquired and liabilities assumed requires significant judgment and estimates. In making such judgements and estimates, the Company utilizes inputs from various independent third-party valuation specialists, industry experts and other sources. Any excess of the purchase price over the estimated fair values of the net assets acquired and liabilities assumed is recorded as goodwill. Acquisition-related expenses and related restructuring costs are expensed as incurred. During 2015, the Company acquired the business of Horizon. A detailed discussion of the Company’s Horizon Acquisition is contained in Note 3, “Business Combination” to the consolidated financial statements included in Item 8 of Part II below. Impairment of Terminal Joint Venture Investments: The Company’s investment in its Terminal Joint Venture, a related party, is reviewed for impairment annually and whenever there is evidence that fair value may be below carrying cost. An investment is written down to fair value if fair value is below carrying cost and the impairment is other-than-temporary. In evaluating the fair value of an investment and whether any identified impairment is other-than-temporary, significant estimates and considerable judgments are involved. These estimates and judgments are based, in part, on the Company’s current and future evaluation of economic conditions in general, as well as the Terminal Joint Venture’s current and future plans. These fair value calculations are highly subjective because they require management to make assumptions and apply judgments to estimates regarding the timing and amount of future cash flows, probabilities related to various cash flow scenarios, and appropriate discount rates based on the perceived risks, among others. In evaluating whether an impairment is other-than-temporary, the Company considers all available information, including the length of time and extent of the impairment, the financial condition and near-term prospects of the Terminal Joint Venture, the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, and projected industry and economic trends, among others. Changes in these and other assumptions could affect the projected operational results and fair value of the Terminal Joint Venture, and accordingly, may require valuation adjustments to the Company’s investment that may materially impact the Company’s financial condition or its future operating results. The Company has evaluated its investment in its Terminal Joint Venture for impairment and no impairment charges were recorded for the years ended December 31, 2015, 2014, and 2013. Impairment of Long-Lived Assets, Finite-Lived Intangible Assets and Goodwill: The Company evaluates its long-lived assets, including finite-lived intangible assets for possible impairment in the fourth quarter, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than its carrying amount. During 2015, the Company changed the measurement date of its annual impairment tests from November 30 to October 1. The change was applied prospectively and did not have any impact on the Company’s impairment tests for the year. The change was made to better align the date of the impairment analysis with the preparation of the Company’s financial quarterly cash flow model. The change, if applied retrospective, would not have had any impact on the Company’s impairment analysis for prior periods presented. The Company’s long-lived assets, including finite-lived intangible assets are grouped at the Ocean Transportation and Logistics asset group level, which represents the lowest level for which identifiable cash flows are available. 27 102_10K.pdf 30 2016-02-26 4:22 PM Long-lived Assets: In evaluating impairment, the estimated future undiscounted cash flows generated by each of these asset groups is compared with the amount recorded for each asset group to determine if its carrying value is not recoverable. If this review determines that the amount recorded will not be recovered, the amount recorded for the asset group is reduced to its 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, expected useful lives of the assets, uncertainty about future events, including changes in economic conditions, changes in operating performance, 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 operating results could be materially impacted. During the year ended December 31, 2015, the Company recorded an impairment charge of $2.1 million related to the write-down of inactive vessels to be recycled from its recorded net book value to its estimated fair value of zero. The impairment expense is included in operating costs in the Consolidated Statements of Income and Comprehensive Income. No impairment charges were recorded for the years ended December 31, 2014, and 2013. Additional information about Matson’s vessels included in property and equipment as of December 31, 2015 is as follows (in millions): Vessel Name (2) MAUNALEI ................................................................................ MANULANI ................................................................................ MAUNAWILI ............................................................................. MANUKAI .................................................................................. R.J. PFEIFFER ............................................................................ HORIZON TACOMA (1) ............................................................ MATSON KODIAK (1) .............................................................. HORIZON ANCHORAGE (1) .................................................... MOKIHANA ............................................................................... MANOA ...................................................................................... MAHIMAHI ................................................................................ KAUAI ........................................................................................ HORIZON CONSUMER (1) ....................................................... MAUI ........................................................................................... WAIALEALE .............................................................................. OLOMANA ................................................................................. MATSONIA ................................................................................ LIHUE ......................................................................................... MAUNA KEA ............................................................................. HALEAKALA ............................................................................. MAUNA LOA ............................................................................. MATSON NAVIGATOR (1) ...................................................... MATSON PRODUCER (1) ......................................................... Total ......................................................................................... Purchase Date Cost Net Book Value September 2006 June 2005 September 2004 September 2003 August 1992 May 2015 May 2015 May 2015 January 1996 January 1996 January 1996 September 1980 May 2015 June 1978 November 1991 January 2013 October 1987 January 1996 August 1988 December 1984 December 1984 May 2015 May 2015 $ $ 158.8 $ 153.3 105.1 108.3 163.6 40.0 40.0 40.0 101.8 67.7 65.2 93.7 10.0 80.7 11.4 3.1 95.7 7.8 10.2 15.3 12.9 0.2 — 1,384.8 $ 110.3 100.4 67.1 66.0 42.1 37.8 37.7 37.7 26.7 16.0 15.5 13.8 8.9 7.7 2.8 1.9 1.8 1.5 1.1 0.2 0.2 0.2 — 597.4 (1) Vessels acquired as part of the Horizon Acquisition, recorded at fair value on May 29, 2015. (2) Excludes inactive vessels to be recycled, with no net book value. Finite-Lived Intangible Assets and Goodwill: The Company’s intangible assets include goodwill and customer relationships. In estimating the fair value of a reporting unit, the Company uses a combination of a discounted cash flow model and fair value based on market multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”). The discounted cash flow approach requires the Company to use a number of assumptions, including market factors specific to the business, the amount and timing of estimated future cash flows to be generated by the business over an extended period of time, long-term growth rates for the business, and a discount rate that considers the risks related to the amount and timing of the cash flows. Although the assumptions used by the Company in its discounted cash flow model are consistent with the assumptions the Company used to generate its internal strategic plans and forecasts, significant judgment is required to estimate the amount and timing of future cash flows from the reporting unit and the risk of achieving those cash flows. When using market multiples of EBITDA, the Company must make judgments about the comparability of those multiples in closed and proposed transactions. Accordingly, changes in assumptions and estimates, including, but not limited to, changes driven by external factors, such as industry and economic trends, and those driven by internal factors, such as changes in the Company’s business strategy and its internal forecasts, could have a material effect on the Company’s financial condition or its future operating results. 28 102_10K.pdf 31 2016-02-26 4:22 PM The Company has evaluated its goodwill and intangible assets for impairment and determined that the fair value of each reporting unit substantially exceeds book value. No impairment charges were recorded for the years ended December 31, 2015, 2014 and 2013, respectively. Deferred Dry-docking Costs: The Company’s U.S. flagged vessels must meet specified seaworthiness standards established by U.S. Coast Guard rules and Classification society requirements. These standards require that the Company’s vessels undergo two dry- docking inspections within a five-year period. However, the majority of the Company’s U.S. flagged vessels are enrolled in the U.S. Coast Guard’s Underwater Survey in Lieu of Dry-docking (“UWILD”) program. The UWILD program allows eligible vessels to have their intermediate dry-docking requirement met with far less costly underwater inspection. The Company operates four non-U.S. flag vessels (one owned; one under a bareboat charter arrangement; and the remaining two on time charter) in the Pacific Islands. The Company is responsible for ensuring that the owned and bareboat chartered vessels meet international standards for seaworthiness, which among other requirements generally mandate that the Company perform two dry- docking inspections every five years. The dry-dockings of the Company’s time chartered vessels are the responsibility of the vessels’ owners. As costs associated with dry-docking inspections provide future economic benefits to the Company through continued operation of the vessels, the costs are deferred and amortized until the next regulated scheduled dry-docking, which is usually over a two to five-year period. Routine vessel maintenance and repairs that do not improve or extend asset lives are charged to expense as incurred. Amortized amounts are charged to operating expenses of the Ocean Transportation segment in the Consolidated Statements of Income and Comprehensive Income. Legal Contingencies: The Company’s results of operations could be affected by significant litigation adverse to the Company, including, but not limited to, liability claims, antitrust claims, claims related to coastwise trading matters, lawsuits involving private plaintiffs or government agencies, and environment related matters. The Company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Management makes adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of outside legal counsel and other information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from those estimates. In making determinations of likely outcomes of litigation matters, the Company considers many factors. These factors include, but are not limited to, the nature of specific claims including un-asserted claims, the Company’s experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms and the matter’s current status. A detailed discussion of significant litigation matters is contained in Note 14 to the consolidated financial statements included in Item 8 of Part II below. Uninsured Liabilities: The Company is uninsured for certain losses including, but not limited to, employee health, workers’ compensation, general liability, real and personal property. Where feasible, the Company obtains third-party excess insurance coverage to limit its exposure to these claims. When estimating its uninsured liabilities, the Company considers a number of factors, including historical claims experience, demographic factors, current trends, and analyses provided by independent third-parties. Periodically, management reviews its assumptions and the analyses provided by independent third-parties to determine the adequacy of the Company’s uninsured liabilities. The Company’s uninsured liabilities contain uncertainties because management is required to apply judgment and make long-term assumptions to estimate the ultimate cost to settle reported claims and claims incurred, but not reported, as of the balance sheet date. If management uses different assumptions or if different conditions occur in future periods, the Company’s financial condition or its future operating results could be materially impacted. Pension and Post-Retirement Estimates: The estimation of the Company’s pension and post-retirement benefit expenses and liabilities requires that the Company make various assumptions. These assumptions include factors such as discount rates, expected long-term rate of return on pension plan assets, salary growth, health care cost trend rates, inflation, retirement rates, mortality rates and expected contributions. Actual results that differ from the assumptions made could materially affect the Company’s financial condition or its future operating results. The effects of changing assumptions are included in unamortized net gains and losses, which directly affect accumulated other comprehensive income. Additionally, these unamortized gains and losses are amortized and reclassified to income (loss) over future periods. Additional information about the Company’s benefit plans and assumptions used is included in Note 11 to the consolidated financial statements in Item 8 of Part II below. 29 102_10K.pdf 32 2016-02-26 4:22 PM Income Taxes: The Company makes certain estimates and judgments in determining income tax expense for consolidated financial statement purposes. These estimates and judgments are applied in the calculation of tax credits, tax benefits and deductions, and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and consolidated financial statement purposes. In addition, judgment is required in determining if, based on the weight of available evidence, management believes that it is more likely than not that some portion or all of a recorded deferred tax asset would not be realized in future periods. A valuation allowance would be established if, based on the weight of available evidence, management believes that it is more likely than not that some portion or all of a recorded deferred tax asset would not be realized in future periods. Significant changes to these estimates may result in an increase or decrease to the Company’s tax provision in a subsequent period. Related to the Horizon Acquisition (See Note 3 to the consolidated financial statements in Item 8 of Part II below), the Company recorded a valuation allowance of $6.9 million against the portions of Horizon’s State net operating loss deferred tax assets that the Company determined may not be realized in future periods. The Company recorded a valuation allowance against deferred tax assets related to accumulated operating losses of a foreign subsidiary of $6.4 million at December 31, 2015, that the Company determined may not be realized in future periods. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertain tax positions taken or expected to be taken with respect to the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could materially affect the Company’s financial condition or its future operating results. OTHER MATTERS New Accounting Pronouncements: See Note 2 to the consolidated financial statements in Item 8 of Part II below for additional information new accounting pronouncements adopted by the Company during 2015. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Matson is exposed to changes in interest rates, primarily as a result of its borrowing and investing activities used to maintain liquidity and to fund business operations, including borrowings under its revolving credit facility. In order to manage its exposure to changes in interest rates, Matson utilizes a balanced mix of both fixed-rate and variable-rate debt. The nature and amount of Matson’s long- term and short-term debt can be expected to fluctuate as a result of future business requirements, market conditions and other factors. Matson’s fixed-rate debt was $429.9 million as of December 31, 2015 and Matson did not have any variable rate debt outstanding as of that date. Other than in certain events of default, the Company does not have an obligation to prepay its fixed-rate debt prior to maturity and, as a result, interest rate fluctuations and the resulting changes in fair value would not have an impact on the Company’s financial condition or results of operations unless the Company was required to refinance such debt. Additional information about the Company’s debt is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation under the Liquidity and Capital Resources section above. From time to time, Matson may invest its excess cash in short-term money market funds that purchase government securities or corporate debt securities, or in other deposit products allowed under Matson’s Cash Investment Policy. These money market funds and deposits maintain a weighted average maturity of less than 90 days, and accordingly, a one percent change in interest rates is not expected to have a material impact on the fair value of these investments or on interest income. The Company did not have any amounts on deposit in money market funds as of December 31, 2015. Through its Capital Construction Fund, the Company may, from time to time, invest in money market funds or other eligible investments. The Company did not have any cash deposits in the CCF at December 31, 2015. Matson has no material exposure to foreign currency risks, although it is indirectly affected by changes in currency rates to the extent that changes in rates affect tourism in Hawaii. Transactions related to its China service are primarily denominated in U.S. dollars, and therefore, a one percent change in the Chinese Yuan exchange rate would not have a material effect on the Company’s results of operations. Transactions related to Matson’s South Pacific service are primarily denominated in New Zealand dollars. However a one percent change in the New Zealand dollar exchange rate is not expected to have a material effect on the Company’s results of operations. 30 102_10K.pdf 33 2016-02-26 4:22 PM ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Management’s Annual Report on Internal Control Over Financial Reporting ..................................................................... Report of Independent Registered Public Accounting Firm ................................................................................................. Consolidated Statements of Income and Comprehensive Income ........................................................................................ Consolidated Balance Sheets ................................................................................................................................................ Consolidated Statements of Cash Flows ............................................................................................................................... Consolidated Statements of Shareholders’ Equity ................................................................................................................ Notes to Consolidated Financial Statements ......................................................................................................................... 1. 2. 3. 4. 5. 6. 7. 8. 9. Description of the Business ...................................................................................................................................... Significant Accounting Policies ............................................................................................................................... Business Combination .............................................................................................................................................. Investment in Terminal Joint Venture ...................................................................................................................... Property and Equipment ........................................................................................................................................... Goodwill and Intangible Assets ................................................................................................................................ Capital Construction Fund ........................................................................................................................................ Debt .......................................................................................................................................................................... Leases ....................................................................................................................................................................... 10. Income Taxes ........................................................................................................................................................... 11. Pension and Post-Retirement Plans .......................................................................................................................... 12. Multi-Employer Withdrawal Liability ...................................................................................................................... 13. Share-Based Awards ................................................................................................................................................ 14. Commitments and Contingencies ............................................................................................................................. 15. Reportable Segments ................................................................................................................................................ 16. Quarterly Information (Unaudited) .......................................................................................................................... 32 33 34 35 36 37 38 38 38 44 46 47 48 49 49 51 51 53 60 61 63 63 64 31 102_10K.pdf 34 2016-02-26 4:22 PM MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Matson, Inc. and subsidiaries (the “Company”) has the responsibility for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that: • • • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the company; Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting only provides reasonable assurance with respect to financial statement presentation and preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its assessment, management believes that, as of December 31, 2015, the Company’s internal control over financial reporting is effective. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company’s internal control over financial reporting. Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting as of December 31, 2015, did not include the internal controls of Horizon, Inc. (“Horizon”) because it was acquired by the Company in a business combination on May 29, 2015 (see Note 3). Horizon’s total assets, operating revenues and net loss before taxes represented approximately 32.7 percent, 9.5 percent, and 2.6 percent, respectively, of the related consolidated financial statements as of and for the year ended December 31, 2015. /s/ Matthew J. Cox Matthew J. Cox President and Chief Executive Officer February 26, 2016 /s/ Joel M. Wine Joel M. Wine Senior Vice President and Chief Financial Officer February 26, 2016 32 102_10K.pdf 35 2016-02-26 4:22 PM REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Matson, Inc. Honolulu, Hawaii We have audited the accompanying consolidated balance sheets of Matson, Inc. and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. We also have audited the Company’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Horizon, Inc. and subsidiaries (“Horizon”), which was acquired on May 29, 2015 and whose consolidated financial statements constitute 32.7 percent, 9.5 percent and 2.6 percent of total assets, operating revenues, and net loss before taxes, respectively, of the consolidated financial statement amounts as of and for the year ended December 31, 2015. Accordingly, our audit did not include the internal control over financial reporting at Horizon. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Matson, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for deferred income taxes in 2015 due to the adoption of ASU 2015-17, “Balance Sheet Classifications of Deferred Taxes”. /s/ Deloitte & Touche LLP Honolulu, Hawaii February 26, 2016 33 102_10K.pdf 36 2016-02-26 4:22 PM MATSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In millions, except per-share amounts) 2015 Years Ended December 31, 2014 2013 Operating Revenue: Ocean Transportation ............................................................................ Logistics ................................................................................................ Total Operating Revenue ...................................................................... $ $ 1,498.0 386.9 1,884.9 $ 1,278.4 435.8 1,714.2 Costs and Expenses: Operating costs ..................................................................................... Equity in (income) loss of related party Terminal Joint Venture .......... Selling, general and administrative ....................................................... Total Costs and Expenses ..................................................................... Operating Income ..................................................................................... Interest expense ..................................................................................... Income before Income Taxes .................................................................... Income tax expense ............................................................................... Net Income ................................................................................................ Other Comprehensive Income (Loss), Net of Income Taxes: Net Income ............................................................................................ Other Comprehensive Income (Loss): Net gain (loss) in prior service cost ................................................... Amortization of prior service cost included in net periodic pension cost ................................................................................... Amortization of net loss included in net periodic pension cost ......... Foreign currency translation adjustment ........................................... Other comprehensive income ............................................................ Total Other Comprehensive (Loss) Income ...................................... Comprehensive Income ........................................................................ Basic Earnings Per Share: Diluted Earnings Per Share: Weighted Average Number of Shares Outstanding: Basic ..................................................................................................... Diluted .................................................................................................. $ $ $ $ $ 1,510.1 (16.5) 195.0 1,688.6 196.3 (18.5) 177.8 (74.8) 103.0 1,433.5 (6.6) 147.3 1,574.2 140.0 (17.3) 122.7 (51.9) 70.8 103.0 $ 70.8 $ 5.1 (1.3) 1.8 0.7 0.1 6.4 109.4 2.37 2.34 43.5 44.0 $ $ $ (31.4) (1.3) 2.5 0.4 — (29.8) 41.0 1.65 1.63 43.0 43.4 $ $ $ See notes to consolidated financial statements. 1,229.4 407.8 1,637.2 1,402.3 2.0 132.6 1,536.9 100.3 (14.4) 85.9 (32.2) 53.7 53.7 18.7 (1.3) 4.7 (0.1) — 22.0 75.7 1.26 1.25 42.7 43.1 34 102_10K.pdf 37 2016-02-26 4:22 PM MATSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except per-share amount) ASSETS Current Assets: Cash and cash equivalents ................................................................................................... Accounts receivable, net ...................................................................................................... Deferred income taxes ......................................................................................................... Prepaid expenses and other assets ........................................................................................ Total current assets .......................................................................................................... Long-term Assets: Investment in related party Terminal Joint Venture ................................................................. Property and equipment, net .................................................................................................... Goodwill .................................................................................................................................. Intangible assets, net ................................................................................................................ Capital Construction Fund - cash on deposit ........................................................................... Deferred dry-docking costs ...................................................................................................... Other long-term assets ............................................................................................................. Total assets ....................................................................................................................... LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Current portion of debt ......................................................................................................... Accounts payable ................................................................................................................. Payroll and vacation benefits ............................................................................................... Uninsured liabilities ............................................................................................................. Accrued and other liabilities ................................................................................................ Total current liabilities ..................................................................................................... Long-term Liabilities: Long-term debt .................................................................................................................... Deferred income taxes ......................................................................................................... Employee benefit plans ........................................................................................................ Uninsured and other liabilities ............................................................................................. Multi-employer withdrawal liabilities.................................................................................. Total long-term liabilities................................................................................................. Commitments and Contingencies (Note 14) ............................................................................ Shareholders’ Equity: Capital stock — common stock without par value; authorized, 150.0 million shares ($0.75 stated value per share); outstanding, 43.5 million shares in 2015 and 43.2 million shares in 2014 ...................................................................................................... Additional paid in capital ..................................................................................................... Accumulated other comprehensive loss ............................................................................... Retained earnings ................................................................................................................. Total shareholders’ equity ................................................................................................ Total liabilities and shareholders’ equity ......................................................................... See notes to consolidated financial statements. $ $ $ $ December 31, 2015 2014 $ $ $ 25.5 214.3 — 38.1 277.9 66.4 860.3 241.6 139.1 — 57.6 26.9 1,669.8 22.0 164.9 23.1 27.1 60.5 297.6 407.9 310.5 109.3 37.7 56.2 921.6 293.4 197.6 8.0 20.5 519.5 64.4 691.2 27.4 2.5 27.5 47.5 21.8 1,401.8 21.6 133.2 17.3 24.5 26.9 223.5 352.0 308.4 118.6 35.5 — 814.5 32.6 287.9 (46.9) 177.0 450.6 1,669.8 $ 32.4 274.9 (53.3) 109.8 363.8 1,401.8 35 102_10K.pdf 38 2016-02-26 4:22 PM MATSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Years Ended December 31, 2015 2014 2013 Cash Flows From Operating Activities: Net income ........................................................................................................................... Reconciling adjustments: $ 103.0 $ 70.8 $ Depreciation and amortization ......................................................................................... Deferred income taxes ..................................................................................................... Loss (gain) on disposal of property .................................................................................. Post-retirement expense (income) .................................................................................... Share-based compensation expense ................................................................................. Equity in (income) loss of related party Terminal Joint Venture ..................................... Distributions from Terminal Joint Venture ...................................................................... Tax benefit from equity issuance ..................................................................................... Excess tax benefit from stock-based compensation ......................................................... Changes in assets and liabilities: Accounts receivable ......................................................................................................... Deferred dry-docking payments ....................................................................................... Deferred dry-docking amortization .................................................................................. Prepaid expenses and other assets .................................................................................... Accounts payable and accrued liabilities ......................................................................... Other liabilities ................................................................................................................ Net cash provided by operating activities ................................................................................. Cash Flows From Investing Activities: Capital expenditures ............................................................................................................. Proceeds from disposal of property and equipment.............................................................. Cash deposits into Capital Construction Fund...................................................................... Withdrawals from Capital Construction Fund ...................................................................... Payments for Horizon’s common stock, net of cash acquired, and other acquisitions ......... Net cash used in investing activities ......................................................................................... Cash Flows From Financing Activities: Proceeds from issuance of debt ............................................................................................ Excess tax benefit from stock-based compensation ............................................................. Payments of debt .................................................................................................................. Payment of capital leases ..................................................................................................... Proceeds from revolving credit facility ................................................................................ Payments of revolving credit facility ................................................................................... Payment of financing costs .................................................................................................. Proceeds from issuance of capital stock ............................................................................... Tax withholding related to net share settlements of restricted stock units............................ Dividends paid ..................................................................................................................... Shares repurchased ............................................................................................................... Payments of Horizon debt and redemption of warrants, net ................................................. Net cash (used in) provided by financing activities .................................................................. 83.4 50.7 1.2 2.0 12.2 (16.5) 14.0 2.6 (0.9) 13.5 (25.7) 23.1 (13.2) (9.4) 5.3 245.3 (67.8) 5.5 (77.9) 105.4 (29.0) (63.8) 75.0 0.9 (20.5) (1.5) 588.0 (588.0) (0.9) 2.2 (2.9) (30.8) (4.9) (466.0) (449.4) 69.7 2.7 (1.5) (5.9) 8.7 (6.6) — 0.8 (1.1) (15.3) (14.1) 21.1 17.3 13.5 5.6 165.7 (27.9) 4.9 (31.9) 4.4 — (50.5) 100.0 1.1 (11.4) (1.1) — — — 5.8 (2.0) (28.7) — — 63.7 Net (Decrease) Increase in Cash and Cash Equivalents ............................................................ Cash and cash equivalents, beginning of the year ..................................................................... Cash and cash equivalents, end of the year ............................................................................... $ (267.9) 293.4 25.5 $ 178.9 114.5 293.4 $ 53.7 69.7 57.5 0.2 1.6 5.9 2.0 — 1.8 (0.6) (7.6) (14.0) 22.0 (11.8) 2.2 13.1 195.7 (35.2) 4.5 (4.4) 4.4 (9.3) (40.0) 21.0 0.6 (45.4) (1.2) — (11.0) — 1.7 — (26.8) — — (61.1) 94.6 19.9 114.5 Supplemental Cash Flow Information: Interest paid .......................................................................................................................... Income tax paid (refund) ...................................................................................................... $ $ Non-cash Information: Capital expenditures included in accounts payable and accrued liabilities .......................... Capital lease obligations....................................................................................................... $ $ 17.7 $ 40.0 $ 13.5 $ 1.8 $ 15.2 $ 30.2 $ 13.8 (3.4) 1.6 $ — $ 2.1 2.9 See notes to consolidated financial statements. 36 102_10K.pdf 39 2016-02-26 4:22 PM MATSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the three years ended December 31, 2015 (In millions, except per-share amounts) Balance at December 31, 2012 .......................... Net income ..................................................... Other comprehensive income, net of tax ........ Excess tax benefit and share withholding ...... Share-based compensation ............................. Shares issued .................................................. Dividends ($0.62 per share) ........................... Balance at December 31, 2013 .......................... Net income ..................................................... Other comprehensive loss, net of tax ............. Excess tax benefit and share withholding ...... Share-based compensation ............................. Shares issued .................................................. Dividends ($0.66 per share) ........................... Balance at December 31, 2014 .......................... Net income ..................................................... Other comprehensive income, net of tax ........ Excess tax benefit and share withholding ...... Share-based compensation ............................. Shares issued .................................................. Shares repurchased ........................................ Dividends ($0.70 per share) ........................... Balance at December 31, 2015 .......................... Common Stock Shares Stated Value Additional Paid In Capital Accumulated Other Comprehensive Retained Earnings Income (Loss) Total 42.6 $ — — — — 0.2 — 42.8 — — — — 0.4 — 43.2 — — — — 0.4 (0.1) — 43.5 $ 31.9 $ — — — — 0.2 — 32.1 — — — — 0.3 — 32.4 — — — — 0.3 (0.1) — 32.6 $ 252.7 $ — — 1.8 5.9 1.5 — 261.9 — — 0.8 8.7 3.5 — 274.9 — — 2.6 12.2 (1.0) (0.8) — 287.9 $ (45.5) $ — 22.0 — — — — (23.5) — (29.8) — — — — (53.3) — 6.4 — — — — — (46.9) $ 40.8 $ 53.7 — — — — (26.8) 67.7 70.8 — — — — (28.7) 109.8 103.0 — — — — (5.0) (30.8) 177.0 $ 279.9 53.7 22.0 1.8 5.9 1.7 (26.8) 338.2 70.8 (29.8) 0.8 8.7 3.8 (28.7) 363.8 103.0 6.4 2.6 12.2 (0.7) (5.9) (30.8) 450.6 See notes to consolidated financial statements. 37 102_10K.pdf 40 2016-02-26 4:22 PM MATSON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF THE BUSINESS Matson, Inc., a holding company incorporated in January 2012 in the State of Hawaii, and its subsidiaries (“Matson” or the “Company”), is a leading provider of ocean transportation and logistics services. The Company consists of two segments, Ocean Transportation and Logistics. For financial information by segment for the three years ended December 31, 2015, see Note 15). Ocean Transportation: Matson’s Ocean Transportation business is conducted through Matson Navigation Company, Inc. (“MatNav”), a wholly-owned subsidiary of Matson, Inc. Founded in 1882, MatNav is an asset-based business that provides a vital lifeline of ocean freight transportation services to the domestic economies of Hawaii, Alaska, and Guam, and to other island economies in Micronesia and in the South Pacific. MatNav also operates a premium, expedited service from China to Long Beach, California. In addition, subsidiaries of MatNav provide container stevedoring, container equipment maintenance and other terminal services for MatNav and other ocean carriers on the Hawaii islands of Oahu, Hawaii, Maui and Kauai, and in the Alaska locations of Anchorage, Kodiak, Dutch Harbor and Akutan. Matson has a 35 percent ownership interest in SSA Terminals, LLC (“SSAT”) through a joint venture between Matson Ventures, Inc., a wholly-owned subsidiary of MatNav, and SSA Ventures, Inc. (“SSA”), a subsidiary of Carrix, Inc. SSAT provides terminal and stevedoring services to various carriers at six terminal facilities on the U.S. West Coast, including to MatNav at three of those facilities. Matson records its share of income in the joint venture in operating expenses within the Ocean Transportation segment due to the nature of SSAT’s operations. Horizon Acquisition: On May 29, 2015, Matson completed its acquisition of Horizon Lines, Inc. (“Horizon”). As a result, Matson acquired Horizon’s Alaska operations and assumed all of Horizon’s non-Hawaii assets and liabilities (the “Horizon Acquisition”). For additional information on this Horizon Acquisition, see Note 3 to the consolidated financial statements in Item 8 of Part II below. Logistics: Matson’s Logistics business is conducted through Matson Logistics, Inc. (“Matson Logistics” or “Logistics”), a wholly- owned subsidiary of MatNav. Established in 1987, Matson Logistics is an asset-light business that provides multimodal transportation services, including domestic and international rail intermodal service (“Intermodal”); long-haul and regional highway brokerage, specialized hauling, flat-bed and project services, less-than-truckload services, and expedited freight services (collectively “Highway”); supply chain management, and warehousing and distribution services. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Matson, Inc. and all wholly-owned subsidiaries, after elimination of significant intercompany amounts. Significant investments in businesses, partnerships, and limited liability companies in which the Company does not have a controlling financial interest, but has the ability to exercise significant influence, are accounted for under the equity method. A controlling financial interest is one in which the Company has a majority voting interest or one in which the Company is the primary beneficiary of a variable interest entity. Fiscal Year: The period end for Matson, Inc. is December 31. The period end for MatNav occurred on the last Friday in December, except for Matson Logistics Warehousing whose period closed on December 31. There were 52 weeks included in the MatNav 2015, 2014, and 2013 fiscal years. Foreign Currency Transactions: The United States (U.S.) dollar is the functional currency for substantially all of the financial statements of the Company’s foreign subsidiaries. Foreign currency denominated assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates existing at the respective balance sheet dates. Translation adjustments resulting from fluctuations in exchange rates are recorded as a component of Accumulated Other Comprehensive Loss within shareholders’ equity. The Company translates the result of operations of its foreign subsidiaries at the average exchange rate during the respective periods. Gains and losses resulting from foreign currency transactions are included in selling, general and administrative costs in the Consolidated Statements of Income and Comprehensive Income. Use of Estimates: The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported. Estimates and assumptions are used for, but not limited to: impairment of investments, long-lived vessel and equipment impairment, allowance for doubtful accounts, goodwill and other finite-lived intangible assets impairment, legal contingencies, uninsured liabilities, accruals for removal of tank farm, pension and post-retirement estimates, multi-employer withdrawal liabilities, and income taxes. Future results could be materially affected if actual results differ from these estimates and assumptions. 38 102_10K.pdf 41 2016-02-26 4:22 PM Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an original maturity of three months or less at the date of purchase. The Company carries these investments at cost, which approximates fair value. Outstanding checks in excess of funds on deposit totaled $13.8 million and $18.9 million at December 31, 2015 and 2014, respectively, and are reflected as current liabilities in the consolidated balance sheets. Fair Value of Financial Instruments: The Company values its financial instruments based on the fair value hierarchy of valuation techniques for fair value measurements. Level 1 inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability. If the technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy, the lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The Company uses Level 1 inputs for the fair values of its cash and cash equivalents. The Company uses Level 2 inputs for its accounts receivable, and debt. The fair values of cash and cash equivalents, accounts receivable, and short-term debt approximate their carrying values due to the short-term nature of the instruments. The fair value of the Company’s long-term debt is calculated based upon interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements (in millions). Total Carrying Value December 31, 2015 Quoted Prices in Active Markets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Measurements at December 31, 2015 $ $ $ Cash and cash equivalents .......... Accounts receivable, net ............. Fixed rate debt ............................ $ 25.5 214.3 429.9 Cash and cash equivalents .......... Accounts receivable, net ............. Fixed rate debt ............................ $ 293.4 197.6 373.6 December 31, 2014 $ $ 25.5 214.3 443.8 293.4 197.6 395.7 25.5 — — 293.4 — — — 214.3 443.8 — 197.6 395.7 Fair Value Measurements at December 31, 2014 $ $ $ — — — — — — Accounts Receivable: Accounts receivable are shown net of allowance for doubtful accounts in the consolidated balance sheets. At December 31, 2015, and December 31, 2014, the Company had assigned $176.6 million and $150.7 million of eligible accounts receivable, respectively, to the Capital Construction Fund (see Note 7). Allowance for Doubtful Accounts: Allowances for doubtful accounts receivable are established by management based on estimates of collectability. Estimates of collectability are principally based on an evaluation of the current financial condition of the Company’s customers and potential risks to collection, payment history and other factors which are regularly monitored by the Company. The changes in the allowance for doubtful accounts receivable for the three years ended December 31, 2015 were as follows (in millions): Year 2015 ............................................................... 2014 ............................................................... 2013 ............................................................... $ Balance at Beginning of Year Expense (1) Write-offs and Other Balance at End of Year $ 5.0 4.1 4.7 $ 2.0 1.8 0.6 (0.4) $ (0.9) (1.2) 6.6 5.0 4.1 (1) 2015 expense includes allowances for Alaska service related accounts receivable. Prepaid and Other Assets: Prepaid expenses and other assets consist of the following at December 31, 2015 and 2014 (in millions): Prepaid expenses and other assets Prepaid fuel ............................................................................................................................... Insurance ................................................................................................................................... Income tax receivables .............................................................................................................. Other ......................................................................................................................................... Total ...................................................................................................................................... $ $ As of December 31, 2015 2014 9.3 4.9 15.1 8.8 38.1 $ $ 11.0 2.9 — 6.6 20.5 39 102_10K.pdf 42 2016-02-26 4:22 PM Impairment of Terminal Joint Venture Investment: The Company’s investment in its Terminal Joint Venture, a related party, is reviewed for impairment annually, or whenever there is evidence that fair value may be below carrying cost. An investment is written down to fair value if fair value is below carrying cost and the impairment is other-than-temporary. In evaluating the fair value of an investment and whether any identified impairment is other-than-temporary, significant estimates and considerable judgments are involved. These estimates and judgments are based, in part, on the Company’s current and future evaluation of economic conditions in general, as well as the Terminal Joint Venture’s current and future plans. These fair value calculations are highly subjective because they require management to make assumptions and apply judgments to estimates regarding the timing and amount of future cash flows, probabilities related to various cash flow scenarios, and appropriate discount rates based on the perceived risks, among others. In evaluating whether an impairment is other-than-temporary, the Company considers all available information, including the length of time and extent of the impairment, the financial condition and near-term prospects of the Terminal Joint Venture, the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, and projected industry and economic trends, among others. Changes in these and other assumptions could affect the projected operational results and fair value of the Terminal Joint Venture, and accordingly, may require valuation adjustments to the Company’s investment that may materially impact the Company’s financial condition or its future operating results. The Company has evaluated its investment in its related party Terminal Joint Venture for impairment and no impairment charges were recorded for the years ended December 31, 2015, 2014, and 2013. Property and Equipment: Property and equipment are stated at cost. Certain costs incurred in the development of internal-use software are capitalized. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of property and equipment range up to the following maximum life: Classification Vessels ............................................................................................... Machinery and equipment .................................................................. Terminal facilities .............................................................................. Life 40 years 20 years 35 years Deferred Dry-docking Costs: The Company’s U.S. flagged vessels must meet specified seaworthiness standards established by U.S. Coast Guard rules and Classification society requirements. These standards require that the Company’s vessels undergo two dry- docking inspections within a five-year period. However, the majority of the Company’s U.S. flagged vessels are enrolled in the U.S. Coast Guard’s Underwater Survey in Lieu of Dry-docking (“UWILD”) program. The UWILD program allows eligible vessels to have their intermediate dry-docking requirement met with far less costly underwater inspection. The Company operates four non-U.S. flag vessels (one owned; one under a bareboat charter arrangement; and the remaining two on time charter) in the Pacific Islands. The Company is responsible for ensuring that the owned and bareboat chartered vessels meet international standards for seaworthiness, which among other requirements generally mandate that the Company perform two dry- docking inspections every five years. The dry-dockings of the Company’s time chartered vessels are the responsibility of the vessels’ owners. As costs associated with dry-docking inspections provide future economic benefits to the Company through continued operation of the vessels, the costs are deferred and amortized until the next regulated scheduled dry-docking, which is usually over a two to five-year period. Routine vessel maintenance and repairs that do not improve or extend asset lives are charged to expense as incurred. Amortized amounts are charged to operating expenses of the Ocean Transportation segment in the consolidated statements of income and comprehensive income. Goodwill and Intangible Assets: Recorded goodwill arises as a result of acquisitions made by the Company. Intangible assets at December 31, 2015, consisted of customer relationships that are being amortized using the straight-line method over the expected useful lives ranging from 3 to 21 years (see Note 3 and 6). Impairment of Long-Lived Assets, Finite-Lived Intangible Assets and Goodwill: The Company evaluates its long-lived assets, including finite-lived intangible assets for possible impairment in the fourth quarter, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than its carrying amount. During 2015, the Company changed the measurement date of its annual impairment tests from November 30 to October 1. The change was applied prospectively and did not have any impact on the Company’s impairment tests for the year. The change was made to better align the date of the impairment analysis with the preparation of the Company’s financial quarterly cash flow model. The change, if applied retrospective, would not have had any impact on the Company’s impairment analysis for prior periods presented. The Company’s long-lived assets, including finite-lived intangible assets are grouped at the Ocean Transportation and Logistics asset group level, which represents the lowest level for which identifiable cash flows are available. 40 102_10K.pdf 43 2016-02-26 4:22 PM Long-lived Assets: In evaluating impairment, the estimated future undiscounted cash flows generated by each of these asset groups is compared with the amount recorded for each asset group to determine if its carrying value is not recoverable. If this review determines that the amount recorded will not be recovered, the amount recorded for the asset group is reduced to its 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, expected useful lives of the assets, uncertainty about future events, including changes in economic conditions, changes in operating performance, 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 operating results could be materially impacted. During the year ended December 31, 2015, the Company recorded an impairment charge of $2.1 million related to the write-down of inactive vessels to be recycled from its recorded net book value to its estimated fair value of zero. The impairment expense is included in operating costs on the consolidated statements of income and comprehensive income. No impairment charges were recorded for the years ended December 31, 2014, and 2013. Finite-Lived Intangible Assets and Goodwill: The Company’s intangible assets include goodwill and customer relationships. In estimating the fair value of a reporting unit, the Company uses a combination of a discounted cash flow model and fair value based on market multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”). The discounted cash flow approach requires the Company to use a number of assumptions, including market factors specific to the business, the amount and timing of estimated future cash flows to be generated by the business over an extended period of time, long-term growth rates for the business, and a discount rate that considers the risks related to the amount and timing of the cash flows. Although the assumptions used by the Company in its discounted cash flow model are consistent with the assumptions the Company used to generate its internal strategic plans and forecasts, significant judgment is required to estimate the amount and timing of future cash flows from the reporting unit and the risk of achieving those cash flows. When using market multiples of EBITDA, the Company must make judgments about the comparability of those multiples in closed and proposed transactions. Accordingly, changes in assumptions and estimates, including, but not limited to, changes driven by external factors, such as industry and economic trends, and those driven by internal factors, such as changes in the Company’s business strategy and its internal forecasts, could have a material effect on the Company’s financial condition or its future operating results. The Company has evaluated its goodwill and intangible assets for impairment and determined that the fair value of each reporting unit substantially exceeds book value. No impairment charges were recorded for the years ended December 31, 2015, 2014 and 2013, respectively. Accrued and other liabilities: Accrued and other liabilities consist of the following at December 31, 2015 and 2014 (in millions): Accrued and other liabilities Incentives and other benefit accruals ........................................................................................ Molasses tank farm removal accrual ......................................................................................... Restructuring and severance accruals ....................................................................................... Repayments of multi-employer withdrawal liability (see Note 12) .......................................... Interest on debt .......................................................................................................................... Acquisition related payments .................................................................................................... Deferred revenue ....................................................................................................................... Post retirement benefit obligations ........................................................................................... Other liabilities ......................................................................................................................... Total ...................................................................................................................................... $ $ As of December 31, 2015 2014 20.7 7.4 5.0 4.1 3.9 3.8 3.6 2.5 9.5 60.5 $ $ 16.1 — — — 3.3 — 2.4 2.5 2.6 26.9 Pension and Post-Retirement Plans: Certain Ocean Transportation subsidiaries are members of the Pacific Maritime Association (“PMA”) and the Hawaii Stevedoring Industry Committee, which negotiate multi-employer pension plans covering certain shoreside bargaining unit personnel. The subsidiaries directly negotiate multi-employer pension plans covering other bargaining unit personnel. Pension costs are accrued in accordance with contribution rates established by the PMA, the parties to a plan or the trustees of a plan. Several trusteed, non-contributory, single-employer defined benefit plans and defined contribution plans cover substantially all other employees. The estimation of the Company’s pension and post-retirement benefit expenses and liabilities requires that the Company make various assumptions. These assumptions include factors such as discount rates, expected long-term rate of return on pension plan assets, salary growth, health care cost trend rates, inflation, retirement rates, mortality rates, and expected contributions. Actual results that differ from the assumptions made could materially affect the Company’s financial condition or its future operating results. The effects of changing assumptions are included in unamortized net gains and losses, which directly affect accumulated other comprehensive income. Additionally, these unamortized gains and losses are amortized and reclassified to income (loss) over future periods. Additional information about the Company’s benefit plans is included in Note 11. 41 102_10K.pdf 44 2016-02-26 4:22 PM Uninsured Liabilities: The Company is uninsured for certain losses including, but not limited to, employee health, workers’ compensation, general liability, real and personal property. Where feasible, the Company obtains third-party excess insurance coverage to limit its exposure to these claims. When estimating its uninsured liabilities, the Company considers a number of factors, including historical claims experience, demographic factors, current trends, and analyses provided by independent third-parties. Periodically, management reviews its assumptions and the analyses provided by independent third-parties to determine the adequacy of the Company’s uninsured liabilities. The Company’s uninsured liabilities contain uncertainties because management is required to apply judgment and make long-term assumptions to estimate the ultimate cost to settle reported claims and claims incurred, but not reported, as of the balance sheet date. If management uses different assumptions or if different conditions occur in future periods, the Company’s financial condition or its future operating results could be materially impacted. Legal Contingencies: The Company’s results of operations could be affected by significant litigation adverse to the Company, including, but not limited to, liability claims, antitrust claims, claims related to coastwise trading matters, lawsuits involving private plaintiffs or government agencies, and environmental related matters. The Company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Management makes adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of outside legal counsel and other information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from those estimates. In making determinations of likely outcomes of litigation matters, the Company considers many factors. These factors include, but are not limited to, the nature of specific claims including un-asserted claims, the Company’s experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms and the matter’s current status. Recognition of Revenues and Expenses: Voyage revenue is recognized ratably over the duration of a voyage based on the relative transit time in each reporting period. Voyage expenses are recognized as incurred. Hawaii, Alaska, Guam, and certain Pacific island service freight rates are provided in tariffs filed with the Surface Transportation Board of the U.S. Department of Transportation; for other Pacific island services, the rates are filed with the Federal Maritime Commission. The Alaska and China service rates are predominately established by individual contracts with customers. Revenues and costs from terminal and other related services are recognized upon completion of the services. The revenue for Logistics services includes the total amount billed to customers for transportation services. The primary costs include purchased transportation services. Revenue and the related purchased transportation costs are recognized based on relative transit time. The Company reports revenue on a gross basis. The Company serves as principal in transactions because it is responsible for the contractual relationship with the customer, has latitude in establishing prices, has discretion in supplier selection, and retains credit risk. The primary sources of revenue for warehousing services are storage, handling, and value-added packaging. For customer dedicated warehouses, storage revenue is recognized as earned over the life of the contract. Storage revenue generated by the public warehouses is recognized in the month the service is provided according to the terms of the contract. Handling and value-added packaging revenue and expense are recognized in proportion to the services completed. Non-voyage Costs: Non-voyage costs such as terminal operating overhead, and general and administrative expenses are charged to expense as incurred. Dividends: The Company recognizes dividends as a liability when approved by the Board of Directors. Share-Based Compensation: The Company records compensation expense for all share-based payment awards made to employees and directors. The Company’s various equity plans are more fully described in Note 13. Income Taxes: Deferred income taxes are provided for the tax effect of temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and deferred tax liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when the temporary differences reverse. Adjustments may be required to deferred tax assets and deferred tax liabilities due to changes in tax laws and audit adjustments by tax authorities. To the extent adjustments are required in any given period, the adjustments would be included within the tax provision in the consolidated statements of income and comprehensive income and/or consolidated balance sheets. The Company makes certain estimates and judgments in determining income tax expense for consolidated financial statement purposes. These estimates and judgments are applied in the calculation of tax credits, tax benefits and deductions, and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and consolidated financial statement purposes. In addition, judgment is required in determining if, based on the weight of available evidence, management believes that it is more likely than not that some portion or all of a recorded deferred tax asset would not be realized in future periods. A valuation allowance would be established if, based on the weight of available evidence, management believes that it is more likely than not that some portion or all of a recorded deferred tax asset would not be realized in future periods (see Note 3 and 10). Significant changes to these estimates may result in an increase or decrease to the Company’s tax provision in a subsequent period. 42 102_10K.pdf 45 2016-02-26 4:22 PM In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertain tax positions taken or expected to be taken with respect to the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could materially affect the Company’s financial condition or its future operating results. Comprehensive Income (Loss): Comprehensive income (loss) includes all changes in Shareholders’ Equity, except those resulting from capital stock transactions. Other comprehensive income (loss) in the consolidated statements of income and comprehensive income are shown net of tax benefit (expense) of $(5.0) million, $19.4 million, and $(14.1) million for the years ended December 2015, 2014, and 2013, respectively. Changes in accumulated other comprehensive loss by component, net of tax, are as follows (in millions): Pensions Post Retirement Non- Qualified Plans Foreign Currency Translation Interest Hedge Accumulated Other Comprehensive Income (Loss) Balance at December 31, 2013 ......................... Net loss in prior service costs ....................... Amortization of prior service cost ................ Amortization of net loss ................................ Foreign currency translation adjustment ....... Balance at December 31, 2014 ......................... Net gain in prior service costs ....................... Amortization of prior service cost ................ Amortization of net loss ................................ Foreign currency translation adjustment ....... Other ............................................................. Balance at December 31, 2015 ......................... $ $ (20.1) $ (25.4) (1.3) 1.8 — (45.0) 3.7 (1.3) 0.9 — — (41.7) $ (1.7) $ (5.9) — 0.4 — (7.2) 1.4 0.1 1.0 — — (4.7) $ (0.9) $ (0.1) — 0.3 — (0.7) — (0.1) (0.1) — — (0.9) $ (0.1) $ — — — 0.4 0.3 — — — 0.7 — 1.0 $ (0.7) $ — — — — (0.7) — — — — 0.1 (0.6) $ (23.5) (31.4) (1.3) 2.5 0.4 (53.3) 5.1 (1.3) 1.8 0.7 0.1 (46.9) Basic and Diluted Earnings per Share (“EPS”) of Common Stock: Basic earnings per share are determined by dividing net income by the weighted-average common shares outstanding during the year. The calculation of diluted earnings per share includes the dilutive effect of unexercised non-qualified stock options and non-vested stock units. The computation of weighted average dilutive shares outstanding excluded non-qualified stock options to purchase 0.1 million shares of common stock for each of the years 2015, 2014, and 2013. These amounts were excluded because the options’ exercise prices were greater than the average market price of the Company’s common stock for the periods presented and, therefore, the effect would be anti-dilutive. The denominator used to compute basic and diluted earnings per share is as follows (in millions): Year Ended December 31, 2015 Per Weighted Common Average Share Common Amount Shares Net Income $ 103.0 Year Ended December 31, 2014 Per Weighted Common Average Share Common Amount Shares Net Income Basic: Effect of Dilutive Securities: Diluted: $ 103.0 43.5 $ 0.5 44.0 $ 2.37 $ — 2.34 $ 70.8 70.8 43.0 $ 0.4 43.4 $ 1.65 $ — 1.63 $ Net Income Year Ended December 31, 2013 Per Weighted Common Average Share Common Amount Shares 1.26 — 1.25 42.7 $ 0.4 43.1 $ 53.7 53.7 Rounding: Amounts in the consolidated financial statements and Notes are rounded to millions, but per-share calculations and percentages were determined based on amounts before rounding. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may be slightly different. Reclassification: Amounts for deferred dry-docking costs at December 31, 2014 have been reclassified from other long-term assets in the Company’s consolidated balance sheet to conform to the current year presentation. New Accounting Pronouncements: Business Combinations: In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, to record an acquisition-to-date adjustment, in the same period’s financial statements, for the effect on earnings of changes in depreciation, amortization, or other income and to disclose the amount of such adjustment that related to prior periods. The guidance is effective for reporting periods beginning after December 15, 2015, and interim periods within those fiscal years; however, early adoption is permitted. The Company adopted ASU 2015-16 during the fourth quarter 2015. ASU 2015-16 is applied prospectively to 43 102_10K.pdf 46 2016-02-26 4:22 PM adjustments to provisional amounts that occur after the effective date. The adoption of ASU 2015-16 did not have a material effect on the Company’s consolidated financial statements upon adoption. Deferred Taxes: In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classifications of Deferred Taxes” (“ASU 2015- 17”) which simplifies the presentation of deferred income taxes. The amended guidance requires that all deferred tax assets and liabilities be classified as non-current on the balance sheet. The guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. The Company early adopted ASU 2015-17 during the fourth quarter 2015 on a prospective basis. No prior periods were retrospectively adjusted (see Note 10). Revenue from Contracts with Customers: In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The guidance establishes principles regarding the nature, timing, and uncertainty of revenue from contracts with customers. It removes inconsistencies in existing revenue requirements, provides a more robust framework for addressing revenue issues and improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The guidance will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is in the process of evaluating this guidance. 3. BUSINESS COMBINATION Horizon Acquisition: The Company completed the Horizon Acquisition on May 29, 2015 (the “Effective Date”) by which MatNav acquired Horizon’s Alaska operations and assumed all of Horizon’s non-Hawaii assets and liabilities. Immediately before the completion of the Horizon Acquisition, Horizon sold its Hawaii operations, and related assets and liabilities to the Pasha Group (the “Pasha Transaction”). Horizon also completed the termination of its Puerto Rico operations during the first quarter of 2015. On the Effective Date, a subsidiary of the Company merged with Horizon and as a result, the Company acquired 100 percent of Horizon’s outstanding shares and warrants for a cash price of $0.72 per-share. The Company also acquired Horizon’s assets and assumed its liabilities including Horizon’s debt (net of proceeds from the Pasha Transaction). Immediately following the Horizon Acquisition, the Company repaid the assumed debt which included accrued interest and breakage fees, and redeemed all of Horizon’s outstanding warrants. Total consideration including debt paid and warrants redeemed by the Company is as follows: (in millions) Common shares .................................................................................. Warrants ............................................................................................. Horizon’s debt (including accrued interest and breakage fees).......... Total ................................................................................................... $ $ Total Consideration 29.4 37.1 428.9 495.4 Horizon’s assets acquired and liabilities assumed were recorded based on fair value estimates as of the Effective Date, with the remaining unallocated purchase price recorded as goodwill. Such fair value estimates require significant judgment including the valuation of property and equipment, intangible assets, debt and warrants, the assumptions used in calculating the multi-employer withdrawal pension liabilities, and the determination of net deferred tax assets. The Company’s fair value estimates are subject to revision pending the Company’s final fair value analysis and purchase price calculations. Consequently, the fair value amounts presented are preliminary and are subject to revision. Final estimates of fair value, including the estimated fair value of multi- employer withdrawal liability may be significantly different from those reflected in the Company’s Consolidated Financial Statements as of December 31, 2015. The following table summarizes the estimated fair values assigned to Horizon’s assets acquired and liabilities assumed as a result of the Horizon Acquisition as of December 31, 2015: Purchase Price Allocation (in millions) Cash and cash equivalents ................................................................. Accounts receivable ........................................................................... Other current assets ............................................................................ Deferred tax assets, net ...................................................................... Property and equipment ..................................................................... Intangibles - Customer relationships .................................................. Total $ 0.8 31.7 7.2 45.6 170.4 140.0 44 102_10K.pdf 47 2016-02-26 4:22 PM Purchase Price Allocation (in millions) Other long-term assets ....................................................................... Accounts payable ............................................................................... Accruals and other current liabilities ................................................. Multi-employer withdrawal liability .................................................. Capital lease obligations .................................................................... Horizon’s debt and warrants .............................................................. Total identifiable assets less liabilities ............................................... Total cash paid for common shares ................................................ Goodwill ............................................................................................ $ Total 4.1 (22.8) (32.1) (60.6) (1.6) (467.5) (184.8) (29.4) 214.2 The amounts above include $5.5 million of purchase price adjustments recorded to the preliminary purchase price allocation initially reported in the Company’s interim condensed consolidated financial statements for the three and six-months ended June 30, 2015. Purchase price allocation adjustments relate primarily to the receipt of additional information regarding the fair value of certain assets acquired and liabilities assumed. Deferred tax assets, net: The Company recorded Horizon’s deferred tax assets and liabilities, net of any change of ownership limitations and valuation allowance for State operating losses, of $45.6 million. Property and equipment: Property and equipment of $170.4 million includes the fair value acquisition of seven Jones Act qualified containerships and vessel spare parts of $130.7 million, containers and equipment of $17.9 million, terminal facilities and other property of $9.7 million, and construction in progress of $12.1 million. Intangibles, customer relationships: The Company recorded intangible assets of $140.0 million related to customer relationships, which are being amortized over 21 years. In determining the amortization period, the Company considered the historical trends of Horizon’s customers in the Alaska service and related attrition rates. The Company also considered potential future attrition risks, which are mitigated by the limited number of existing Jones Act-qualified vessels available that are required to perform competing ocean transportation services in Alaska, and the long delivery lead times associated with building such vessels in the U.S. The Company also considered existing competition and the high capital investment required to establish an asset-based ocean transportation business, the substantial investment required in infrastructure, and the need to develop a broad base of customer relationships over a period of time. As a result, the Company believes that the Alaska service customers are considered less vulnerable to attrition. Multi-employer withdrawal liability: Horizon ceased all of its operations in Puerto Rico during the first quarter of 2015 which resulted in a mass withdrawal from its multi-employer ILA-PRSSA Pension Fund. The Company estimated the liability related to the multi-employer pension plan of $60.6 million based upon the expected future undiscounted payments of $73.9 million at May 29, 2015, to be paid by quarterly payments of approximately $1.0 million commencing the fourth quarter of 2015, payable over a period of approximately 18 years, discounted using the risk-free U.S. Treasury rate (see Note 12). Debt and warrants: The Company recorded the fair value of debt and warrants of $467.5 million arising from the Horizon Acquisition, which included accrued interest and breakage fees. The Company subsequently repaid all of the debt and redeemed the warrants during the period ended June 30, 2015. Goodwill: The Company recorded goodwill of $214.2 million arising from the Horizon Acquisition, which represents the excess of the fair value of the consideration paid by the Company over the fair value of the underlying identifiable Horizon assets acquired and liabilities assumed. In accordance with Accounting Standards Codification (ASC) 805, Business Combination, goodwill will not be amortized, but instead will be tested for impairment at least annually, and whenever events or circumstances have occurred that may indicate a possible impairment. The goodwill is recorded in the Ocean Transportation segment (see Note 6). Goodwill arises as a result of several factors. The Horizon Acquisition represents an extension of the Company’s existing platform on the U.S. West Coast and extends the geographical reach of the Company’s ocean transportation services to include the port of Tacoma, Washington, to the ports of Anchorage, Kodiak, and Dutch Harbor in Alaska. The Horizon Acquisition also includes container stevedoring, container equipment and maintenance, and other terminal services in the Alaska ports of Anchorage, Kodiak and Dutch Harbor. Furthermore, the Horizon Acquisition provides an assembled workforce of experienced personnel with knowledge of the Alaska shipping industry and of its customers. The Company expects to leverage its existing infrastructure and operations to integrate the Alaska operations and eliminate duplicative corporate overhead costs. The Company’s Consolidated Statements of Income and Comprehensive Income for the year ended December 31, 2015 include operating revenue of $179.3 million, and net losses before income taxes of $7.8 million, respectively, from Horizon’s operations. 45 102_10K.pdf 48 2016-02-26 4:22 PM One-time acquisition related costs of approximately $19.0 million incurred as a result of the Horizon Acquisition, is included in selling, general and administrative costs in the Consolidated Statements of Income and Comprehensive Income. Pro Forma Financial Information (Unaudited): The following unaudited pro forma financial information presents the combined operating results of the Company, and those of Horizon excluding its Hawaii operations, as if the Horizon Acquisition had been completed at the beginning of each period presented below. The unaudited pro forma financial information includes the accounting effects of the business combination, including the amortization of intangible assets, depreciation of property and equipment, and interest expense. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the result of operations that would have been achieved if the Horizon Acquisition had taken place at the beginning of the periods presented, nor should it be taken as an indication of our future consolidated results of operations. Unaudited pro forma financial information for the years ended December 31, 2015 and 2014 is as follows: (in millions, except per-share amount) Pro Forma Combined: Operating revenue .................................................................................................................... Net income from continuing operations ................................................................................... Basic Earnings Per Share: Diluted Earnings Per Share: Weighted Average Number of Shares Outstanding: Basic .................................................................................................................................... Diluted ................................................................................................................................. (Unaudited) Year Ended December 31, 2015 2014 $ $ $ $ $ $ $ $ 2,019.7 100.2 2.30 2.28 43.5 44.0 2,045.1 61.7 1.43 1.42 43.0 43.4 The following is a summary of the pro-forma adjustments to the Combined Consolidated Statement of Operations: (1) Eliminate operating revenue and net income related to Horizon’s Hawaii operations to reflect the Pasha Transaction. (2) Eliminate Horizon’s interest expense due to the repayment of Horizon’s debt, and record interest expense based upon an estimated Company borrowings. (3) Record additional depreciation and amortization expense due to increase in fair value of the acquired tangible and intangible assets. (4) Record adjustment to income tax expense based upon Matson’s estimated income tax rate. (5) Record adjustments for certain acquisition related expenses. 4. INVESTMENT IN TERMINAL JOINT VENTURE The Company accounts for its 35 percent ownership interest in the related party Terminal Joint Venture using the equity method of accounting. The Company records its share of income or loss in the Terminal Joint Venture in operating expenses within the Ocean Transportation segment, due to operations of the Terminal Joint Venture being an integral part of the Company’s Ocean Transportation business. The Company’s investment in the Terminal Joint Venture was $66.4 million and $64.4 million at December 31, 2015 and 2014, respectively. The Company’s share of income or loss recorded in the Consolidated Statements of Income and Comprehensive Income, and dividends received by the Company during the years ended December 31, 2015, 2014 and 2013 is as follows (in millions): Terminal Joint Venture Company Share of Net Income (Loss) ....................................................... Distributions Received ............................................................................... $ 2015 Years Ended December 31, 2014 2013 $ 16.5 14.0 $ 6.6 — (2.0) — The Company’s Ocean Transportation segment operating costs include $174.1 million, $164.8 million and $164.3 million, for 2015, 2014 and 2013, respectively, for terminal services provided by SSAT. Accounts payable and accrued liabilities in the consolidated balance sheets include $19.5 million and $17.5 million for terminal services payable to the Terminal Joint Venture at December 31, 2015 and 2014, respectively. 46 102_10K.pdf 49 2016-02-26 4:22 PM A summary of unaudited financial information for the Terminal Joint Venture at December 31, 2015 and 2014 is as follows (in millions): Balance Sheet (Unaudited) Current assets ............................................................................................................................ Noncurrent assets ...................................................................................................................... Total Assets........................................................................................................................... Current liabilities ...................................................................................................................... Noncurrent liabilities ................................................................................................................ Equity ........................................................................................................................................ Total Liabilities and Equity................................................................................................... As of December 31, 2015 2014 $ $ $ $ 107.0 121.2 228.2 42.0 9.4 176.8 228.2 $ $ $ $ 80.7 140.9 221.6 40.9 7.1 173.6 221.6 Statement of Operations (Unaudited) Operating revenue ...................................................................................... Operating costs and expenses .................................................................... Operating income (loss) ............................................................................. Net Income (Loss) (1) ............................................................................ $ $ 2015 Years Ended December 31, 2014 2013 621.0 610.2 10.8 44.9 $ $ 586.2 589.7 (3.5) 21.2 $ $ 498.4 517.4 (19.0) (5.7) (1) Includes earnings from equity method investments held by the Terminal Joint Venture. 5. PROPERTY AND EQUIPMENT Property and equipment at December 31, 2015 and 2014, and depreciation expense in the three years ended December 31, 2015 includes the following (in millions): Vessels ....................................................................................................... Containers and equipment .......................................................................... Terminal facilities and other property ........................................................ Construction in progress ............................................................................ Total ....................................................................................................... Vessels ....................................................................................................... Containers and equipment .......................................................................... Terminal facilities and other property ........................................................ Construction in progress ............................................................................ Total ....................................................................................................... Depreciation Expense As of December 31, 2015 Accumulated Depreciation Net Book Value Cost 1,384.8 496.0 42.0 66.1 1,988.9 $ $ 787.4 307.8 33.4 — 1,128.6 $ $ 597.4 188.2 8.6 66.1 860.3 As of December 31, 2014 Accumulated Depreciation Net Book Value Cost 1,263.8 466.8 39.2 28.4 1,798.2 $ $ 757.7 316.1 33.2 — 1,107.0 $ $ 506.1 150.7 6.0 28.4 691.2 2015 Years Ended December 31, 2014 2013 76.4 $ 66.8 $ 67.4 $ $ $ $ $ Property and equipment included assets subject to capital leases with a net book value of $6.4 million and $2.6 million, net of accumulated depreciation of $1.1 million and $0.7 million at December 31, 2015 and 2014, respectively. Amortization recorded in the consolidated statement of income and comprehensive income was $0.6 million, $0.3 million and $0.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. During the fourth quarter of 2013, the Company entered into agreements with a shipyard for the construction of two new 3,600 twenty-foot equivalent units Aloha-class container vessels at a cost of $418.0 million. The container vessels are expected to be delivered during the third quarter of 2018 and the first quarter of 2019. Progress payments to the shipyard of $29.3 million and $8.4 million as of December 31, 2015 and 2014, respectively, are included in construction in progress. 47 102_10K.pdf 50 2016-02-26 4:22 PM 6. GOODWILL AND INTANGIBLE ASSETS Changes in the Company’s goodwill for the years ended December 31, 2015 and 2014 consist of the following (in millions): Balance at December 31, 2013 .................................................................. Additions ................................................................................................ Balance at December 31, 2014 .................................................................. Additions ................................................................................................ Balance at December 31, 2015 .................................................................. $ $ 0.8 — 0.8 214.2 215.0 $ $ 26.6 — 26.6 — 26.6 $ $ Ocean Transportation Goodwill Logistics Total 27.4 — 27.4 214.2 241.6 Goodwill related to the Ocean Transportation reporting unit increased $214.2 million during the year ended December 31, 2015 related to the Horizon Acquisition (see Note 3). There was no accumulated impairment related to goodwill as of December 31, 2015 and 2014. Intangible assets as of December 31, 2015 and 2014 include the following (in millions): Gross Amount at December 31, 2014 ........................................................ Additions ................................................................................................ Gross Amount at December 31, 2015 ........................................................ Accumulated Amortization .................................................................... Net Amount at December 31, 2015 ........................................................... Gross Amount at December 31, 2013 ........................................................ Additions ................................................................................................ Gross Amount at December 31, 2014 ........................................................ Accumulated Amortization .................................................................... Net Amount at December 31, 2014 ........................................................... Intangible Assets Ocean Transportation Logistics Total $ $ $ $ 0.6 140.0 140.6 (4.2) 136.4 $ $ 9.8 1.0 12.0 (8.1) 2.7 Ocean Transportation Intangible Assets Logistics 0.6 — 0.6 (0.3) 0.3 $ $ 9.8 — 9.8 (7.6) 2.2 $ $ $ $ 10.4 141.0 151.4 (12.3) 139.1 Total 10.4 — 10.4 (7.9) 2.5 Intangible assets related to Ocean Transportation increased by $140.0 million during the year ended December 31, 2015 related to customer relationships acquired as part of the Horizon Acquisition, and are being amortized over 21 years (see Note 3). Amortization expense was $4.4 million, $1.3 million and $0.8 million for 2015, 2014, and 2013, respectively. Estimated amortization expenses related to intangible assets over the next five years are as follows (in millions): Year 2016 ................................................................................................... 2017 ................................................................................................... 2018 ................................................................................................... 2019 ................................................................................................... 2020 ................................................................................................... Thereafter ........................................................................................... Total ............................................................................................... $ $ Estimated Amortization Expense 7.4 7.4 7.2 7.0 7.0 103.1 139.1 48 102_10K.pdf 51 2016-02-26 4:22 PM 7. CAPITAL CONSTRUCTION FUND The Company is party to an agreement with the U.S. Department of Transportation, Maritime Administration (“MARAD”) that established a Capital Construction Fund (“CCF”) program under provisions of the Merchant Marine Act of 1936, as amended (the “Merchant Marine Act”). The CCF program was created to assist owners and operators of U.S. flag vessels in raising capital necessary for the modernization and expansion of the U.S. merchant marine. CCF funds may be used for the acquisition, construction, or reconstruction of vessels, and for repayment of existing vessel indebtedness through the deferment of federal income taxes on certain deposits of monies and other property placed into the CCF. Qualified withdrawals from the CCF must be used for investment in vessels and certain related equipment built in the U.S., and for use between covered U.S. ports as described by the Merchant Marine Act (see Item 1 of Part 1 for additional information on Maritime Laws and the Jones Act). Participants of the CCF must also meet certain U.S. citizenship requirements. Deposits into the CCF are limited by certain applicable earnings and other conditions. Such deposits, once made, are available as tax deductions in the Company’s tax provision. Qualified withdrawals from the CCF do not give rise to a current tax liability, but reduce the depreciable basis of the vessels or certain related equipment for income tax purposes. However, if withdrawals are made from the CCF for general corporate purposes or other non-qualified purposes, or upon termination of the agreement, they are taxable with interest payable from the year of deposit. Amounts deposited into the CCF are a preference item for calculating federal alternative minimum taxable income. Deposits not committed for qualified purposes within 25 years from the date of deposit will be treated as non-qualified withdrawals over the subsequent five years. Under the terms of the CCF agreement, the Company may designate certain qualified earnings as “accrued deposits” or may designate, as obligations of the CCF, qualified withdrawals to reimburse qualified expenditures initially made with operating funds. Such accrued deposits to, and withdrawals from, the CCF are reflected on the consolidated balance sheets either as obligations of the Company’s current assets or as receivables from the CCF. As of December 31, 2015 and 2014, $176.6 million and $150.7 million of eligible accounts receivable were assigned to the CCF. Due to the nature of the assignment of eligible accounts receivables into the CCF, such assigned amounts are classified as part of accounts receivable in the consolidated balance sheets. At December 31, 2015 and 2014, the Company had a nominal amount and $27.5 million on deposit in the CCF invested in a money market fund, and is classified as a long-term asset in the Company’s Consolidated Balance Sheet. 8. DEBT At December 31, 2015 and 2014, the Company’s debt consisted of the following (in millions): Term Loans: 5.79%, payable through 2020 ........................................................................................... 3.66%, payable through 2023 ........................................................................................... 4.16%, payable through 2027 ........................................................................................... 4.31%, payable through 2032 ........................................................................................... 4.35%, payable through 2044 ........................................................................................... 3.92%, payable through 2045 ........................................................................................... Title XI Bonds: 5.34%, payable through 2028 ........................................................................................... 5.27%, payable through 2029 ........................................................................................... Revolving credit facility ........................................................................................................... Capital leases ............................................................................................................................ Total Debt ............................................................................................................................. Less current portion .................................................................................................................. Total Long-term Debt ........................................................................................................... $ $ Description of Debt: The following is a description of the Company’s debt: As of December 31, 2015 2014 31.5 68.4 55.0 37.5 100.0 75.0 28.6 30.8 — 3.1 429.9 (22.0) 407.9 $ $ 38.5 77.5 55.0 37.5 100.0 — 30.8 33.0 — 1.3 373.6 (21.6) 352.0 Term Loans: The 5.79 percent notes payable through 2020 are amortized by semi-annual principal payments of $3.5 million plus interest. During the second quarter of 2012, the Company issued new unsecured, fixed rate, amortizing long-term debt of $170.0 million, which funded in three tranches, $77.5 million at an interest rate of 3.66 percent maturing in 2023, $55.0 million at an interest rate of 4.16 percent maturing in 2027, and $37.5 million at an interest rate of 4.31 percent maturing in 2032. Interest is payable semi- annually. The weighted average coupon and average life of the three tranches of debt are 3.97 percent and 9.2 years, respectively. 49 102_10K.pdf 52 2016-02-26 4:22 PM The notes began to amortize in 2015 with aggregate semi-annual payments of $4.6 million, which will continue through 2016, followed by $8.4 million in 2017 through mid-year 2023, $3.8 million through mid-year 2027, and $1.2 million thereafter. In January 2014, the Company issued $100 million of 30-year senior unsecured private placement notes (the “2014 Notes”). The 2014 Notes have a weighted average life of 14.5 years and bear interest at a rate of 4.35 percent, payable semi-annually. The 2014 Notes will begin to amortize in 2021, with annual principal payments of $5.0 million in 2021, $7.5 million in 2022 and 2023, $10.0 million from 2024 to 2027, and $8.0 million in 2028. Starting in 2029, and in each year thereafter until 2044, annual principal payments will be $2.0 million. In July 2015, the Company entered into a private placement note purchase agreement for the issuance of $75.0 million of 30-year senior unsecured notes (the “2015 Notes”). The 2015 Notes funded on October 1, 2015, have a weighted average life of approximately 13 years, and will bear interest at a rate of 3.92 percent, payable semi-annually. The 2015 Notes will begin to amortize in 2017, with annual principal payments of approximately $1.8 million through 2019. During the years 2020 to 2026, the annual principal payments will range between approximately $1.3 million and $8.0 million. Starting in 2027, and in each year thereafter, the annual principal payments will be approximately $1.5 million. Title XI Bonds: In September 2003, the Company issued $55.0 million in U.S. Government guaranteed vessel finance bonds (Title XI) to partially finance the delivery of the MV Manukai. The secured bonds have a final maturity in September 2028 with a coupon of 5.34 percent. The bonds are amortized by semi-annual payments of $1.1 million plus interest. In August 2004, the Company issued $55.0 million of U.S. Government guaranteed vessel finance bonds (Title XI) to partially finance the delivery of the MV Maunawili. The secured bonds have a final maturity in July 2029, with a coupon of 5.27 percent. The bonds are amortized by semi- annual payments of $1.1 million plus interest. Revolving Credit Facility: In 2012, the Company entered into a $375.0 million, five-year unsecured revolving credit facility with a syndicate of banks to provide the Company with additional sources of liquidity for working capital requirements and investment opportunities (the “Credit Facility”). The Credit Facility includes a $100 million sub-limit for the issuance of standby and commercial letters of credit, and a $50 million sub-limit for swing line loans. The Credit Facility also includes an uncommitted option to increase the Credit Facility by $75 million. On July 30, 2015, the Company entered into an amendment to the credit facility (the “Credit Facility Amendment). The amendment includes an increase in the borrowing capacity to $400 million, and a five year extension of the maturity date to July 30, 2020. In addition, the Credit Facility Amendment includes a number of amended terms, including modifications to certain definitions and covenants, and includes an uncommitted option to increase the borrowing capacity of the Credit Facility Amendment by an additional $150 million. The Credit Facility is subject to commitment fees, letter of credit fees, and interest on borrowings based on the Company’s ratio of total debt to EBITDA (the “Leverage Ratio”). Commitment fees and letter of credit fees are computed using rates tied to a sliding scale, which range from 0.15 percent to 0.30 percent, and 1.00 percent to 1.75 percent, respectively, based on the Consolidated Net Leverage Ratio, as defined within the Credit Facility Amendment. Interest rates on borrowings are based upon the Eurodollar Rate (LIBOR) plus 1.00 percent to 1.75 percent using a sliding scale based on the Consolidated Net Leverage Ratio. The Company may also select an interest rate at a Base Rate as defined in the Credit Facility Amendment, plus a margin that ranges from zero percent to 0.75 percent. Based upon the Company’s Leverage Ratio, the interest rate applicable to any borrowings would have been approximately 1.4 percent at December 31, 2015. The Company also entered into other amendments to its existing term loan agreements that included modifications to certain definitions and covenants, as defined within the agreements. Interest rates and other substantive terms remained unchanged. As of December 31, 2015 and 2014, the Company had no borrowings outstanding under the amended Credit Facility Amendment. As of December 31, 2015, the Company had $389.0 million of availability under the amended Credit Facility. The Company used $11.0 million of the sub-limit for letters of credit outstanding as of December 31, 2015. Capital leases: As of December 31, 2015, the Company had capital lease obligations of $3.1 million related to certain containers and equipment. Capital leases have been classified as current and long-term debt in the Company’s consolidated balance sheets. Debt Guarantees: All of the Company’s debt as of December 31, 2015 was unsecured, except for $59.4 million in Title XI bonds, which is guaranteed by the Company’s significant subsidiaries. All of the Company’s debt is fixed rate debt except for the amended Credit Facility. 50 102_10K.pdf 53 2016-02-26 4:22 PM Debt Covenants: Principal financial covenants as defined in Matson’s Credit Facility and long term fixed rate debt include, but are not limited to: • • • The ratio of debt to consolidated EBITDA cannot exceed 3.25 to 1.00 for each fiscal four quarter period; The ratio of consolidated EBITDA to interest expense as of the end of any fiscal four quarter period cannot be less than 3.50 to 1.00; and The principal amount of priority debt at any time cannot exceed 20 percent of consolidated tangible assets; and the principal amount of priority debt that is not Title XI priority debt at any time cannot exceed 10 percent of consolidated tangible assets. Priority debt, as further defined in the Credit Facility Amendment, is all debt secured by a lien on the Company’s assets and certain subsidiary debt. The Company was in compliance with these covenants as of December 31, 2015. Debt Maturities: At December 31, 2015, debt maturities during the next five years and thereafter are as follows (in millions): Year 2016 ................................................................................................... 2017 ................................................................................................... 2018 ................................................................................................... 2019 ................................................................................................... 2020 ................................................................................................... Thereafter ........................................................................................... Total debt ....................................................................................... $ $ Total 22.0 31.0 30.6 30.0 30.0 286.3 429.9 9. LEASES The Company leases certain property and equipment, and other facilities under various operating lease agreements, with terms that range from 1 to 50 years. Such leases generally include provisions for the maintenance of the leased assets, options to purchase the assets at fair value, and renewal options to extend the lease agreements. Rent expense recorded in costs and expenses in the Consolidated Statement of Income and Comprehensive Income from operating leases totaled $65.6 million, $58.3 million and $58.2 million for the years ended December 31, 2015, 2014 and 2013, respectively, and includes volume-based terminal rent. Additionally, rent expense for short-term and cancelable equipment rentals was $39.9 million, $27.6 million and $20.5 million in 2015, 2014, and 2013, respectively. Management expects that in the normal course of business most operating leases will be renewed or replaced by other similar leases. Future minimum payments under operating leases as of December 31, 2015 were as follows (in millions): Year 2016 ................................................................................................... 2017 ................................................................................................... 2018 ................................................................................................... 2019 ................................................................................................... 2020 ................................................................................................... Thereafter ........................................................................................... Total minimum lease payments ..................................................... $ $ Total Operating Leases 32.3 24.8 18.5 13.7 11.7 28.9 129.9 10. INCOME TAXES The income tax expense on income from continuing operations for the years ended December 31, 2015, 2014 and 2013 consisted of the following (in millions): Current: Federal State Total Deferred: Total income tax expense 2015 Years Ended December 31, 2014 2013 $ $ 22.6 2.9 25.5 49.3 74.8 $ $ 45.5 3.7 49.2 2.7 51.9 $ $ (24.3) (1.0) (25.3) 57.5 32.2 51 102_10K.pdf 54 2016-02-26 4:22 PM Income tax expense for 2015, 2014, and 2013 differs from amounts computed by applying the statutory federal rate to income from continuing operations before income taxes for the following reasons: Computed federal income tax expense ................................................. State income tax .................................................................................... Valuation allowance ............................................................................. Foreign taxes ......................................................................................... Deferred tax adjustment ........................................................................ Unrecognized tax benefits ..................................................................... Other — net .......................................................................................... Effective income tax rate .................................................................. 2015 Years Ended December 31, 2014 2013 35.0% 2.5% 1.1% 0.6% 1.1% 0.4% 1.4% 42.1% 35.0% 2.2% 3.3% 0.4% (0.9)% (0.4)% 2.7% 42.3% 35.0% 2.9% — — — (2.1)% 1.7% 37.5% The Company recorded a valuation allowance against operating losses related to a foreign subsidiary of $1.8 million and $4.1 million in 2015 and 2014, respectively, as the Company determined the tax benefits associated with such losses may not be realized in future periods. No valuation allowance was recorded in 2013. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 of each year are as follows (in millions): Deferred tax assets: Benefit plans ......................................................................................................................... Federal net operating losses .................................................................................................. Insurance reserves ................................................................................................................. State net operating losses ...................................................................................................... Foreign losses ....................................................................................................................... Alternative minimum tax credits ........................................................................................... Allowance for doubtful accounts .......................................................................................... Other ..................................................................................................................................... Total deferred tax assets ........................................................................................................ Valuation allowance ............................................................................................................. Total Deferred tax assets, net of valuation allowance ....................................................... Deferred tax liabilities: Basis differences for property and equipment ...................................................................... Capital Construction Fund .................................................................................................... Intangibles ............................................................................................................................. Deferred revenue ................................................................................................................... Joint ventures and other investments .................................................................................... Reserves ................................................................................................................................ Total deferred tax liabilities .............................................................................................. Deferred tax liability, net .......................................................................................................... $ $ As of December 31, 2015 2014 79.1 68.0 15.4 7.8 5.7 3.6 2.4 1.9 183.9 (12.6) 171.3 300.8 95.6 53.0 11.8 10.6 10.0 481.8 310.5 $ $ 63.6 — 11.4 — 4.1 1.5 1.4 0.8 82.8 (4.1) 78.7 252.7 106.9 3.8 10.1 7.7 (2.1) 379.1 300.4 Effective December 31, 2015, the Company early adopted ASU 2015-17 on a prospective basis as current net deferred tax assets are not significant to the Company’s consolidated balance sheets, and no prior periods were retrospectively adjusted (see Note 2). As of December 31, 2014, the Company’s net current deferred income taxes were $8.0 million. The Company’s income taxes payable has been reduced by the tax benefits from share-based compensation. The Company receives an income tax benefit for exercised stock options calculated as the difference between the fair market value of the stock issued at the time of exercise and the option exercise price, tax effected. The Company also receives an income tax benefit for non-vested stock when it vests, measured as the fair market value of the stock at the time of vesting, tax effected. The net tax benefits from share-based transactions were $2.6 million and $0.8 million for 2015 and 2014, respectively, and the portion of the tax benefit related to the excess of the amount reported as the tax deduction over expense was reflected as an increase to additional paid in capital in the Consolidated Statements of Shareholders’ Equity. Operating Loss and Tax Credit Carryforwards: The Company’s U.S. federal income tax net operating losses (“NOL”) carryforwards were $194.2 million, state income tax NOLs were $192.4 million, and foreign income tax NOLs were $20.2 million as of December 31, 2015, respectively. The Company’s foreign income tax NOLs were $14.6 million as of December 31, 2014 and the Company had no U.S. federal or state NOLs at that date. The Company’s U.S. federal and state income tax NOL’s will expire on 52 102_10K.pdf 55 2016-02-26 4:22 PM various dates through December 31, 2034. The Company’s alternative minimum tax credit carryforwards were $3.6 million and $1.5 million as of December 31, 2015 and December 31, 2014, respectively, and have no expiration dates. The Company recorded a valuation allowance of $12.6 million against all of the Company’s foreign income tax NOLs and a portion of the state income tax NOLs that it believes it is more likely than not that the benefit from these amounts will not be realized. The U.S. federal and state income tax NOL carryforwards in the income tax returns filed included unrecognized tax benefits. The deferred tax assets recognized for those NOLs are presented net of these unrecognized tax benefits. Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of the Company’s domestic NOL and tax credit carryforwards may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities. Unrecognized Tax Benefits: Total unrecognized benefits represent the amount that, if recognized, would favorably affect the Company’s effective rate in future periods. The Company does not expect a material change in gross unrecognized benefits in the next twelve months. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions): Unrecognized Tax Benefits: Balance at December 31, 2012 .......................................................... Additions for tax positions of prior years ...................................... Reductions for lapse of statute of limitations ................................. Balance at December 31, 2013 .......................................................... Additions for tax positions of prior years ...................................... Reductions for lapse of statute of limitations ................................. Balance at December 31, 2014 .......................................................... Additions for tax positions of prior years ...................................... Additions from unrecognized tax benefits acquired ...................... Reductions for lapse of statute of limitations ................................. Balance at December 31, 2015 .......................................................... $ $ Amount 8.3 2.0 (3.1) 7.2 0.5 (1.0) 6.7 1.5 14.4 (0.5) 22.1 The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. To the extent interest and penalties are not ultimately assessed with respect to the settlement of uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. Interest accrued related to the balance of unrecognized tax benefits totaled $0.4 million, $0.2 million and $0.3 million as of December 31, 2015, 2014 and 2013, respectively. The Company is no longer subject to U.S. federal income tax audits for years before 2012, and substantially all material income tax matters have been concluded for years through 2010. The Company is routinely involved in State, local income and excise tax audits. 11. PENSION AND POST-RETIREMENT PLANS Non-bargaining Plans: The Company has two funded qualified single-employer defined benefit pension plans that cover certain non-bargaining unit employees and bargaining unit employees. In addition, the Company has plans that provide certain retiree health care and life insurance benefits to substantially all salaried, non-bargaining employees hired before 2008 and to certain bargaining unit employees. Employees are generally eligible for such benefits upon retirement and completion of a specified number of years of service. The Company does not pre-fund these health care and life insurance benefits, and has the right to modify or terminate certain of these plans in the future. Certain groups of retirees pay a portion of the benefit costs. Plan Administration, Investments and Asset Allocations: The Company has an Investment Committee that meets regularly with investment advisors to establish investment policies, direct investments and select investment options for the qualified plans. The Investment Committee is also responsible for appointing investment managers and monitoring their performance. The Company’s investment policy permits investments in marketable equity securities, such as domestic and foreign stocks, domestic and foreign bonds, venture capital, real estate investments, and cash equivalents. The Company’s investment policy does not permit direct investment in certain types of assets, such as options or commodities, or the use of certain strategies, such as short selling or the purchase of securities on margin. The Company’s investment strategy for its qualified pension plan assets is to achieve a diversified mix of investments that provides for long-term growth at an acceptable level of risk, and to provide sufficient liquidity to fund ongoing benefit payments. The 53 102_10K.pdf 56 2016-02-26 4:22 PM Company has engaged a number of investment managers to implement various investment strategies to achieve the desired asset class mix, liquidity and risk diversification objectives. The Company’s target and actual asset allocations at December 31, 2015 and 2014 were as follows: Asset categories Domestic equity securities ......................................................................... International equity securities .................................................................... Debt securities ............................................................................................ Real estate .................................................................................................. Other and cash ........................................................................................... Total ....................................................................................................... Target 2015 2014 53% 15% 22% 5% 5% 100% 62% 13% 18% 6% 1% 100% 63% 14% 17% 5% 1% 100% The Company’s investments in equity securities primarily include domestic large-cap and mid-cap companies, but also includes an allocation to small-cap and international equity securities. Equity investments do not include any direct holdings of the Company’s stock but may include such holdings to the extent that the stock is included as part of certain mutual fund holdings. Debt securities include investment-grade and high-yield corporate bonds from diversified industries, mortgage-backed securities, and U.S. Treasuries. Other types of investments include funds that invest in commercial real estate assets, and to a lesser extent, private equity investments in technology companies. All assets within specific funds are allocated to the targeted asset allocation of the fund. The expected return on plan assets is principally based on the Company’s historical returns combined with the Company’s long-term future expectations regarding asset class returns, the mix of plan assets, and inflation assumptions. The one-, three-, and five-year pension asset returns (losses) were (2.0) percent, 8.0 percent, and 6.8 percent, respectively, and the long-term average return (since plan inception in 1989) has been approximately 8.3 percent. Over the long-term, the actual returns have generally exceeded the benchmark returns used by the Company to evaluate performance of its fund managers. The Company’s pension plan assets are held in a master trust and are stated at estimated fair values of the underlying investments. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Equity Securities: Domestic and international common stocks are valued by obtaining quoted prices on recognized and highly liquid exchanges. Fixed Income Securities: Corporate bonds and U.S. government treasury and agency securities are valued based upon the closing price reported in the market in which the security is traded. U.S. government agency and corporate asset-backed securities may utilize models, such as a matrix pricing model, that incorporate other observable inputs when broker/dealer quotes are not available, such as cash flow, security structure, or market information. Real Estate, Private Equity and Insurance Contract Interests: The fair value of real estate, private equity and insurance contract interests are determined by the issuer based on the unit values of the funds. Unit values are determined by dividing the fund’s net assets by the number of units outstanding at the valuation date. Fair value for underlying investments in real estate is determined through independent property appraisals. Fair value of underlying investments in private equity is determined based on information provided by the general partner taking into consideration the purchase price of the underlying securities, developments concerning the investee company subsequent to the acquisition of the investment, financial data and projections of the investee company provided by the general partner, and such other factors as the general partner deems relevant. Insurance contracts are principally invested in real estate assets, which are valued based upon independent appraisals. The fair values of the Company’s pension plan assets at December 31, 2015 and 2014, by asset category, are as follows (in millions): Asset Category Cash ........................................................................... Equity securities: U.S. large-cap ........................................................ U.S. mid- and small-cap ......................................... International large-cap ........................................... International small-cap ........................................... Fair Value Measurements at December 31, 2015 Quoted Prices in Active Markets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total $ 6.9 $ 6.9 $ — $ 64.5 34.7 16.5 6.1 54 48.6 28.7 — — 15.9 6.0 16.5 6.1 — — — — — 102_10K.pdf 57 2016-02-26 4:22 PM Asset Category Fixed income securities: U.S. Treasuries ....................................................... Municipal bonds .................................................... Investment grade U.S. corporate bonds ................. High-yield U.S. corporate bonds ............................ Emerging markets fixed income ............................ Other types of investments: Real estate partnership interests ............................. Private equity partnership interests ........................ Total ........................................................................... Asset Category Cash ........................................................................... Equity securities: U.S. large-cap ........................................................ U.S. mid- and small-cap ......................................... International large-cap ........................................... International small-cap ........................................... Fixed income securities: U.S. Treasuries ....................................................... Municipal bonds .................................................... Investment grade U.S. corporate bonds ................. High-yield U.S. corporate bonds ............................ Emerging markets fixed income ............................ Other types of investments: $ $ Fair Value Measurements at December 31, 2015 Quoted Prices in Active Markets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total 5.6 5.3 2.4 6.0 10.4 10.3 0.2 168.9 $ — — — — 10.4 — — 94.6 5.6 5.3 2.4 6.0 — — — 63.8 $ $ — — — — — 10.3 0.2 10.5 Fair Value Measurements at December 31, 2014 Quoted Prices in Active Markets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total 19.4 $ 19.4 $ — $ 69.5 35.6 17.6 6.9 0.4 0.1 2.3 6.7 10.8 69.5 35.6 5.9 — — — — — 10.8 — — 11.7 6.9 0.4 0.1 2.3 6.7 — — — — — — — — — — — 9.3 0.3 9.6 Real estate partnership interests ............................. Private equity partnership interests ........................ Total ........................................................................... $ 9.3 0.3 178.9 $ — — 141.2 $ — — 28.1 $ The table below presents a reconciliation of all pension plan investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2015 and 2014 (in millions): Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Private Equity Total Real Estate Balance at December 31, 2013 .................................................................. Actual return (loss) on plan assets: Assets held at the reporting date ............................................................ Assets sold during the period ................................................................. Purchases, sales and settlements, net ..................................................... Balance at December 31, 2014 .................................................................. Actual return (loss) on plan assets: Assets held at the reporting date ............................................................ Assets sold during the period ................................................................. Purchases, sales and settlements, net ..................................................... Balance at December 31, 2015 .................................................................. $ 8.6 $ 0.3 $ 0.8 0.3 (0.4) 9.3 1.1 0.4 (0.5) 10.3 $ — — — 0.3 (0.1) — — 0.2 $ $ 8.9 0.8 0.3 (0.4) 9.6 1.0 0.4 (0.5) 10.5 Contributions to each of the qualified single-employer defined benefit pension plans are determined annually by the Company’s pension administrative committee, based upon the actuarially determined minimum required contribution under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, the Pension Protection Act of 2006, and the maximum deductible contribution allowed for tax purposes. In 2015, 2014 and 2013, the Company contributed $4.7 million, $6.5 million and $3.5 million, respectively. The Company’s funding policy is to contribute cash to its pension plans so that it meets at least the minimum contribution requirements. 55 102_10K.pdf 58 2016-02-26 4:22 PM The benefit formulas for employees who are members of collective bargaining units are determined according to the collective bargaining agreements, either using final average pay as the base or a flat dollar amount per year of service. Effective December 31, 2011, the Company froze benefit accruals under the final average pay formula for salaried, non-bargaining unit employees hired before January 1, 2008 and transitioned them to the same cash balance formula for employees hired on or after January 1, 2008. Retirement benefits under the cash balance formula are based on a fixed percentage of employee eligible compensation, plus interest. The plan interest credit rate will vary from year to year based on the ten-year U.S. Treasury rate. Benefit Plan Assets and Obligations: The measurement date for the Company’s benefit plan disclosures is December 31 of each year. The status of the funded qualified defined benefit pension plans and the unfunded post-retirement benefit plans at December 31, 2015 and 2014 are shown below (in millions): Change in Benefit Obligation: Benefit obligation at beginning of year ....................... Service cost ............................................................. Interest cost ............................................................. Plan participants’ contributions .............................. Actuarial (gain) loss ................................................ Benefits paid, net of subsidies received .................. Expenses paid ......................................................... Benefit obligation at end of year ................................. Change in Plan Assets: Fair value of plan assets at beginning of year ............. Actual return on plan assets .................................... Plan participants’ contributions .............................. Employer contributions ........................................... Benefits paid, net of subsidies received .................. Expenses paid ......................................................... Fair value of plan assets at end of year ....................... Funded Status and Recognized Liability..................... $ $ Pension Benefits December 31, Other Post-retirement Benefits December 31, 2015 2014 2015 2014 237.4 3.3 9.5 — (17.9) (10.9) (1.2) 220.2 $ $ 178.9 (2.6) — 4.7 (10.9) (1.2) 168.9 (51.3) $ $ 197.5 3.3 9.4 — 38.2 (10.0) (1.0) 237.4 172.8 10.6 — 6.5 (10.0) (1.0) 178.9 (58.5) $ $ 62.6 1.5 2.5 0.9 (3.1) (3.9) — 60.5 — — 0.9 3.0 (3.9) — — (60.5) $ 52.1 1.1 2.6 0.7 9.7 (3.6) — 62.6 — — 0.7 2.9 (3.6) — — (62.6) Amounts recognized on the consolidated balance sheets and in accumulated other comprehensive loss at December 31, 2015 and 2014 were as follows (in millions): Current liabilities ........................................................ Non-current liabilities, net .......................................... Total ........................................................................ Net loss (net of taxes) ................................................. Prior service credit (net of taxes) ................................ Total ........................................................................ Pension Benefits December 31, Other Post-retirement Benefits December 31, 2015 2014 2015 2014 $ $ $ $ $ — (51.3) (51.3) $ 50.8 (9.1) 41.7 $ $ $ — (58.5) (58.5) $ 55.5 (10.6) 44.9 $ $ (2.5) $ (58.0) (60.5) $ 4.7 — 4.7 $ $ (2.5) (60.1) (62.6) 7.2 — 7.2 The information for qualified pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2015 and 2014 is shown below (in millions): Projected benefit obligation ...................................................................................................... Accumulated benefit obligation ................................................................................................ Fair value of plan assets ............................................................................................................ $ $ $ 218.0 217.7 166.2 $ $ $ 235.0 234.6 176.1 2015 2014 56 102_10K.pdf 59 2016-02-26 4:22 PM The estimated net loss and prior service credit for the qualified pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost, net of tax, in 2016 is $1.8 million. The estimated net loss and prior service cost for the other post-retirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost, net of tax, in 2016 is $0.8 million. Unrecognized gains and losses of the post-retirement benefit plans are amortized over five years. Although current health care costs are expected to increase, the Company attempts to mitigate these increases by maintaining caps on certain of its benefit plans, using lower cost health care plan options where possible, requiring that certain groups of employees pay a portion of their benefit costs, self- insuring for certain insurance plans, encouraging wellness programs for employees, and implementing measures to mitigate future benefit cost increases. Components of the net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for the qualified pension plans and the post-retirement health care and life insurance benefit plans during 2015, 2014, and 2013, are shown below (in millions): Pension Benefits December 31, 2014 2015 2013 Other Post-retirement Benefits December 31, 2014 2013 2015 Components of Net Periodic Benefit Cost: Service cost ........................................................ Interest cost ........................................................ Expected return on plan assets ........................... Amortization of net loss ..................................... Amortization of prior service cost ..................... Net periodic benefit cost ........................................ $ $ Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (net of tax) ................... Net loss (gain) .................................................... New prior service cost ....................................... Amortization of unrecognized loss .................... Amortization of prior service credit ................... $ Total recognized in other comprehensive 3.3 $ 9.5 (14.0) 6.4 (2.3) 2.9 $ 3.3 $ 9.4 (14.1) 3.0 (2.3) (0.7) $ 2.9 $ 8.6 (11.9) 6.8 (2.3) 4.1 $ 1.5 $ 2.5 — 2.2 — 6.2 $ 1.1 $ 2.6 — 0.6 — 4.3 $ (1.0) $ 0.1 (3.9) 1.4 25.4 $ — (1.8) 1.4 (19.6) $ — (4.2) 1.4 (1.9) $ — (1.3) — 5.9 $ — (0.4) — income ................................................................ $ (3.4) $ 25.0 $ (22.4) $ (3.2) $ 5.5 $ Total recognized in net periodic benefit cost and other comprehensive income ....................... $ (0.5) $ 24.3 $ (18.3) $ 3.0 $ 9.8 $ The weighted average assumptions used to determine benefit information during 2015, 2014, and 2013, were as follows: 1.1 2.1 — 0.3 — 3.5 1.2 — (0.2) — 1.0 4.5 Pension Benefits December 31, 2014 2015 Other Post-retirement Benefits December 31, 2013 2015 2014 2013 Weighted Average Assumptions: Discount rate (1) ............................................... Expected return on plan assets .......................... Rate of compensation increase .......................... Initial health care cost trend rate (2) ................. Pre-65 group ................................................. Post-65 group ................................................ Ultimate health care cost trend rate ................... Year ultimate health care cost trend rate is reached (2) .................................................... Pre-65 group ................................................. Post-65 group ................................................ 4.50% 8.00% 3.00% 4.10% 8.25% 3.00% 4.90% 8.25% 3.00% 4.60% 4.20% 5.00% 3.00% 7.10% 3.00% 7.30% 4.50% 4.50% 2027 2027 3.00% 6.80% 7.60% 4.40% 2037 2036 (1) The Company derives a single equivalent rate utilizing a yield curve constructed from a portfolio of high-quality corporate bonds with various maturities. (2) Starting in 2015, initial and ultimate health care trend rates used to determine obligations are different for pre-65 and post-65 populations. 57 102_10K.pdf 60 2016-02-26 4:22 PM In 2014, the Company adopted a modified version of the new mortality table (RP-2014) issued by the Society of Actuaries in October 2014 along with a modified mortality improvement scale for the purposes of determining the Company’s mortality assumption used in its defined benefit and other post-retirement plan liability calculations. The use of the new table resulted in an increase of approximately $17.6 million and $3.9 million to the projected benefit obligation for pension and other post-retirement benefits, respectively as of December 31, 2014. If the assumed health care cost trend rate were increased or decreased one percentage point, the accumulated post-retirement benefit obligation, as of December 31, 2015, 2014, and 2013 and the net periodic post-retirement benefit cost for 2015, 2014 and 2013, would have increased or decreased as follows (in millions): Other Post-retirement Benefits One Percentage Point 2015 Increase 2014 2013 2015 Decrease 2014 2013 Effect on total of service and interest cost components ........................................................ Effect on post-retirement benefit obligation .......... $ $ 0.9 $ 9.4 $ 0.7 $ 10.0 $ 0.6 $ 7.1 $ (0.7) $ (7.4) $ (0.5) $ (7.8) $ (0.5) (5.7) Current liabilities of $3.7 million and $4.1 million, related to non-qualified pension benefits and post-retirement benefits, are classified as accrued and other liabilities in the consolidated balance sheets as of December 31, 2015 and 2014, respectively. Non-qualified Pension Plans: The Company has non-qualified supplemental pension plans covering certain employees and retirees, which provide for incremental pension payments from the Company’s general funds so that total pension benefits would be substantially equal to amounts that would have been payable from the Company’s qualified pension plans if it were not for limitations imposed by income tax law. A few employees and retirees receive additional supplemental pension benefits. The Company also has a frozen non-qualified pension plan that covers one outside director and pays retirement benefits in a lump sum from the Company’s general funds. The obligations relating to these plans totaled $4.3 million and $5.4 million at December 31, 2015 and 2014, respectively. The expense associated with the non-qualified plans was $0.6 million in 2015, 2014 and 2013. A 3.4 percent discount rate was used to determine the 2015 obligation. As of December 31, 2015, the amount recognized in accumulated other comprehensive loss for net loss for non-qualified pension costs, net of tax, was $0.8 million, and the amount recognized as prior service credit, net of tax, was $0.6 million. The net loss amortization and prior service credit amortization for the non-qualified plans to be recognized into net periodic pension costs in 2016, net of tax, is $0.1 million and $0.1 million, respectively. Estimated Benefit Payments: The estimated future benefit payments for the next ten years are as follows (in millions): Year 2016 ........................................................................................................... 2017 ........................................................................................................... 2018 ........................................................................................................... 2019 ........................................................................................................... 2020 ........................................................................................................... 2021-2025 .................................................................................................. Total ........................................................................................................... $ $ Qualified Pension Benefits 11.7 12.1 12.5 12.8 13.2 70.5 132.8 Non-qualified $ Pension Benefits 1.2 0.3 1.0 0.2 0.4 2.0 5.1 $ Post-retirement Benefits (1) $ $ 2.5 2.6 2.7 2.8 2.9 15.9 29.4 (1) Net of plan participants’ contributions and Medicare D subsidies. Defined Contribution Plans: The Company sponsors defined contribution plans that qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. The Company may make discretionary matching contributions equal to a specified percentage of each participant’s 401(k) contributions. For the plan year ended December 31, 2015, the Company provided matching contributions of up to 6 percent of eligible employee compensation. The Company’s matching contributions expensed under these plans totaled $2.0 million for year ended December 31, 2015, and $1.6 million for each of the years ended December 31, 2014, and 2013. The Company may also provide a discretionary Profit Sharing contribution under the qualified defined contribution plans. The Company will provide profit sharing contributions to salaried, non-bargaining unit employees, if both a minimum threshold of Company performance is achieved and the Board has approved the profit sharing contribution. For the plan year ended December 31, 2015, the Company provided profit sharing contributions equal to 3 percent of eligible employee compensation. For certain eligible employees, 58 102_10K.pdf 61 2016-02-26 4:22 PM supplemental profit sharing contributions are credited under a non-qualified plan to be paid after separation from service from the Company’s general funds so that total profit sharing contributions would be substantially equal to amounts that would have been contributed to the Company’s qualified defined contribution plans if it were not for limitations imposed by income tax law. Profit sharing expenses recorded in 2015, 2014 and 2013 under this plan totaled $1.9 million, $1.6 million and $1.2 million, respectively. Multi-employer Bargaining Plans: The Company contributes to multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover its bargaining unit employees. Contributions are generally based on amounts paid for union labor or cargo volume. The risks of participating in multi-employer plans are different from single-employer plans because assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. Additionally, if one employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. The multi-employer pension plans are subject to the plan termination insurance provisions of ERISA and are paying premiums to the Pension Benefit Guaranty Corporation (“PBGC”). The statutes provide that an employer who withdraws from, or significantly reduces its contribution obligation to, a multi-employer plan generally will be required to continue funding its proportional share of the plan’s unfunded vested benefits. As of December 31, 2015, the Company’s estimated benefit plan withdrawal obligations were $216.8 million. Except as described in Note 14, no withdrawal obligations have been recorded by the Company in the consolidated balance sheets at December 31, 2015 and 2014 as the Company has no present intention of withdrawing from and does not anticipate termination of any of these plans. Information regarding the Company’s participation in multi-employer pension plans is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2015 and 2014 is for the plan’s year-end at December 31, 2015 and 2014, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The funding improvement plan (“FIP”) or rehabilitation plan (“RP”) column indicates the status which is either pending or has been implemented. The last column lists the expiration dates of the collective-bargaining agreements to which the plans are subject. EIN/ Pension Plan Number Notes Pension Protection Act Zone as of December 31, 2015 2014 FIP/RP Status Pending/ 5% Implemented Contributor Contributions of Matson ($ in millions) 2014 2013 2015 Surcharge Expiration Date (6) Imposed 20-0389370-001 Yellow Yellow Implemented Yes $ 4.9 $ 5.1 $ 5.3 No 6/30/2019 99-0314293-001 Yellow Yellow Implemented Pension Plan ............................. 13-6372630-001 (1) Green Green Masters, Mates and Pilots Adjustable Pension Plan ........... 37-1719247-001 (1) (2) (2) No No MEBA Pension Trust - Defined Benefit Plan .............................. OCU Trust Pension Plan ................ MFOW Supplementary 51-6029896-001 26-1574440-001 (3) Red Green Green Green Implemented No Pension Plan ............................. 94-6201677-001 Green Green No Alaska Teamster - Employer Pension Plan ............................. All Alaska Longshore 92-6003463-024 (4) Red Red Implemented Pension Plan ............................. 91-6085352-001 (4) Green Green Western Conference of Teamsters Pension Plan ............ 91-6145047-001 (4) Green Green No No Western Conference of Teamsters Supplemental Benefit Trust ............................. OPEIU Local 153 Pension Plan ........................................... Seafarers Pension Trust .................. Total .......................................... 95-3746907-001 (4) Green Green No 13-2864289-001 13-6100329-001 (4) (4)(5) Red Green Red Green Implemented No Yes Yes Yes Yes No Yes Yes Yes No No No Yes 2.8 2.2 1.7 3.2 0.1 — 1.5 0.5 0.8 — 2.9 1.9 1.0 2.1 0.1 — — — — — 2.7 2.1 0.8 2.1 0.1 — — — — No No No No No No Yes 6/30/2019 6/15/2023, 6/15/2027 6/15/2023, 6/15/2027 8/15/2018, 6/15/2022 6/30/2021 6/30/2017 6/30/2016, 6/30/2018, 6/30/2019 No 6/30/2020 No 3/31/2018 — No 3/31/2018 0.1 — 17.8 $ — — 13.1 $ — — 13.1 $ No No 11/9/2017 6/30/2017 Pension Funds Hawaii Terminals Multiemployer Pension Plan ........................................... Hawaii Stevedoring Multiemployer Retirement Plan ........................................... Master, Mates and Pilots (1) (2) Effective December 31, 2012, the Masters, Mates and Pilots Pension Plan was frozen for all new benefit accruals. Commencing January 1, 2013, all new benefits accrue under a new Masters, Mates and Pilots Adjustable Pension Plan. The Plan is not subject to the PPA funding requirements under IRS Section 432 as the Plan was not in effect on July 16, 2006. 59 102_10K.pdf 62 2016-02-26 4:22 PM (3) In 2012, the Company agreed to contribute at least 11.7 percent of total wages paid to employees in covered Marine Engineer Benefits Association (“MEBA”) employment to the MEBA Pension Trust by a reallocation of the total labor cost under the collective bargaining agreement. The pension contribution rate was determined by the plan’s actuary to be necessary to maintain full funding of the pension plan and is fully offset by a reallocation of wages and other benefits. (4) Matson’s contributions to these plans commenced after the Horizon Acquisition on May 29, 2015. (5) The Company does not make contributions directly to the Seafarers Pension Plan. Instead, contributions are made to the Seafarers Health and Benefits Plan, and are subsequently re- allocated to the Seafarers Pension Plan at the discretion of the plan Trustee. (6) Represents the expiration date of the collective bargaining agreement. The Company also contributes to multi-employer plans that provide health and other benefits other than pensions under the terms of collective-bargaining agreements. Benefits provided to active and retired employees and their eligible dependents under these plans include medical, dental, vision, hearing, prescription drug, death, accidental death and dismemberment, disability, legal aid, scholarship program, wage insurance and license insurance, although not all of these benefits are provided by each plan. These plans are not subject to the PBGC plan termination and withdrawal liability provisions of ERISA applicable to multi-employer defined benefit pension plans. Information related to the Company’s health and benefit plans is as follows: Health and Benefit Plans Stevedore Industry Committee Welfare Benefit Plan ...................................................................... OCU Health and Welfare Trust ................................ SUP Welfare Plan, Inc. ............................................. MEBA Medical and Benefits Plan ............................ MFOW Welfare Fund ............................................... ARA Pension and Welfare Plan ................................ Masters, Mates and Pilots Health and Benefit Plan ...................................................................... Seafarers Health and Benefits Plan ........................... Alaska Teamster - Employer Welfare Trust ............. All Alaska Longshore Health and Welfare Trust Fund ........................................................... Western Teamsters Welfare Trust ............................ Total ..................................................................... EIN Number Notes Contributor 5% Contributions of Matson ($ in millions) 2014 2013 2015 Surcharge Imposed Expiration Date (3) 99-0313967-501 26-1574455-501 94-1243666-502 13-5590515-501 94-1254186-501 13-6083690-501 13-6696938-501 13-5557534-501 (1)(2) 91-6034674-501 91-6070467-501 91-6033601-501 (2) (2) (2) Yes No Yes Yes Yes Yes Yes Yes Yes Yes No $ $ 3.8 0.2 2.9 2.2 1.3 0.5 2.3 1.8 1.2 1.3 0.6 18.1 $ $ 3.1 0.2 2.7 1.8 1.2 0.5 1.6 — — — — 11.1 $ $ 2.6 0.2 2.7 1.7 1.2 0.5 1.6 — — — — 10.5 No No No No No No No No No No No 6/30/2019 6/30/2021 6/30/2017 8/15/2018, 6/15/2022 6/30/2017 8/15/2016 6/15/2023, 6/15//2027 6/30/2017 6/30/2016, 6/30/2018, 6/30/2019 6/30/2020 3/31/2018 (1) Contributions made to the Seafarers Health and Benefits Plan are re-allocated to the Seafarers Pension Plan at the discretion of the plan Trustee. (2) Matson’s contributions to these plans commenced after the Horizon Acquisition on May 29, 2015. (3) Represents the expiration date of the collective bargaining agreement. Multi-employer Defined Contribution Plans: The Company contributes to six multi-employer defined contribution pension plans. These plans are not subject to the withdrawal liability provisions of ERISA or the PBGC applicable to multi-employer defined benefit pension plans. Contributions made to these plans by the Company were $3.8 million in 2015, and $3.0 million in 2014 and 2013. 12. MULTI-EMPLOYER WITHDRAWAL LIABILITY Horizon ceased all of its operations in Puerto Rico during the first quarter of 2015, which resulted in a mass withdrawal from its multi- employer ILA-PRSSA pension fund (see Note 3). The Company estimated the mass withdrawal liability based upon the expected future undiscounted payments to be paid by the Company, discounted using the risk-free U.S. Treasury rate. Payments of approximately $1.0 million are made quarterly to the ILA-PRSSA over an estimated remaining period of approximately 18 years. Future estimated annual cash payments to the multi-employer pension plan as of December 31, 2015 were as follows (in millions): Year 2016 ................................................................................................... 2017 ................................................................................................... 2018 ................................................................................................... 2019 ................................................................................................... 2020 ................................................................................................... Thereafter ........................................................................................... Total future payments .................................................................... Less: amount representing interest ..................................................... Present value of remaining withdrawal liability ............................ Current portion of withdrawal liability .............................................. Long-term portion of withdrawal liability ......................................... $ $ As of December 31, (in millions) 4.1 4.1 4.1 4.1 4.1 52.3 72.8 (12.5) 60.3 (4.1) 56.2 60 102_10K.pdf 63 2016-02-26 4:22 PM The current portion of $4.1 million of the mass withdrawal liability is included in accrued and other liabilities in the consolidated balance sheet (see Note 2). The Company’s estimate of the mass withdrawal liability is subject to revision pending the final calculation and assessment to be issued by the ILA-PRSSA, expected in 2016 (see Note 3). 13. SHARE-BASED AWARDS 2007 Incentive Compensation Plan: The 2007 Incentive Compensation Plan (the “2007 Plan”) serves as a successor to the 1998 Stock Option/Stock Incentive Plan, the 1998 Non-Employee Director Stock Option Plan, the Restricted Stock Bonus Plan and the Non- Employee Director Stock Retainer Plan (the “Predecessor Plans”). Under the 2007 Plan, approximately 2.2 million shares of common stock were initially reserved for issuance. On January 28, 2010, the Board of Directors adopted an amended and restated 2007 Plan, which, among other things, authorized the issuance of an additional approximately 2.2 million shares of stock under the 2007 Plan. Shareholders approved the amended 2007 Plan at the 2010 Annual Meeting of Shareholders. In connection with the Company’s separation from its former parent company on June 29, 2012 (the “Separation”), each stock option held by a Matson employee was converted into an adjusted Matson stock option. The exercise prices of the adjusted Matson stock options and the number of shares subject to each such stock option reflects a mechanism that was intended to preserve the intrinsic value of the original stock option. The modification of the awards did not result in any additional stock compensation expense to be recorded upon Separation. The resulting Matson stock options are subject to substantially the same terms, vesting conditions and other restrictions, if any, that were applicable to the former parent company stock options immediately prior to the Separation. Also, in connection with the Separation, any non-vested restricted stock units (“RSUs”) granted to Matson employees were converted into Matson RSUs. The RSU grants were converted in a manner that was intended to preserve the fair market value of the awards. The resulting Matson RSU grants are subject to substantially the same terms, vesting conditions and other restrictions, if any, that were applicable to the grants immediately prior to the Separation. After the Separation was completed, approximately 8.7 million shares of the Company’s common stock were reserved for issuance under the plans, with approximately 5.8 million shares remaining as available for future issuance under all equity compensation plans (excluding 0.5 million shares to be issued upon exercise of outstanding options, warrants and rights as of December 31, 2015). The 2007 Plan consists of four separate incentive compensation programs: (i) the discretionary grant program, (ii) the stock issuance program, (iii) the incentive bonus program and (iv) the automatic grant program for the non-employee members of the Company’s Board of Directors. Share-based compensation is generally awarded under three of the four programs, as more fully described below. Discretionary Grant Program — Under the Discretionary Grant Program, stock options may be granted with an exercise price no less than 100 percent of the fair market value (defined as the closing market price) of the Company’s common stock on the date of the grant. Options generally become exercisable ratably over three years and have a maximum contractual term of 10 years. Stock Issuance Program — Under the Stock Issuance Program, shares of common stock, restricted stock units or performance shares may be granted. Time-based equity awards vest ratably over three years. Provided certain three-year performance targets are achieved, performance-based equity awards generally vest on the three-year anniversary date of the grant. During the first quarter of 2013, the Company granted performance-based awards tied to the Company’s average annual return on invested capital (which the Company refers to as “average ROIC”), as measured over the three-year period beginning January 1, 2013 and ending December 31, 2015. During the first quarter of 2014, the Company granted similarly structured performance share awards that will be measured over the three-year period beginning January 1, 2014 and ending December 31, 2016. During the first quarter of 2015, the Company granted similarly structured performance share awards that will be measured over the three-year period beginning January 1, 2015 and ending December 31, 2017. Performance Share awards for the senior leadership team will also be modified based on relative total shareholder return performance (which the Company refers to as the “TSR modifier”) measured over the same respective three-year period. The TSR modifier is based on the Company’s total shareholder return over the three-year measurement period relative to the shareholder return over the same period for the companies comprising the S&P Transportation Select Industry Index and S&P Mid- Cap 400 Index (with each index weighted 50 percent). The service-vesting provisions of each performance-based award require the award recipient to remain in continuous service with the Company until the end of the three-year measurement period, subject to certain exceptions due to retirement, disability, or death, in order to vest in any shares that become issuable on the basis of the performance-vesting criteria. Automatic Grant Program — The Automatic Grant Program supersedes and replaces the Company’s 1998 Non-Employee Director Stock Option Plan and the Non-Employee Director Stock Retainer Plan. At each annual shareholder meeting, non-employee directors will receive an award of restricted stock units that entitle the holder to an equivalent number of shares of common stock upon vesting. Awards of restricted stock units granted under the program generally vest ratably over one or three years. 61 102_10K.pdf 64 2016-02-26 4:22 PM The shares of common stock authorized to be issued under the 2007 Plan may be drawn from shares of the Company’s authorized but unissued common stock or from shares of its common stock that the Company acquires, including shares purchased on the open market or in private transactions. Predecessor Plans: Adopted in 1998, the Company’s 1998 Stock Option/Stock Incentive Plan (“1998 Plan”) provided for the issuance of non-qualified stock options and common stock to employees of the Company. Under the 1998 Plan, option prices could not be less than the fair market value of the Company’s common stock on the dates of grant and the options became exercisable over periods determined, at the dates of grant, by the Compensation Committee of the Former Parent Company Board of Directors that administer the plan. Generally, options vested ratably over three years and expired ten years from the date of grant. Payments for options exercised may be made in cash or in shares of the Company’s stock. If an option to purchase shares is exercised within five years of the date of grant and if payment is made in shares of the Company’s stock, the option holder may receive, under a reload feature, a new stock option grant for such number of shares as is equal to the number surrendered, with an option price not less than the greater of the fair market value of the Company’s stock on the date of exercise or one and one-half times the original option price. The 1998 Plan also permitted the issuance of shares of the Company’s common stock. Generally, grants of time-based, non-vested stock vested ratably over three years and performance-based, non-vested stock vested in one year, provided that certain performance targets were achieved. The 1998 Plan was superseded by the 2007 Plan, and no further grants have been or will be made under the 1998 Plan. Director Stock Option Plans: The 1998 Non-Employee Director Stock Option Plan (“1998 Director Plan”) was superseded by the 2007 Plan. Under the 1998 Director Plan, each non-employee Director of the Company, elected at an Annual Meeting of Shareholders, was automatically granted, on the date of each such Annual Meeting, an option to purchase 8,000 shares of the Company’s common stock at the fair market value of the shares on the date of grant. Each option to purchase shares generally became exercisable ratably over three years following the date granted. Application of alternative assumptions could produce significantly different estimates of the fair value of share-based compensation and, consequently, significantly affect the related amounts recognized in the Consolidated Statements of Income and Comprehensive Income. Activity in the Company’s stock option plans for the year ended December 31, 2015, was as follows (in thousands, except weighted average exercise price and weighted average contractual life): 2007 Plan 1998 Plan 1998 Director Plan Total Shares Weighted Average Exercise Weighted Average Contractual Aggregate Intrinsic Value Outstanding at December 31, 2014 ..... Granted ........................................... Exercised ......................................... Forfeited and expired ...................... Outstanding at December 31, 2015 ..... Exercisable at December 31, 2015 ...... 657 — (254) — 403 403 132 — (85) (5) 42 42 63 — (47) — 16 16 852 $ — (386) $ (5) $ 461 $ 461 $ Price 21.24 Life 20.44 22.80 21.90 21.90 3.8 $ 3.8 $ 9,555 9,555 The following table summarizes non-vested restricted stock unit activity through December 31, 2015, (in thousands, except weighted average grant-date fair value amounts): Outstanding at December 31, 2014 ........................................................................................... Granted ................................................................................................................................. Vested ................................................................................................................................... Canceled ............................................................................................................................... Outstanding at December 31, 2015 ........................................................................................... 2007 Plan Restricted Stock Units 678 250 (232) (18) 678 $ Weighted Average Grant- Date Fair Value $ 24.78 37.19 24.99 27.46 29.21 A summary of compensation cost related to share-based payments for each of the three years in the period ended December 31, 2015, is as follows (in millions): Share-based expense (net of estimated forfeitures): Non-vested stock and restricted stock units .............................................. $ 12.2 $ 8.4 $ 5.5 2015 Years Ended December 31, 2014 2013 62 102_10K.pdf 65 2016-02-26 4:22 PM 2015 Years Ended December 31, 2014 2013 Stock options............................................................................................. Total share-based expense .................................................................... Total recognized tax benefit ...................................................................... Total Share-based expense (net of tax) ................................................. Cash received by Matson upon option exercise ........................................ Intrinsic value of options exercised .......................................................... Tax benefit realized upon option exercise ................................................ Fair value of stock vested ......................................................................... $ $ $ $ $ — 12.2 (4.8) 7.4 2.2 9.2 3.4 8.6 $ $ $ $ $ 0.3 8.7 (3.4) 5.3 5.8 3.4 1.9 5.0 $ $ $ $ $ 0.4 5.9 (2.2) 3.7 1.7 1.1 1.7 4.4 As of December 31, 2015, there was no unrecognized compensation cost related to non-vested stock options. As of December 31, 2015, unrecognized compensation cost related to non-vested restricted stock units and performance-based equity awards were $8.9 million. That unrecognized compensation cost is expected to be recognized over a weighted average period of approximately 1.7 years. 14. COMMITMENTS AND CONTINGENCIES Commitments and Contingencies: Commitments and financial arrangements, excluding lease commitments (see Note 9), and pension and post-retirement plan commitments (see Note 11), include the following as of December 31, 2015 (in millions): Commitments and financial arrangements Standby letters of credit (1) ................................................................ Bonds (2) ........................................................................................... Benefit plan withdrawal obligations (3) ............................................. Capital expenditure obligations (4) .................................................... $ $ $ $ Total 11.0 32.8 216.8 408.9 (1) (2) (3) (4) Letters of credit are required for the Company’s uninsured workers’ compensation and other insurance programs, and other needs. Bonds are required for the U.S. Customs and other related matters. Represents the withdrawal liabilities as of the most recent valuation dates for multiemployer pension plans, in which the Company is a participant. Management has no present intention of withdrawing from, and does not anticipate the termination of, any of the aforementioned plans. Capital expenditure obligations includes contractual progress payments related to the construction of two new vessels based upon the shipbuilding agreements with Philly Shipyard, and other capital expenditure obligations. These amounts are not recorded on the Company’s consolidated balance sheets and it is not expected that the Company or its subsidiaries will be called upon to advance funds under these commitments. Litigation: The Company’s Ocean Transportation business has certain other risks that could result in expenditures for environmental remediation. The Company believes that based on all information available to it, the Company is currently in compliance, in all material respects, with applicable environmental laws and regulations. The Company and its subsidiaries are parties to, or may be contingently liable in connection with other legal actions arising in the normal course of their businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on the Company’s financial condition, results of operations, or cash flows. 15. REPORTABLE SEGMENTS Reportable segments are components of an enterprise that engage in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Company’s chief operating decision maker is its Chief Executive Officer. The Company consists of two reportable segments, Ocean Transportation and Logistics, which are further described in Note 1. Reportable segments are measured based on operating profit, exclusive of interest expense, general corporate expenses, and income taxes. In arrangements where the customer purchases ocean transportation and logistics services, the revenues are allocated to each reportable segment based upon the contractual amounts for each type of service. The Company’s Terminal Joint Venture segment has been aggregated into the Company’s Ocean Transportation segment due to the operations of the Terminal Joint Venture being an integral part of the Company’s Ocean Transportation business and has similar economic characteristics (see Note 4). 63 102_10K.pdf 66 2016-02-26 4:22 PM Reportable segment information for 2015, 2014, and 2013 is summarized below (in millions): Revenue: Ocean Transportation ............................................................................. Logistics ................................................................................................. Total Revenue .................................................................................... Operating Income: Ocean Transportation (1) ....................................................................... Logistics ................................................................................................. Total Operating Income ..................................................................... Interest expense, net ................................................................................... Income before Income Taxes ................................................................. Income taxes .............................................................................................. Net Income ................................................................................................. $ $ $ $ 2015 Years Ended December 31, 2014 2013 1,498.0 386.9 1,884.9 187.8 8.5 196.3 (18.5) 177.8 (74.8) 103.0 $ $ $ $ 1,278.4 435.8 1,714.2 131.1 8.9 140.0 (17.3) 122.7 (51.9) 70.8 $ $ $ $ 1,229.4 407.8 1,637.2 94.3 6.0 100.3 (14.4) 85.9 (32.2) 53.7 (1) The Ocean Transportation segment includes $16.5 million, $6.6 million and $(2.0) million of equity in income (loss) from the Company’s Terminal Joint Venture, SSAT, for 2015, 2014, and 2013, respectively. 2015 As of December 31, 2014 2013 As of December 31: Identifiable Assets: Ocean Transportation (2) ....................................................................... Logistics ................................................................................................. Total Assets ........................................................................................ Capital Expenditures: Ocean Transportation ............................................................................. Logistics ................................................................................................. Total Capital Expenditures ................................................................. Depreciation and Amortization: Ocean Transportation ............................................................................. Logistics ................................................................................................. Total Depreciation and Amortization ................................................. $ $ $ $ $ $ 1,601.0 68.8 1,669.8 67.5 0.3 67.8 81.4 2.0 83.4 $ $ $ $ $ $ 1,313.9 87.9 1,401.8 27.8 0.1 27.9 66.6 3.1 69.7 $ $ $ $ $ $ 1,168.6 79.7 1,248.3 33.8 1.4 35.2 66.4 3.3 69.7 (2) The Ocean Transportation segment includes $66.4 million, $64.4 million and $57.6 million related to the Company’s Terminal Joint Venture equity investment in SSAT as of December 31, 2015, 2014, and 2013, respectively. 16. QUARTERLY INFORMATION (Unaudited) Segment results by quarter for 2015 and 2014 are listed below (in millions, except per-share amounts): Quarters During the Year Ended December 31, 2015 Q1 Q2 Q3 Q4 Operating Revenue: Ocean Transportation ............................................. Logistics ................................................................. Total Operating Revenue ....................................... Operating Income: Ocean Transportation ............................................. Logistics ................................................................. Total Operating Income ......................................... Interest Expense ......................................................... Income before Income Taxes ................................. Income Tax Expense .................................................. Net Income ............................................................. Basic Earnings Per Share: Diluted Earnings Per Share: $ $ $ $ $ $ 305.5 92.7 398.2 43.9 1.0 44.9 (4.3) 40.6 (15.6) 25.0 0.58 0.57 $ $ $ $ $ $ 64 346.7 100.9 447.6 31.4 2.3 33.7 (4.6) 29.1 (19.2) 9.9 0.23 0.23 $ $ $ $ $ $ 444.8 99.5 544.3 68.9 2.9 71.8 (4.7) 67.1 (25.6) 41.5 0.95 0.94 $ $ $ $ $ $ 401.0 93.8 494.8 43.6 2.3 45.9 (4.9) 41.0 (14.4) 26.6 0.61 0.60 102_10K.pdf 67 2016-02-26 4:22 PM Operating Revenue: Ocean Transportation ............................................. Logistics ................................................................. Total Operating Revenue ....................................... Operating Income (loss): Ocean Transportation ............................................. Logistics ................................................................. Total Operating Income ......................................... Interest Expense ......................................................... Income before Income Taxes ................................. Income Tax Expense .................................................. Net Income ............................................................. Basic Earnings Per Share: Diluted Earnings Per Share: $ $ $ $ $ $ Quarters During the Year Ended December 31, 2014 Q1 Q2 Q3 Q4 294.6 97.9 392.5 9.4 0.5 9.9 (4.1) 5.8 (2.4) 3.4 0.08 0.08 $ $ $ $ $ $ 321.1 115.3 436.4 32.8 2.9 35.7 (4.5) 31.2 (13.1) 18.1 0.42 0.42 $ $ $ $ $ $ 329.5 112.3 441.8 42.6 2.4 45.0 (4.4) 40.6 (19.1) 21.5 0.50 0.50 $ $ $ $ $ $ 333.2 110.3 443.5 46.3 3.1 49.4 (4.3) 45.1 (17.3) 27.8 0.65 0.63 The following infrequent transactions impacted the Company’s quarterly segment results during 2015 and 2014 (in millions): Horizon Acquisition Related Costs (1): Molasses Settlement (2): Molasses Settlement (2): Quarters During the Year Ended December 31, 2015 Q1 Q2 Q3 Q4 $ $ (12.4) $ (11.4) $ (5.1) $ $ (1.5) (1.9) Quarters During the Year Ended December 31, 2014 Q1 Q2 Q3 Q4 $ $ $ (1.0) $ $ $ (1) One-time costs related to the Horizon Acquisition on May 29, 2015, included in selling, general and administrative costs of the Ocean Transportation segment (see Note 3). (2) Litigation settlement entered into by the Company during 2015 and 2014 resulting from molasses spill in September 2013, are included in selling, general and administrative costs of the Ocean Transportation segment. There were no infrequent transactions impacting the Company’s the Logistic segment results in 2015 or 2014. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Conclusion Regarding Effectiveness of Disclosure Controls and Procedures The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective. Internal Control over Financial Reporting See page 32, for management’s annual report on internal control over financial reporting, which is incorporated herein by reference. See page 33, for the attestation report of the independent registered public accounting firm on the Company’s internal control over financial reporting, which is incorporated herein by reference. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a- 15(f) and 15d-15(f) under the Exchange Act) during the Company’s fiscal fourth quarter ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 65 102_10K.pdf 68 2016-02-26 4:22 PM ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE A. Directors PART III For information about the directors of Matson, see the section captioned “Election of Directors” in Matson’s proxy statement for the 2016 Annual Meeting of Shareholders (“Matson’s 2016 Proxy Statement”), which section is incorporated herein by reference. B. Executive Officers For information about the executive officers of Matson, see the section captioned “Executive Officers” in Matson’s 2016 Proxy Statement, which section is incorporated herein by reference. C. Corporate Governance For information about the Audit Committee of the Matson Board of Directors and compliance with Section 16 (a) of the Exchange Act, see the sections captioned “Board of Directors and Committees of Board” and “Section 16 (a) Beneficial Ownership Reporting Compliance” in Matson’s 2016 Proxy Statement, which sections are incorporated herein by reference. D. Code of Ethics For information about Matson’s Code of Ethics, see the subsection captioned “Code of Ethics” in Matson’s 2016 Proxy Statement, which subsection is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See the section captioned “Executive Compensation” and the subsections captioned “Compensation of Directors” and “Pay Risk Assessment” in Matson’s 2016 Proxy Statement, which section and subsections are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS See the section captioned “Security Ownership of Certain Shareholders” and the subsections titled “Security Ownership of Directors and Executive Officers” and “Equity Compensation Plan Information” in Matson’s 2016 Proxy Statement, which section and subsections are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE See the section captioned “Election of Directors” and the subsection captioned “Certain Relationships and Transactions” in Matson’s 2016 Proxy Statement, which section and subsection are incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information concerning principal accountant fees and services appears in the sections captioned “Audit Committee Report” and “Ratification of Appointment of Independent Registered Public Accounting Firm” in Matson’s 2016 Proxy Statement, which sections are incorporated herein by reference. 66 102_10K.pdf 69 2016-02-26 4:22 PM PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES A. Financial Statements The consolidated financial statements are set forth in Item 8 of Part II above. B. Financial Statement Schedules All schedules are omitted because of the absence of the conditions under which they are required or because the information called for is included in the consolidated financial statements or notes thereto. C. Exhibits Required by Item 601 of Regulation S-K Exhibits not filed herewith are incorporated by reference to the exhibit number and previous filing shown in parentheses. All previous exhibits were filed with the Securities and Exchange Commission in Washington, D.C. Exhibits filed pursuant to the Securities Exchange Act of 1934 were filed under file number 001-34187. Shareholders may obtain copies of exhibits for a copying and handling charge of $0.15 per page by writing to, Corporate Secretary, Matson, Inc., 555 12th Street, Oakland, California 94607. 2. Plan of acquisition, reorganization, arrangement, liquidation or succession. 2.1 Agreement and Plan of Merger, dated as of November 11, 2014, by and among Matson Navigation Company, Inc., Hogan Acquisition Inc. and Horizon Lines, Inc. (incorporated by reference to Exhibit 2.1 of Matson’s Form 8-K dated November 11, 2014). 2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of February 13, 2015, by and among Matson Navigation Company, Inc., Hogan Acquisition Inc. and Horizon Lines, Inc. (incorporated by reference to Exhibit 2.1 of Matson’s Form 8- K dated February 17, 2015). 2.3 Contribution, Assumption and Purchase Agreement, dated as of November 11, 2014, by and among The Pasha Group, SR Holding LLC, Horizon Lines, Inc. and Sunrise Operations LLC (incorporated by reference to Exhibit 2.2 of Horizon Lines, Inc.’s Form 8-K dated November 11, 2014). 2.4 Amendment No. 1 to the Contribution, Assumption and Purchase Agreement, dated as of May 29, 2015, by and among The Pasha Group, SR Holding LLC, Horizon Lines, Inc. and Sunrise Operations LLC (incorporated by reference to Exhibit 2.2 of Matson’s Form 10-Q for the quarter ended June 30, 2015). 3. Articles of incorporation and bylaws. 3.1 Amended and Restated Articles of Incorporation of Matson, Inc. (incorporated by reference to Exhibit 3.1 of Matson’s Form 10-Q for the quarter ended June 30, 2012). 3.2 Articles of Amendment to Change Corporate Name (incorporated by reference to Exhibit 4.2 of Matson’s Form S-8 dated October 26, 2012). 3.3 Amended and Restated Bylaws of Matson, Inc. (as amended as of November 6, 2013) (incorporated by reference to Exhibit 3.1 of Matson’s Form 10-Q for the quarter ended September 30, 2013). 10. Material contracts. 10.1 Second Amended and Restated Note Agreement among Matson Navigation Company, Inc., Prudential Investment Management, Inc. and the other purchasers party thereto, dated as of June 4, 2012 (incorporated by reference to Exhibit 10.4 of Alexander & Baldwin, Inc.’s Form 8-K dated June 7, 2012). 67 102_10K.pdf 70 2016-02-26 4:22 PM 10.2 Limited Consent — Amended and Restated Note Agreement between Matson Navigation Company and The Prudential Insurance Company of America and Pruco Life Insurance Company, dated as of June 4, 2012 (incorporated by reference to Exhibit 10.5 of Alexander & Baldwin, Inc.’s Form 8-K dated June 4, 2012). 10.3 Amendment to the Second Amended and Restated Note Agreement among Matson, Inc. and the purchasers party thereto, dated as of July 30, 2015 (incorporated by reference to Exhibit 10.2 of Matson’s Form 8-K dated August 3, 2015). 10.4 Note Purchase Agreement among Matson, Inc. and the purchasers party thereto, dated as of July 30, 2015 (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated August 3, 2015). 10.5 First Amendment to Note Purchase Agreement amount Matson, Inc. and the purchasers party thereto, dated as of October 1, 2015 (incorporated by reference to Exhibit 10-1 of Matson’s Form 8-K dated October 2, 2015). 10.6 Credit Agreement between Matson Navigation Company, Inc., First Hawaiian Bank, Bank of America, N.A. and the other lenders party thereto, dated as of June 4, 2012 (incorporated by reference to Exhibit 10.6 of Alexander & Baldwin, Inc.’s Form 8-K dated June 4, 2012). 10.7 First Amendment to Credit Agreement among Matson, Inc., the lenders party thereto, and Bank of America, N.A., as agent, dated as of July 30, 2015 (incorporated by reference to Exhibit 10.4 of Matson’s Form 8-K dated August 3, 2015). 10.8 Amended and Restated Limited Liability Company Agreement of SSA Terminal LLC by and between SSA Ventures, Inc. and Matson Ventures, Inc., dated as of April 24, 2002 (certain portions of this exhibit have been omitted pursuant to a confidential treatment request submitted to the Commission) (incorporated by reference to Exhibit 10.1 of Matson’s Form 10-Q for the quarter ended June 30, 2012). 10.9 Parent Company Agreement, dated as of April 24, 2002, by and among SSA Pacific Terminals, Inc., formerly known as Stevedoring Services of America, Inc., SSA Ventures, Inc., Matson Navigation Company, Inc. and Matson Ventures, Inc. (incorporated by reference to Exhibit 10.2 of Matson’s Form 10-Q for the quarter ended June 30, 2012). 10.10 Borrower Assignment, Assumption, and Release among Bank of America, N.A., Matson Navigation Company, Inc. and Matson, Inc., dated as of June 28, 2012 (incorporated by reference to Exhibit 10.3 of Matson’s Form 10-Q for the quarter ended June 30, 2012). 10.11 Company Assignment, Assumption and Release Agreement among The Prudential Insurance Company of America, Pruco Life Insurance Company, The Prudential Life Insurance Company, Ltd., Gibraltar Life Insurance Co. Ltd., Prudential Annuities Life Assurance Corporation and Prudential Arizona Reinsurance Universal Company, Matson Navigation Company, Inc. and Matson, Inc. dated June 29, 2012 (incorporated by reference to Exhibit 10.4 of Matson’s Form 10-Q for the quarter ended June 30, 2012). 10.12 Security Agreement between Matson Navigation Company, Inc. and the United States of America, with respect to $55 million of Title XI ship financing bonds, dated July 29, 2004 (incorporated by reference to Exhibit 10.a.(xxvi) of Alexander & Baldwin, Inc.’s Form 10-Q for the quarter ended September 30, 2004). 10.13 Amendment No. 1 dated September 21, 2007, to Security Agreement between Matson Navigation Company, Inc. and the United States of America, with respect to $55 million of Title XI ship financing bonds, dated July 29, 2004 (incorporated by reference to Exhibit 10.a.(xxx) of Alexander & Baldwin, Inc.’s Form 10-Q for the quarter ended September 30, 2007). 10.14 Matson, Inc. 2007 Incentive Compensation Plan, amended and restated, effective January 29, 2015 (incorporated by reference to Exhibit 10.13 of Matson’s Form 10-K for the year ended December 31, 2014). 10.15 Form of Notice of Performance Share Award Grant (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated January 29, 2013). 10.16 Form of Matson, Inc. Performance Share Award Agreement (incorporated by reference to Exhibit 10.2 of Matson’s Form 8-K dated January 29, 2013). 10.17 Form of Notice of Stock Option Grant (incorporated by reference to Exhibit 99.2 to Matson’s Form S-8 dated October 26, 2012). 68 102_10K.pdf 71 2016-02-26 4:22 PM 10.18 Form of Stock Option Agreement for Non-Executive Employees (incorporated by reference to Exhibit 99.3 of Matson’s Form S-8 dated October 26, 2012). 10.19 Form of Stock Option Agreement for Executive Employees (incorporated by reference to Exhibit 99.4 of Matson’s Form S-8 dated October 26, 2012). 10.20 Form of Notice of Time-Based Restricted Stock Unit Grant (incorporated by reference to Exhibit 99.5 of Matson’s Form S-8 dated October 26, 2012). 10.21 Form of Time-Based Restricted Stock Unit Agreement for Non-Executive Employees (incorporated by reference to Exhibit 99.6 of Matson’s Form S-8 dated October 26, 2012). 10.22 Form of Time-Based Restricted Stock Unit Agreement for Executive Employees (incorporated by reference to Exhibit 99.7 of Matson’s Form S-8 dated October 26, 2012). 10.23 Form of Amended and Restated Restricted Stock Unit Award Agreement for Non-Employee Directors (No Deferral) (incorporated by reference to Exhibit 10.20 of Matson’s Form 10-K for the year ended December 31, 2013). 10.24 Form of Amended and Restated Restricted Stock Unit Award Agreement for Non-Employee Directors (Deferral Election) (incorporated by reference to Exhibit 10.21 of Matson’s Form 10-K for the year ended December 31, 2013). 10.25 Form of Anti-Dilution Adjustment Amendment to Restricted Stock Unit Award Agreements (incorporated by reference to Exhibit 99.10 of Matson’s Form S-8 dated October 26, 2012). 10.26 Form of Anti-Dilution Adjustment Amendment to Stock Option Agreements (incorporated by reference to Exhibit 99.11 of Matson’s Form S-8 dated October 26, 2012). 10.27 Form of Anti-Dilution Adjustment Amendment to 2012 Performance-Based Restricted Stock Unit Award Agreements (incorporated by reference to Exhibit 99.12 of Matson’s Form S-8 dated October 26, 2012). 10.28 Matson, Inc. 1998 Stock Option/Stock Incentive Plan (formerly known as the Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan) (incorporated by reference to Exhibit 99.1 of Post-Effective Amendment No. 2 to Alexander & Baldwin, Inc.’s Form S-8 dated June 6, 2012). 10.29 Matson, Inc. 1998 Non-Employee Director Stock Option Plan (formerly known as the Alexander & Baldwin, Inc. 1998 Non- Employee Director Stock Option Plan) (incorporated by reference to Exhibit 99.2 of Post-Effective Amendment No. 2 to Alexander & Baldwin, Inc.’s Form S-8 dated June 6, 2012). 10.30 Form of Restricted Stock Unit Assumption Agreement (incorporated by reference to Exhibit 99.3 of Post-Effective Amendment No. 2 to Alexander & Baldwin, Inc.’s Form S-8 dated June 6, 2012). 10.31 Form of Stock Option Assumption Agreement (incorporated by reference to Exhibit 99.4 of Post-Effective Amendment No. 2 to Alexander & Baldwin, Inc.’s Form S-8 dated June 6, 2012). 10.32 Special Form of Restricted Stock Unit Assumption Agreement (incorporated by reference to Exhibit 99.5 of Post-Effective Amendment No. 2 to Alexander & Baldwin, Inc.’s Form S-8 dated June 6, 2012). 10.33 Special Form of Stock Option Assumption Agreement (incorporated by reference to Exhibit 99.6 of Post-Effective Amendment No. 2 to Alexander & Baldwin, Inc.’s Form S-8 dated June 6, 2012). 10.34 Matson, Inc. Deferred Compensation Plan for Outside Directors (incorporated by reference to Exhibit 10.34 of Matson’s Form 10-K for the year ended December 31, 2012). 10.35 Matson, Inc. Excess Benefits Plan, amended and restated effective August 27, 2014 (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated August 28, 2014). 69 102_10K.pdf 72 2016-02-26 4:22 PM 10.36 Matson, Inc. Executive Survivor/Retirement Benefit Plan (formerly known as the Alexander & Baldwin, Inc. Executive Survivor/Retirement Benefit Plan), amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.b.1.(l) of Alexander & Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.37 Matson, Inc. Executive Survivor/Retirement Benefit Plan (formerly known as the Alexander & Baldwin, Inc. Executive Survivor/Retirement Benefit Plan), amended and restated effective February 27, 2008 (incorporated by reference to Exhibit 10.b.1.(li) of Alexander &Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.38 Matson, Inc. 1985 Supplemental Executive Retirement Plan (formerly known as the Alexander & Baldwin, Inc. 1985 Supplemental Executive Retirement Plan), amended and restated effective as of January 1, 2008 (incorporated by reference to Exhibit 10.b.1.(lii) of Alexander & Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.39 Amendment No. 1 to the Matson, Inc. 1985 Supplemental Executive Retirement Plan (formerly known as the Alexander & Baldwin, Inc. 1985 Supplemental Executive Retirement Plan), effective as of December 31, 2011 (incorporated by reference to Exhibit 10.b.1.(liii) of Alexander & Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.40 Amendment No. 2 to the Matson, Inc. 1985 Supplemental Executive Retirement Plan (formerly known as the Alexander & Baldwin, Inc. 1985 Supplemental Executive Retirement Plan), effective as of January 1, 2012 (incorporated by reference to Exhibit 10.b.1.(liv) of Alexander &Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.41 Matson, Inc. Retirement Plan for Outside Directors (incorporated by reference to Exhibit 10.44 of Matson’s Form 10-K for the year ended December 31, 2012). 10.42 Form of Letter Agreement entered into with certain executive officers (incorporated by reference to Exhibit 10.45 of Matson’s Form 10-K for the year ended December 31, 2012). 10.43 Schedule identifying executive officers who have entered into Form of Letter Agreement (incorporated by reference to Exhibit 10.42 of Matson’s Form 10-K for the year ended December 31, 2014). 10.44 Form of Letter Agreement entered into with executive officer (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated October 24, 2014). 10.45 Letter Agreement Counter Party (incorporated by reference to Exhibit 10.2 of Matson’s Form 8-K dated October 24, 2014). 10.46 Form of Letter Agreement entered into with executive officer (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated April 6, 2015). 10.47 Letter Agreement Counter Parties (incorporated by reference to Exhibit 10.2 of Matson’s Form 8-K dated April 6, 2015). 10.48 Matson, Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.47 of Matson’s Form 10-K for the year ended December 31, 2012). 10.49 Matson, Inc. One-Year Performance Improvement Incentive Plan (incorporated by reference to Exhibit 10.48 of Matson’s Form 10-K for the year ended December 31, 2012). 10.50 Matson, Inc. Cash Incentive Plan (incorporated by reference to Exhibit 10.49 of Matson’s Form 10-K for the year ended December 31, 2012). 10.51 Matson, Inc. Three-Year Performance Improvement Incentive Plan (formerly known as the Alexander & Baldwin, Inc. Three- Year Performance Improvement Incentive Plan), as restated effective October 22, 1992 (incorporated by reference to Exhibit 10.b.1.(lxxi) of Alexander & Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.52 Matson, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.51 of Matson’s Form 10-K for the year ended December 31, 2012). 10.53 Matson, Inc. Restricted Stock Bonus Plan (formerly known as the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan), as restated effective April 28, 1988 (incorporated by reference to Exhibit 10.b.1. (lxxiv) of Alexander & Baldwin, Inc.’s Form 10- K for the year ended December 31, 2011). 70 102_10K.pdf 73 2016-02-26 4:22 PM 10.54 Amendment No. 1 to the Matson Restricted Stock Bonus Plan (formerly known as the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan), effective December 11, 1997 (incorporated by reference to Exhibit 10.b.1.(lxxv) to Alexander & Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.55 Amendment No. 2 to the Matson Restricted Stock Bonus Plan (formerly known as the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan), dated June 25, 1998 (incorporated by reference to Exhibit 10.b.1.(lxxvi) to Alexander & Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.56 Amendment No. 3 to the Matson Restricted Stock Bonus Plan (formerly known as the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan), dated December 8, 2004 (incorporated by reference to Exhibit 10.b.1.(lxxvii) to Alexander & Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.57 Amendment No. 4 to the Matson Restricted Stock Bonus Plan (formerly known as the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan), dated December 13, 2007 (incorporated by reference to Exhibit 10.b.1.(lxxvii) to Alexander & Baldwin, Inc.’s Form 10-K for the year ended December 31, 2011). 10.58 Agreement and Plan of Merger, dated as of February 13, 2012, by and among Alexander & Baldwin, Inc., Alexander & Baldwin Holdings, Inc. and A&B Merger Corporation (incorporated by reference to Exhibit 2.1 of Alexander & Baldwin, Inc.’s Form 8-K dated February 13, 2012). 10.59 Separation and Distribution Agreement, dated as of June 8, 2012, by and between Alexander & Baldwin Holdings, Inc. and A&B II, Inc. (incorporated by reference to Exhibit 2.1 of Matson’s Form 8-K dated June 8, 2012). 10.60 Shipbuilding Contract, by and between Aker Philadelphia Shipyard, Inc. and Matson Navigation Company, Inc., dated as of November 6, 2013 (certain portions of this exhibit have been omitted pursuant to a confidential treatment request submitted to the Commission) (incorporated by reference to Exhibit 10.56 of Matson’s Form 10-K for the year ended December 31, 2013). 10.61 Shipbuilding Contract, by and between Aker Philadelphia Shipyard, Inc. and Matson Navigation Company, Inc., dated as of November 6, 2013 (certain portions of this exhibit have been omitted pursuant to a confidential treatment request submitted to the Commission) (incorporated by reference to Exhibit 10.57 of Matson’s Form 10-K for the year ended December 31, 2013). 10.62 Guaranty Agreement by Aker Philadelphia Shipyard ASA, in favor of Matson Navigation Company, Inc., dated as of November 6, 2013 (incorporated by reference to Exhibit 10.58 of Matson’s Form 10-K for the year ended December 31, 2013). 10.63 Note Purchase Agreement among Matson, Inc., and the purchasers party thereto, dated as of November 5, 2013 (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated January 29, 2014). 10.64 Amendment to the Note Purchase Agreement among Matson, Inc. and the purchasers party thereto, dated as of July 30, 2015 (incorporated by reference to Exhibit 10.3 of Matson’s Form 8-K dated August 3, 2015). 10.65 Form of Capital Construction Fund Agreement with Matson Navigation Company, as amended by Addendums No. 2, No. 5, No. 18, No. 20 and No. 31, thereto (incorporated by reference to Exhibit 10.60 of Matson’s Form 10-K for the year ended December 31, 2013). 10.66 Form of Consulting Agreement by and between Matson Navigation Company, Inc., and Kevin C. O’Rourke (incorporated by reference to Exhibit 10.61 of Matson’s Form 10-K for the year ended December 31, 2013). 10.67 Form of Notice of Performance Share Award Grant (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated January 29, 2013). 10.68 Form of Performance Share Award Agreement (incorporated by reference to Exhibit 10-2 of Matson’s Form 8-K dated January 29, 2013). 10.69 Settlement Agreement, dated as of July 17, 2014, among the United States of America, acting through the United States Department of Justice and on behalf of the United States Surface Deployment and Distribution Command, Matson Navigation Company, Inc., and Mario Rizzo (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated July 22, 2014). 71 102_10K.pdf 74 2016-02-26 4:22 PM 10.70 Form of Voting Agreement, dated as of November 11, 2014, among Matson Navigation Company, Inc. and certain holders of voting securities of Horizon Lines, Inc. (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated November 11, 2014). 10.71 Settlement Agreement and Release, effective July 29, 2015, between the State of Hawai’i, Matson Terminals, Inc. and Matson Navigation Company, Inc. (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated July 30, 2015). 21. Matson, Inc. Subsidiaries as of February 1, 2016. 23. Consent of Deloitte & Touche, LLP dated February 26, 2016. 31.1 Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32. Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE XBRL Instance Document XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document 72 102_10K.pdf 75 2016-02-26 4:22 PM SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 26, 2016 MATSON, INC. (Registrant) /s/ Matthew J. Cox Matthew J. Cox President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Matthew J. Cox Matthew J. Cox /s/ Walter A. Dods, Jr. Walter A. Dods, Jr. /s/ W. Blake Baird W. Blake Baird /s/ Michael J. Chun Michael J. Chun /s/ Thomas B. Fargo Thomas B. Fargo /s/ Constance H. Lau Constance H. Lau /s/ Jeffrey N. Watanabe Jeffrey N. Watanabe /s/ Joel M. Wine Joel M. Wine /s/ Dale B. Hendler Dale B. Hendler President, Chief Executive Officer and Director February 26, 2016 Chairman of the Board and Director February 26, 2016 Director Director Director Director Director February 26, 2016 February 26, 2016 February 26, 2016 February 26, 2016 February 26, 2016 Senior Vice President and Chief Financial Officer February 26, 2016 Vice President and Controller, (principal accounting officer) February 26, 2016 ***** 73 102_10K.pdf 76 2016-02-26 4:22 PM Matson, Inc. Subsidiaries as of February 1, 2016 Exhibit 21 ABHI-Crockett, Inc. Matson Navigation Company, Inc. Subsidiaries: Matson Alaska, Inc. Subsidiaries: Horizon Lines Holding Corp. Subsidiaries: Horizon Lines of Puerto Rico, LLC Horizon Logistics, LLC Subsidiaries: Horizon Services Group, LLC Aero Logistics, LLC Horizon Lines, LLC Subsidiaries: Horizon Lines of Guam, LLC Horizon Lines Vessels, LLC HL Distribution Service, LLC Matson Navigation Company of Alaska, LLC Subsidiaries: Hawaii Hawaii Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Matson Navigation Company of Alaska Payroll Agent, LLC Horizon Lines Merchant Vessels, LLC Delaware Delaware Subsidiaries: Horizon Lines Alaska Vessels, LLC Horizon Lines Alaska Terminals, LLC Road Raiders Inland, Inc. Subsidiaries: Road Raiders Logistics, Inc. Road Raiders Transportation, Inc. Road Raiders Technology, Inc. Matson Logistics, Inc. Subsidiaries: Matson Logistics Services, LLC Matson Logistics Warehousing, Inc. Matson Terminals, Inc. Matson Ventures, Inc. Matson Logistics (Shanghai) Co., Ltd. Matson Shipping (Hong Kong) Limited Matson Shipping (Shanghai) Co., Ltd. Matson South Pacific Holdco Limited Subsidiaries: Matson South Pacific Limited Subsidiaries: Matson Cook Islands Limited Tranz Pacific Management Limited Matson (Antigua) Limited Reef Nauru Limited Subsidiary: Reef Nauru II Shipping Limited Delaware Delaware Delaware Delaware Delaware Delaware Hawaii Hawaii Hawaii Hawaii Hawaii China Hong Kong China New Zealand New Zealand Cook Islands New Zealand Antigua and Barbuda New Zealand Antigua and Barbuda 102_10K.pdf 77 2016-02-26 4:22 PM CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statements Nos. 333-184623, 333-121194, as amended by Post-Effective Amendment No.1 filed on April 26, 2007 and as further amended by Post-Effective Amendment No. 2 filed on June 7, 2012, 333- 166539, as amended by Post-Effective Amendment No. 1 filed on June 7, 2012, 333-142384, as amended by Post-Effective Amendment No. 1 filed on June 7, 2012, and 333-69197, as amended by Post-Effective Amendment No. 1 filed on June 7, 2012 on Form S-8 of our report relating to the consolidated financial statements of Matson, Inc. and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of ASU 2015-17, “Balance Sheet Classifications of Deferred Taxes”) and the effectiveness of Matson, Inc. and subsidiaries’ internal control over financial reporting dated February 26, 2016, appearing in the Annual Report on Form 10-K of Matson, Inc. for the year ended December 31, 2015. EXHIBIT 23 /s/ Deloitte & Touche LLP Honolulu, Hawaii February 26, 2016 102_10K.pdf 78 2016-02-26 4:22 PM EXHIBIT 31.1 I, Matthew J. Cox, certify that: 1. I have reviewed this Annual Report on Form 10-K of Matson, Inc.; CERTIFICATION Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact 2. necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all 3. material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and 4. procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over 5. financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 26, 2016 By /s/ Matthew J. Cox Matthew J. Cox, President and Chief Executive Officer 102_10K.pdf 79 2016-02-26 4:22 PM EXHIBIT 31.2 I, Joel M. Wine, certify that: 1. I have reviewed this Annual Report on Form 10-K of Matson, Inc.; CERTIFICATION Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact 2. necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all 3. material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and 4. procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over 5. financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 26, 2016 By /s/ Joel M. Wine Joel M. Wine, Senior Vice President and Chief Financial Officer 102_10K.pdf 80 2016-02-26 4:22 PM Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 EXHIBIT 32 In connection with the Annual Report of Matson, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Matthew J. Cox, as President and Chief Executive Officer of the Company, and Joel M. Wine, as Senior Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Matthew J. Cox Name: Matthew J. Cox Title: President and Chief Executive Officer Date: February 26, 2016 /s/ Joel M. Wine Name: Joel M. Wine Title: Senior Vice President and Chief Financial Officer Date: February 26, 2016 102_10K.pdf 81 2016-02-26 4:22 PM 102_10K.pdf 82 2016-02-26 4:33 PM Founded in 1882, Matson is a leading U.S. carrier in the Pacific. Matson provides a vital lifeline to the economies of Hawaii, Alaska, Guam, Micronesia and select South Pacific islands, and operates a premium, expedited service from China to Southern California. The Company’s fleet consists of 23 owned and three chartered vessels including containerships, combination container and roll- on/roll-off ships and custom-designed barges. Matson Logistics, established in 1987, extends the geographic reach of Matson’s transportation network throughout the continental U.S. Its integrated, asset-light logistics services include rail intermodal, highway brokerage and warehousing. INVESTOR INFORMATION TRANSFER AGENT & REGISTRAR | Computershare Corporate news releases, SEC filings, the Company’s annual report and other pertinent information about the Company are available at www.matson.com. Shareholders and professional investors with questions about the Company may correspond with: Jerome Holland - Director, Investor Relations email: investor-relations@matson.com Shareholders who wish to communicate with the Board of Directors may correspond with: Peter T. Heilmann - Corporate Secretary email: corpsec@matson.com For questions regarding stock certificates, dividends, or other transfer-related matters, representatives of the Transfer Agent may be reached at: 1-800-522-6645 Computershare, P.O. BOX 30170, College Station, TX 77842-3170 www.computershare.com/investor AUDITORS | Deloitte & Touche LLP, Honolulu, Hawaii NON-GAAP MEASURES Matson reports financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company also considers other non-GAAP measures to evaluate performance, make day-to-day operating decisions, help investors understand our ability to incur and service debt and to make capital expenditures, and to understand period-over-period operating results separate and apart from items that may, or could, have a disproportionate positive or negative impact on results in any particular period. These non-GAAP measures include, but are not limited to, Earnings Before Interest, Depreciation and Amortization (“EBITDA”), Return on Invested Capital (“ROIC”) Free Cash Flow per Share and Net Debt/EBITDA. ($ IN MILLONS, EXCEPT PER SHARE AMOUNT) YEAR ENDED DECEMBER 31, 2015 FORWARD-LOOKING STATEMENTS TOTAL DEBT: LESS: TOTAL CASH AND CASH EQUIVALENTS LESS: CASH ON DEPOSIT IN CAPITAL CONSTRUCTION FUND NET DEBT NET INCOME ADD: INCOME TAX EXPENSE ADD: INTEREST EXPENSE ADD: DEPRECIATION AND AMORTIZATION EBITDA NET INCOME ADD: INTEREST EXPENSE (TAX EFFECTED) (1) TOTAL RETURN AVERAGE TOTAL DEBT AVERAGE SHAREHOLDERS’ EQUITY TOTAL INVESTED CAPITAL ROIC CASH FLOW FROM OPERATIONS SUBTRACT: CAPITAL EXPENDITURES FREE CASH FLOW WEIGHTED AVERAGE NUMBER OF SHARES – DILUTED FREE CASH FLOW PER SHARE 2013 286.1 (114.5) 171.6 53.7 32.2 14.4 91.0 191.3 53.7 9.0 62.7 302.6 309.1 611.7 10.3% 195.7 (35.2) 160.5 43.1 3.72 2014 373.6 (293.4) (27.5) 52.7 70.8 51.9 17.3 90.1 230.1 70.8 10.0 80.8 329.9 351.0 680.9 11.9% 165.7 (27.9) 137.8 43.4 3.18 2015 429.9 (25.5) - 404.4 103.0 74.8 18.5 105.8 302.1 103.0 10.7 (1) 113.7 401.8 407.1 808.9 14.1% 245.3 (67.8) 177.5 44.0 4.03 (1) THE EFFECTIVE TAX RATE FOR 2015 IS 42.1%, 42.3% FOR 2014 AND 37.3% FOR 2013 PHOTOGRAPHY Lew Harrington - HI | Tim Rue - CA | Jeff Schultz - AK | DESIGN Sujeet Paul - LA PRINTING Hemlock Printers USA This Annual Report includes forward- looking statements, such as forecasts and projections of the Company’s future performance or statements of management’s plans and objectives. These statements are “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These include, for example, all references to 2015 or future years. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all such risks, nor can it assess the impact of all such risks on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including, but not limited to the factors that are described in Part I, Item 1A under the caption of “Risk Factors” of the Company’s Report on Form 10-K. The Company is not required, and undertakes no obligation, to revise or update forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, or circumstances occurring after the date of this Annual Report. 205102_AR_Cover.indd 2 2016-02-25 1:11 PM M A T S O N , I N C . 2 0 1 5 A N N U A L R E P O R T + F O R M 1 0 - K matson.com 2015 Annual Report + FORM 10-K 205102_AR_Cover.indd 1 2016-02-25 1:11 PM 

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