M
A
T
S
O
N
,
I
N
C
.
2
0
1
9
A
N
N
U
A
L
R
E
P
O
R
T
+
F
O
R
M
1
0
-
K
2019
ANNUAL REPORT
+ FORM 10-K
006187_Cover_singlePage_v2.indd 2
006187_Cover_singlePage_v2.indd 2
3/2/20 4:27 PM
3/2/20 4:27 PM
BOARD OF DIRECTORS
MATTHEW J. COX, 58
STANLEY M. KURIYAMA, 66 (b)(c)(d)
CONSTANCE H. LAU, 67 (a)(c)
W. BLAKE BAIRD, 59 (a)(b)
Chairman of the Board and Chief
Chairman of the Board and Former
President, Chief Executive Officer
Chairman of the Board,
Executive Officer, Matson, Inc.
Chief Executive Officer, Alexander
and Director, Hawaiian Electric
Chief Executive Officer and
& Baldwin, Inc.
Industries, Inc.
Co-Founder, Terreno Realty
Corporation
Front cover
1
2
3
4
5
1. Oakland Terminal as
seen from Lurline
2. Matson Kodiak
approaching
Anchorage
3. Lurline maiden voyage
arrival into Honolulu
4. Delivery of gantry
cranes to Honolulu
5. Oakland Terminal
operations
Back cover
2
1
3
5
4
6
1. Ship’s bell, Lurline
2. Sand Island Terminal,
Honolulu
3. Kaimana Hila at Long
Beach Terminal
4. Cargo operations
in Shanghai
5. Daniel K. Inouye
at Oakland Terminal
6. Span Alaska freight
in transit
ADMIRAL THOMAS B. FARGO,
U.S. NAVY (RET.), 71 (a)
Non-Executive Chairman
of the Board, Huntington
Ingalls Industries, Inc.; Former
Commander of the U.S. Pacific
Command
MARK H. FUKUNAGA, 64 (b)(c)
JENAI S. WALL, 61 (b)(c)
Chairman and Chief Executive
Chairman and Chief Executive
Officer, Servco Pacific, Inc.
Officer, Foodland Super Market,
Ltd.
EXECUTIVE MANAGEMENT
RONALD J. FOREST, 64
VICENTE S. ANGOCO, JR., 53
BRANTON B. DREYFUS, 66
PETER T. HEILMANN, 51
President
Senior Vice President, Pacific
Senior Vice President, Alaska
Senior Vice President, Chief
Administrative Officer and
General Counsel
JOHN P. LAUER, 59
RUSTY K. ROLFE, 62
JOEL M. WINE, 48
Senior Vice President and Chief
President, Matson Logistics
Senior Vice President and Chief
Commercial Officer
Financial Officer
006187_Cover_singlePage_v2.indd 3
006187_Cover_singlePage_v2.indd 3
3/2/20 4:27 PM
3/2/20 4:27 PM
Notes: Ages as of March 2020(a) Audit Committee Member(b) Compensation Committee Member(c) Nominating and Corporate Governance Committee Member(d) Lead Independent Director TO OUR SHAREHOLDERS
On the water and over the road, Matson is a premier transporter
of time-definite goods.
We have served the Pacific for 137 years with a relentless focus on
exceptional customer service and on-time delivery. The cargo we
carry sustains remote communities and businesses that rely on us
as the lifeline to fulfill their supply chain needs. And as we expand
our footprint and geographies through organic initiatives and
acquisitions, we continue to be guided by two core tenets — move
freight better than anyone and grow shareholder value through the
timely and judicious allocation of capital. It is our DNA.
As asset and cash managers, the most
important long-term financial metric to
measure our performance is return on
invested capital (ROIC). Since our company
became public in 2012, our focus on ROIC
has produced a nearly 2.6x increase in the
book value per share, a compounded annual
growth rate of 13.6%.1 In the last few years,
our ROIC has been reduced by the increase
in debt that funded over $1 billion in multi-
year vessel and infrastructure investments.
We are now seeing the return on those
investments materialize with each new
vessel arrival and we will conclude this
heavy investment cycle in the next few
quarters. With new vessels and infrastructure
in service by the end of 2020, we expect to
realize $40 million in annual financial
benefits,2 and will realize a commensurate
increase in ROIC from both higher earnings
and lower debt levels.
In short, we are well positioned for the
coming decade of service in the Pacific.
Daniel K. Inouye
at SSAT terminal
in Oakland.
006187_6Pages_v2.indd 1
006187_6Pages_v2.indd 1
2/27/20 12:05 PM
2/27/20 12:05 PM
1Book value per share defined as shareholders’ equity divided by shares outstanding. Based on the 2019 shareholders’ equity excluding the cumulative net positive adjustment of $154.0 million related to the Tax Cuts and Jobs Act of 2017. Including the ad-justment, the compounded annual growth rate would be 16.9%. 2We expect $30 million in incremental financial benefits in 2020 compared to 2019 and expect $40 million in annual financial bene-fits in 2021 when compared to 2019. These benefits exclude the net effects of any changes in business activity in the tradelanes. 2. Transition the fleet for IMO 2020
regulations
I am proud to say that Matson’s fleet was
100% IMO 2020 compliant on January 1,
2020, the International Maritime
Organization fuel regulation’s effective date.
Our new vessel build program is
instrumental in Matson meeting these new
standards. In an effort to lower fuel costs
and maintain the optionality in fuel
consumption, we originally intended to
install exhaust gas cleaning systems
(“scrubbers”) on three vessels. In May 2019,
we expanded the program to six vessels
given the compelling economics and the
near-term fuel options available to us. As of
this writing, we completed the installation of
scrubbers on three of the six vessels in the
program. We expect to conclude our
scrubber program by the end of 2020 after
which 8 of 12 vessels will have scrubbers in
our active fleet servicing our core
tradelanes. Based on current fuel spreads
between high and low sulfur fuels, we
continue to expect a relatively quick
payback on these investments.
3. De-lever the balance sheet
We ended the year at a leverage level of
3.48x compared to 2.77x at the end of
2018.3 The increase in debt was primarily
due to progress payments on the last
three new vessels and investments in the
Sand Island infrastructure. We expect our
debt level to peak in the first quarter this
year, and shortly thereafter, we expect to
begin de-levering our debt load, with a
longer term targeted level in the “low-2s.”
While significant corporate objectives were
accomplished, our consolidated financial
performance in 2019 fell short of our original
expectations. This shortfall stemmed
primarily from softer-than-expected volume
in Hawaii and a lower contribution from SSAT,
our terminal operations joint venture. The
Hawaii tradelane contracted slightly due to a
combination of negative population growth
and lower aggregate tourism spending,
which resulted in inventory de-stocking by
retailers due to lower consumer demand.
The lower contribution from SSAT was largely
a result of higher operating costs associated
with the reorganization of the Seattle
terminals, including the integration of a new
and eighth terminal. Over the long-term, we
R.J. Pfeiffer pulling into
Guam harbor.
RECAP OF FISCAL YEAR 2019
Fiscal year 2019 was a busy transition period.
We placed nearly $340 million of assets into
service, took delivery of Lurline, our first
Kanaloa Class vessel, and made substantial
progress on the three key strategic priorities
I laid out last year:
1. Complete the Hawaii fleet renewal and
renovation of Sand Island terminal
In April, we placed into service the second
Aloha Class vessel, Kaimana Hila, and in
December we took delivery of Lurline, the
first of two new “con-ro” vessels. With the
delivery of Lurline, we closed a historic
chapter of steamships in the active Matson
fleet. Equally significant, in the first week
of January 2020 our Hawaii tradelane
service stepped down from ten vessels to
nine. We expect to complete the newbuild
program in the fourth quarter of 2020 upon
delivery of Matsonia. Further, we respon-
sibly recycled three steamships in 2019
and expect to dispose of the remaining
three steamships in 2020 and 2021.
Shoreside, we installed three new gantry
cranes and completed a number of
electrical infrastructure upgrades at our
Sand Island hub in Honolulu as part of a
$60 million modernization project. We
remain on track to have the major cost
items complete by the end of 2020.
Our dual headhaul economics to and from
China is unique in the industry, and our
expedited service from Shanghai commands
premium rates.
006187_6Pages_v2.indd 2
006187_6Pages_v2.indd 2
2/27/20 12:06 PM
2/27/20 12:06 PM
believe SSAT’s interests in all of the
container terminals in Seattle and one
terminal in Tacoma will bring more volume
and growth opportunities.
We had a solid contribution from our China
service coming off an exceptional 2018. Our
industry-leading expedited offering
continues to resonate with customers, even
with a volatile, tariff-driven backdrop that
created “chaotic” conditions with blank
sailings and U.S. West Coast port congestion.
An improving Alaska economy benefited
both our Alaska tradelane service and Span
Alaska, our freight forwarding business. Span
Alaska’s performance plus favorable contri-
butions across most of our other logistics
service lines powered our Logistics segment
to an all-time high operating income.
We’ve invested nearly $700 million in Alaska
over the past four years, which has led to
diversified earnings streams while providing
a platform for additional growth in the Pacific
Northwest logistics corridor.
Our diverse portfolio of services and
geographies continue to provide protection
against episodic and potential secular
earnings disruptions, while also providing a
strong foundation for us to grow.
SHAREHOLDER VALUE
In last year’s CEO letter, I outlined how we
think about allocating your capital to drive
shareholder value. I will reiterate some of the
key points from that letter, as well as provide
updated thoughts as we enter the final year
of our new build program and return to
strong free cash flow generation.
Our priority for the use of cash is to fund
necessary maintenance investments in our
fleet, shoreside assets, and logistics
operations. In 2020, we expect to exceed our
annual maintenance capital expenditure
target of approximately $50 million as we
complete the remaining scrubber
installations and Phase I work at Sand Island,
but we expect to trend to the $50 million
level thereafter.
Our four general uses of cash flow after
funding maintenance capital are, in no
particular order: invest in organic growth
opportunities, reduce debt, return capital to
shareholders, and acquire businesses.
Organic growth: We continue to source
organic growth opportunities that build
upon our valuable Pacific network and U.S.
West Coast franchises. To this end, in 2019
SSAT brought a new terminal in Seattle
online and we deployed Kaimana Hila into
the CLX service. Kaimana Hila is instructive
of how fleet initiatives can be instrumental
in both cost-saving and revenue
enhancement efforts; her arrival relieved
CLX vessels headed to dry-dock for
scrubber installations, brought more
capacity to the China tradelane to
capitalize on volume during a seasonally
strong second half period, and aligned
capacity and demand in the Hawaii
tradelane. With the arrival of our final
vessel later this year, we will have even
more capacity optionality to maximize
revenues across our tradelanes. As one
example, we are exploring adding
additional capacity into the CLX service to
meet long-term demand.
Reduce debt: In the first quarter of 2020,
we expect to hit our debt leverage peak in
the “mid-3s” and our plan is to reduce our
leverage to the target level of “low-2s” with
at least 0.5x of deleveraging per annum.
As we have indicated before, we are
committed to maintaining investment-
grade credit metrics and preserving our
low-cost balance sheet, which we view as
a competitive advantage.
Return capital to shareholders: Since the
2012 separation, we have returned approx-
imately $300 million to shareholders
(approximately 17% of our current market
capitalization4) in the form of dividends and
006187_6Pages_v2.indd 3
006187_6Pages_v2.indd 3
2/27/20 12:06 PM
2/27/20 12:06 PM
3Leverage defined as Total Debt divided by EBITDA as determined in accordance with our debt agreements. Total debt as of December 31, 2019 and December 31, 2018, was $958.4 million and $856.4 million, respectively. EBITDA, as defined in accordance with our debt agreements, as of December 31, 2019 and December 31, 2018, was $275.6 million and $309.4 million, respectively. 4Based on the diluted shared count and share price as of December 31, 2019. Hawaiian Merchant
departing San Francisco
on its inaugural lift-on/
lift-off container
service (1958).
share repurchases. We have raised the
quarterly dividend annually and we plan
to continue growing the dividend in line
with growth in cash flow. As we reduce
debt toward our target leverage level, and
in the absence of organic growth and
acquisition opportunities, we will consider
the return of excess cash to shareholders
in the form of share repurchases and/or
special dividends.
We have served the Pacific for 137 years with
a relentless focus on exceptional customer
service and on-time delivery.
Acquire businesses: Although our primary
focus the last few years has been on
successfully executing the large
investment projects, we have also spent
considerable time looking at acquisition
opportunities. In the past year, we
conducted deep dives on a number of
opportunities ranging in enterprise value
from $30 milion to $250 million. With each
opportunity, we applied the three core
principles outlined last year in the CEO
letter – the opportunity must: (i) have an
enduring competitive advantage, (ii) be a
good cultural fit and be strategic or
complementary, and (iii) generate a
cash-on-cash return in excess of 10%
initially and have the ability to grow
organically. Many of the opportunities we
reviewed did not meet our hurdles on
earnings quality and competitive
positioning, some failed as a strategic fit,
and others required too much follow-on
capital to meet our return targets over time.
We will remain disciplined in our approach
and are not dissuaded in any way from
looking at future opportunities.
With that in mind, I want to reflect on three
acquisitions, totaling over $700 million in
aggregate capital deployed, that we have
made since our public inception in 2012.
A REVIEW OF OUR ACQUISITIONS TO DATE
In January 2013, we executed our first
acquisition as a public company with the
purchase of assets of Reef Shipping, a New
Zealand-based company that served the
South Pacific, for approximately $10 million.
As I wrote in the 2012 CEO letter, the
acquisition “met our criteria for operating in
geographies and markets where delivery
matters to ‘lifeline’ communities.” The launch
of our SPX service out of Honolulu three
years following this tuck-in acquisition
offered a potential new value proposition for
us. Unfortunately, the financial and
operational burden of the remote SPX
service and small addressable market
detracted from what was strong operational
performance. In short, we could not maintain
006187_6Pages_v2.indd 4
006187_6Pages_v2.indd 4
2/27/20 12:06 PM
2/27/20 12:06 PM
demand contraction as we do, we were
undeterred by the initial volume
performance. We view acquisitions for the
impact to our business over decades, not
years. We are now surpassing our return
goals and remain confident we will meet or
exceed our cash-on-cash goal in the first
decade of owning the business. The
acquisition was, and is, transformative to our
business, providing another revenue stream
and further diversification of our service and
geography suite.
Following our acquisition of Horizon Alaska,
we acquired Span Alaska in August 2016 for
approximately $200 million. Span Alaska
was our largest customer in the tradelane
and the leading asset-light, less than
container load freight forwarding operation
to Alaska. Span Alaska built its reputation on
a high-touch level of service for customers, a
hallmark of the Matson brand. The company
had a long-tenured and loyal employee
base, and the culture fit right into the Matson
a cost-effective, reliable SPX service with
small vessels over great distances. In 2019,
we made the decision to end our own direct
SPX shipping service and enter into vessel
sharing agreements with Polynesia Lines
and Maersk. We have not yet achieved our
financial goal with this bite-sized investment,
but we are confident that the vessel sharing
arrangements will put us on an improved
profitability path and allow for further
profitable expansion in the region. More
importantly, this acquisition taught us a
valuable lesson about small markets and
small vessels in the international trades.
In May 2015, we closed on the acquisition of
Horizon Lines’ Alaska operations for
approximately $495 million. The Alaska
tradelane represented a strategic
complement to the Hawaii tradelane – a
remote community dependent on a critical
supply of recurring goods to residents and
visitors. The biggest challenge with the
acquisition was the integration. Our
approach was to leverage IT, accounting, HR,
customer service, and other operational
platforms, which resulted in significant
savings. The successful integration benefited
from the strong cultural fit of the employees
at Horizon Alaska with Matson. We
underwrote the acquisition at a double-digit
cash-on-cash return, which included
one-time integration costs and an investment
in containers, chassis, and scrubbers on
three vessels. While we assumed a flat
volume profile, we also modeled downside
scenarios around the Alaska economy driven
by a falling price of oil. Sure enough, in late
2015 Alaska experienced a pronounced
economic slowdown, driven by a rapid
contraction in oil prices to decade-lows that
pressured oil exploration and production
budgets, and led to a multi-year economic
recession. We saw a nearly 10% decline in
annual container volume from 2015 to the
trough in 2017, which was the primary driver
to falling short of our cash-on-cash return
goal in the first few years of owning the
business. Understanding cargo cycles and
Since 2015, Operating Income in our Logistics
group has nearly quintupled, propelled by
organic growth and strategic investments.
006187_6Pages_v2.indd 5
006187_6Pages_v2.indd 5
2/27/20 12:06 PM
2/27/20 12:06 PM
2020 will usher in an era of significant free cash
flow that provides flexibility to allocate capital
to the highest risk-adjusted returns to create
value for shareholders.
family. We acquired the business at an initial,
high single-digits, cash-on-cash return level,
excluding any vertical integration benefits to
the Alaska tradelane operation and other
operating synergies. Like Horizon Alaska,
Span Alaska experienced challenging
business conditions in 2017 as the recession
in Alaska deepened. Volume came in lower
than we originally projected, but Span
Alaska’s experienced management team
exercised cost discipline and improved
margins and hit our initial financial targets in
the first year. As business conditions
improved in 2018 and 2019, the cash-on-cash
run rate was in the mid-teens. Needless to
say, Span Alaska’s success has been a
meaningful driver of Matson Logistics’ finan-
cial performance over the last three years.
With each acquisition we consider and
transact, we are honing our M&A and
integration skill sets, optimizing our network,
leveraging our technology platform, and
creating additional diversity and heft to our
revenue and earnings streams.
Lurline pulling into
Honolulu Harbor on its
maiden voyage.
ONWARDS AND UPWARDS
For the last three years, we focused on
allocating the cash flow from operations and
borrowings to invest in four new vessels and
key infrastructure. The magnitude of these
multi-year investments without the
commensurate profitability resulted in a
depressed return on invested capital over
this timeframe. However, an inflection
upward in our ROIC is imminent as the vessel
and infrastructure spending ends this year
and we begin to see the financial benefits
from these investments. 2020 will usher in an
era of significant free cash flow that provides
flexibility to allocate capital to the highest
risk-adjusted returns to create value for
shareholders.
As we enter the new decade, I am excited for
the opportunities that lay ahead. We will
continue to manage your company and
capital for the long-term, ever mindful of the
impact our financial and strategic decisions
have on our role as a preeminent transporter
of time-definite goods.
Sincerely,
Matt Cox
Chairman and Chief Executive Officer
February 28, 2020
006187_6Pages_v3.indd 6
006187_6Pages_v3.indd 6
3/2/20 10:17 AM
3/2/20 10:17 AM
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, 2019
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
Trading Symbol(s)
MATX
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Number of shares of Common Stock outstanding at February 24, 2020:
43,040,657
Aggregate market value of Common Stock held by non-affiliates at June 30, 2019:
$1,642,293,968
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ☒
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 23, 2020.
TABLE OF CONTENTS
PART I
Page
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Company Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Business Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Ocean Transportation Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Logistics Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Employees and Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
PART II
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .....
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion Regarding Effectiveness of Disclosure Controls and Procedures . . . . . . . . . . . . . .
Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
PART III
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Exhibits Required by Item 601 of Regulation S-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
1
1
2
2
8
10
10
10
20
20
20
21
22
24
25
35
36
73
73
73
73
73
74
74
74
74
74
74
74
74
74
75
75
75
75
80
MATSON, INC.
FORM 10-K
Annual Report for the Fiscal Year
Ended December 31, 2019
PART I
ITEM 1. BUSINESS
A.
COMPANY OVERVIEW
Matson, Inc., a holding company incorporated 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, 2019, see
Note 3 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 provides a vital
lifeline of ocean freight transportation services to the domestic non-contiguous economies of Hawaii, Alaska and Guam,
and to other island economies in Micronesia. MatNav also operates a premium, expedited service from China to Long
Beach, California, and provides services to Okinawa, Japan and various islands in the South Pacific. In addition,
subsidiaries of MatNav provide container stevedoring, refrigerated cargo services, inland transportation and other
terminal services for MatNav and other ocean carriers on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai, and in
the Alaska locations of Anchorage, Kodiak and Dutch Harbor.
Matson has a 35 percent ownership interest in SSA Terminals, LLC, a joint venture between Matson Ventures, Inc., a
wholly-owned subsidiary of MatNav, and SSA Ventures, Inc., a subsidiary of Carrix, Inc. (“SSAT”). SSAT provides
terminal and stevedoring services to various carriers at eight terminal facilities on the U.S. West Coast, including four
facilities dedicated for MatNav’s use. Matson records its share of income from SSAT in costs and expenses in the
Consolidated Statements of Income and Comprehensive Income, and within the Ocean Transportation segment due to
the nature of SSAT’s operations.
Logistics: Matson’s Logistics business is conducted through Matson Logistics, Inc. (“Matson Logistics”), a wholly-
owned subsidiary of MatNav. Established in 1987, Matson Logistics is an asset-light business that provides a variety of
logistics services to its customers including: (i) multimodal transportation brokerage of domestic and international rail
intermodal services, long-haul and regional highway trucking services, specialized hauling, flat-bed and project services,
less-than-truckload services, and expedited freight services (collectively, “Transportation Brokerage” services);
(ii) less-than-container load (“LCL”) consolidation and freight forwarding services (collectively, “Freight Forwarding”
services); (iii) warehousing and distribution services; and (iv) supply chain management, non-vessel operating common
carrier (“NVOCC”) freight forwarding and other services.
Our Mission and Vision:
Our mission is to move freight better than anyone. Our vision is to create value for our shareholders by:
Being our customers’ first choice,
Leveraging our core strengths to drive growth and increase profitability,
Being an environmental leader in our industry, and
Being a great place to work.
Improving the communities in which we work and live,
1
B.
BUSINESS DESCRIPTION
(1)
OCEAN TRANSPORTATION SEGMENT
Ocean Transportation Services:
Matson’s Ocean Transportation segment provides the following services:
Hawaii Service: Matson’s Hawaii service provides ocean carriage (lift-on/lift-off, roll-on/roll-off and conventional
services) between the ports of Long Beach and Oakland, California; Seattle, Washington; and Honolulu, Hawaii.
Matson also operates a network of inter-island barges that provide connecting services from its hub at Honolulu, Oahu to
other major Hawaii ports on the islands of Hawaii, Maui and Kauai. 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 and beverages, retail merchandise, 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.
China Service: Matson’s expedited China-Long Beach Express (“CLX”) is part of an integrated service that carries
cargo from Long Beach, California to Honolulu, Hawaii, to Guam, and then to Okinawa, Japan. The vessels continue to
Ningbo and Shanghai, China, where they are loaded with cargo to be discharged primarily in Long Beach, California.
These vessels also carry cargo destined for Hawaii which originated in Guam, Micronesia, Japan and China. Matson
provides container transshipment services from many locations in Asia including Hong Kong and Xiamen, China to the
ports of Ningbo and Shanghai, China.
Eastbound cargo from China to Long Beach, California consists mainly of garments, footwear, e-commerce and other
retail merchandise. Westbound cargo to China and other destinations in Asia consists mainly of recycling materials.
Guam Service: Matson’s Guam service provides weekly carriage between the U.S West Coast and Guam, as part of its
expedited CLX service. Matson also provides weekly connecting service from Guam to the Commonwealth of the
Northern Mariana Islands. Cargo destined to these markets is similar to that described in the “Hawaii Service” section
above.
Japan Service: Matson’s Japan service provides carriage to the port of Naha in Okinawa, Japan, as part of its expedited
CLX service. This service carries mainly general sustenance cargo and household goods supporting the U.S. military.
Micronesia Service: Matson’s Micronesia service provides carriage 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 and consists mainly of general sustenance cargo.
Alaska Service: Matson’s Alaska service provides ocean carriage (lift-on/lift-off and conventional services) between the
port of Tacoma, Washington, and the ports of Anchorage, Kodiak and Dutch Harbor, Alaska. Matson also provides a
barge service between Dutch Harbor and Akutan in Alaska, and transportation services to other locations in Alaska
including the Kenai Peninsula, Fairbanks and the North Slope.
Northbound cargo to Alaska includes dry containers of mixed commodities, refrigerated commodities, packaged foods
and beverages, retail merchandise, household goods and automobiles. Southbound cargo from Alaska primarily consists
of seafood, household goods and automobiles.
South Pacific Service: Matson’s New Zealand Express (“NZX”) service provides carriage of general sustenance cargo
between Auckland, New Zealand and select islands in the South Pacific, including Fiji (Suva and Lautoka), Samoa
(Apia), American Samoa (Pago Pago), the Cook Islands (Rarotonga and Aitutaki), Tonga (Nukualofa and Vava’u), and
Niue. Matson’s NZX service also provides transshipment services to the islands of Nauru and the Solomon Islands
2
(Honiara). Additionally, Matson provides slot charter arrangements for the transportation of cargo from major ports on
the east coast of Australia to ports in the South Pacific islands. The NZX service also distributes and sells domestic bulk
fuel to a variety of these islands.
Matson’s South Pacific Express (“SPX”) service provides carriage of general sustenance cargo from the U.S. West Coast
to ports in the South Pacific islands using vessel sharing agreements with other carriers. The SPX service provides
direct calls to Tahiti (Papeete), American Samoa (Pago Pago) and Samoa (Apia) in the South Pacific. Cargo destined for
other ports including Tonga (Nukualofa) and the Cook Islands (Rarotonga and Aitutaki) is then transshipped in Apia,
Samoa to the NZX service for delivery to its final destination. Northbound SPX cargo originating in the South Pacific is
transshipped from the NZX with other carriers to the U.S. West Coast. Cargo destined for Hawaii or Seattle is further
transshipped in Oakland, California for delivery to its final destination.
Terminal and Other Related Services:
Matson provides container stevedoring, refrigerated cargo services, inland transportation, container equipment
maintenance and other terminal services (collectively, “terminal services”) 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.
SSAT provides terminal and stevedoring services to various carriers at eight terminal facilities on the U.S. West Coast,
including four facilities dedicated for MatNav’s use, in Long Beach and Oakland, California; and in Seattle and Tacoma,
Washington.
Matson utilizes the services of other third-party terminal operators at all of the other ports served by its vessels.
Vessel Management Services:
Matson contracts with the U.S. Department of Transportation to provide vessel management services to manage and
maintain three Ready Reserve Force vessels on behalf of the U.S. Department of Transportation Maritime
Administration.
3
Vessel Information:
Vessels:
Matson’s fleet includes both owned and chartered vessels. Matson’s owned vessels represent an investment of
approximately $1.7 billion. The majority of Matson’s owned vessels are U.S. flagged and Jones Act qualified vessels,
and operate in the Hawaii, China, Guam, Japan, Micronesia and Alaska services. Details of Matson’s active and reserve
vessels, and vessel under construction as of December 31, 2019 are as follows:
Name of Vessels (1)
Diesel-Powered
Owned/ Official
Chartered Number TEUs (2)
Reefer
Year
Slots Autos Built Length
Maximum Maximum
Deadweight
Speed
(Long Tons)
(Knots)
Usable Cargo Capacity
Containers
Vehicles
DANIEL K. INOUYE (3)
KAIMANA HILA (3)
LURLINE (3)(8)
MANOA (3)
MAHIMAHI (3)
MANULANI (3)
MAUNAWILI (3)
MANUKAI (3)
R.J. PFEIFFER (3)
MOKIHANA (3)
MAUNALEI (3)
MATSON KODIAK (3)
MATSON ANCHORAGE (3)
MATSON TACOMA (3)
KAMOKUIKI (4)
OLOMANA (5)
IMUA II (5)(10)
LILOA II (5)
PAPA MAU (5)
Owned 1274136
Owned 1274135
Owned 1274143
Owned 651627
Owned 653424
Owned 1168529
Owned 1153166
Owned 1141163
Owned 979814
Owned 655397
Chartered 1181627
Owned 910308
Owned 910306
Owned 910307
Owned 9232979
Chartered 9184225
Chartered 9184237
Chartered 9184249
Owned
1559
3,220 408
408
3,220
2,750
432
2,824 408
2,824 408
2,378 284
2,378 326
2,378 326
2,245 300
1,994 354
1,992 328
1,668 280
1,668 280
1,668 280
707 100
120
645
90
630
90
630
68
521
— 2018 854’ 0”
— 2019 854’ 0”
500 2019 869’ 5”
— 1982 860’ 2”
— 1982 860’ 2”
— 2005 712’ 0”
— 2004 711’ 9”
— 2003 711’ 9”
— 1992 713’ 6”
1,323 1983 860’ 2”
— 2006 681’ 1”
— 1987 710’ 0”
— 1987 710’ 0”
— 1987 710’ 0”
— 2000 433’ 9”
— 2004 388’ 7”
— 2005 388’ 6”
— 2004 388’ 6”
— 1999 381’ 5”
23.5
23.5
23.0
23.0
23.0
23.0
23.0
23.0
23.0
23.0
22.1
20.0
20.0
20.0
17.5
14.0
15.0
15.0
14.0
Barges
MAUNA LOA (3)
HALEAKALA (3)(6)
ILIULIUK BAY (3)(6)
WAIALEALE (3)(7)
Vessel under Construction
MATSONIA (3)(9)
Chartered 1247426
Owned 676972
Chartered 1249384
Owned 978516
78
500
335
78
178 —
36
—
— 2013 362’ 6” —
— 1984 350’ 0” —
— 2013 250’ 0” —
230 1991 345’ 0” —
Owned 1274123
2,750
432
500 2020 869’ 5”
23.0
50,562
(1) Excludes inactive vessels (SS Lihue, SS Kauai and SS Matsonia).
(2) Twenty-foot Equivalent Units (“TEU”) is a standard measure of cargo volume correlated to a standard 20-foot dry cargo container.
(3) U.S. flagged and Jones Act qualified vessel or barge.
(4) U.S. flagged vessel.
(5) Foreign flagged vessel.
(6) Lift-on/lift-off barge equipped with a crane.
(7) Roll-on/roll-off barge.
(8) Commenced active service in January 2020.
(9) Expected delivery date during the fourth quarter of 2020.
(10) Vessel is sub-chartered to another shipping company commencing January 2020.
Fleet Renewal Program:
Matson has invested approximately $0.9 billion in the construction of four new vessels. The two Aloha Class
containerships, Daniel K. Inouye and Kaimana Hila, commenced active service in November 2018 and April 2019,
respectively. The first of two Kanaloa Class combination container and roll-on/roll-off vessels, Lurline, commenced
active service in January 2020. Delivery of the second Kanaloa Class vessel, Matsonia, is expected during the fourth
quarter of 2020.
4
50,794
53,747
50,562
30,187
30,167
29,517
29,517
29,517
27,100
29,484
33,771
37,473
37,473
37,473
8,509
8,200
8,071
8,071
5,364
12,678
4,658
4,138
5,621
With the delivery of Lurline, Matson returned to a nine-ship deployment serving the Hawaii market commencing in
early January of 2020.
Vessel Emission Regulations:
Being a leader in environmental stewardship is one of Matson’s core values. Matson vessels transit through some of the
most environmentally sensitive areas in the United States including the Hawaiian Islands and the coasts of California,
Oregon, Washington and Alaska. Matson is focused in particular on reducing transportation emissions, including carbon
dioxide, nitrous oxide, particulate matter and sulfur dioxide through improvements in vessel fuel consumption and the
development of more fuel-efficient transportation solutions. Matson further contributes positively to the environment by
testing and deploying leading technologies as the fleet is modernized.
The International Maritime Organization (“IMO”), to which the U.S. and over 100 other countries are signatories, is a
specialized agency of the United Nations that sets international environmental standards applicable to vessels operating
under the flag of any signatory country. Effective January 1, 2020, the IMO has imposed regulations that generally
require all vessels to burn fuel oil with a maximum sulfur content of ≤0.5 percent (“IMO 2020”). There are three main
options for a vessel to meet the new IMO 2020 requirements: (1) burn low sulfur fuel oil (“LSFO”), (2) install exhaust
gas cleaning systems (commonly referred to as “scrubbers”) on vessels to purify high sulfur fuel oil (“HSFO”), or
(3) switch to lower emission fuels such as liquefied natural gas (“LNG”), which requires converting existing vessels or
constructing new vessels with LNG-compatible engines and fuel tanks. With respect to North America, all waters, with
certain limited exceptions, within 200 nautical miles of U.S. and Canadian coastlines have been designated emission
control areas (“ECAs”). Since January 1, 2015, U.S. Environmental Protection Agency regulations have reduced the
fuel oil maximum sulfur content in designated ECAs to ≤0.1 percent.
All of Matson’s vessels in the Alaska and Hawaii services are compliant with IMO 2020 and ECA regulations and can
use LSFO. In the Alaska service, Matson has installed scrubbers on its three diesel-powered vessels to allow them to use
HSFO and still comply with IMO 2020 and ECA regulations. In the Hawaii service, Matson has announced plans to
install scrubbers on six diesel-powered vessels to allow them to use HSFO and comply with IMO 2020 and ECA
regulations. Installation of scrubbers on the first two of these vessels was completed during 2019, with the remaining
four expected to be completed during 2020. Matson’s new Aloha and Kanaloa Class vessels burn compliant
LSFO. These new vessels are also equipped with dual-fuel engines and can be converted to run on LNG. All of
Matson’s other vessels will use LSFO to meet IMO 2020 and ECA emission standards.
Hawaii Terminal Expansion and Modernization Program:
During 2020, Matson expects to complete the first phase of renovating its terminal facility at Sand Island, Honolulu,
Hawaii. The first phase involves the investment of approximately $60 million and includes the installation of three new
65 long-ton capacity gantry cranes and modifications to upgrade three existing cranes. The first phase also includes
upgrades in electrical infrastructure and other modifications to the Sand Island terminal.
Additional phases are expected to be completed from 2021 through 2024 as part of a broader terminal expansion and
modernization program at Matson’s Sand Island terminal.
Ocean Transportation Equipment:
As a complement to its fleet of vessels, Matson has a variety of equipment including cranes, containers and chassis
which represents an investment of approximately $0.5 billion as of December 31, 2019. Matson also leases containers,
chassis and other equipment under various operating lease agreements.
Operating Costs:
Major components of Matson’s Ocean Transportation operating costs are as follows:
Direct Cargo Expense includes terminal handling costs, purchased outside transportation and other related costs.
5
Vessel Operating Expense includes crew wages and related costs; fuel consumption, pilot, tugs and line related costs;
vessel charter expenses; and other vessel related expenses. Matson purchases fuel oil, lubricants and gasoline for its
operations and also pays fuel-related surcharges to other third party transportation providers.
Operating Overhead includes equipment repair costs, equipment operating lease and repositioning expenses, vessel
repair and maintenance costs, dry-docking amortization, insurance, port engineers and other maintenance costs, and
other vessel and shoreside related overhead.
Competition:
The following is a summary of major competitors in Matson’s Ocean Transportation segment:
Hawaii Service: Matson’s Hawaii service has one major U.S. flag Jones Act ocean carrier competitor, Pasha Hawaii
(“Pasha”), which operates container and roll-on/roll-off services between the ports of Long Beach, Oakland and San
Diego, California to Hawaii. There also are two U.S. flag Jones Act 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 alternatives for companies shipping
to Hawaii. Other competitors in the Hawaii service include proprietary operators and contract carriers of bulk cargo.
Airfreight competition for time-sensitive cargo exists; however, cargo volume has been limited primarily due to the cost
of airfreight transportation.
Matson vessels are operated on schedules that provide customers, shippers and consignees fixed day-of-the-week
sailings from the U.S. West Coast as well as fixed day-of-the-week arrivals in Hawaii. Matson offers five westbound
departures per week, though this amount may be adjusted according to market conditions. One of Matson’s westbound
sailings each week continues from Honolulu on to Guam, Japan and China. Matson offers two weekly eastbound
departures from Honolulu to the U.S. Mainland. These sailings call on three U.S. West Coast ports each week.
Matson’s frequent sailings permit customers to reduce inventory carrying costs. Matson also competes by offering a
more comprehensive service to customers, including: service to and from the three largest U.S. West Coast ports; the
most efficient terminal network on the U.S. West Coast provided by SSAT; a dedicated inter-island barge network; a
world-class customer service team; and its efficiency and experience in handling cargo of all types.
Alaska Service: Matson’s Alaska service has one major U.S. flag Jones Act competitor, Totem Ocean Trailer
Express, Inc., which operates a roll-on/roll off service between Tacoma, Washington and Anchorage, Alaska. There are
also two U.S. flag Jones Act barge operators, Alaska Marine Lines, which mainly provides services from Seattle,
Washington to the ports of Anchorage and Dutch Harbor, and other locations in Alaska, and Samson Tug & Barge,
which mainly serves Western Alaska and other locations. The barge operators have historically shipped lower value
commodities that can accommodate a longer transit time, as well as construction materials and other cargo that are not
conducive to movement in containers. Foreign-flag vessels provide alternatives for companies shipping cargo (mainly
seafood) from the Alaska ports of Kodiak and Dutch Harbor.
Matson offers customers twice weekly scheduled service from Tacoma, Washington to Anchorage and Kodiak, Alaska
and weekly service to Dutch Harbor, Alaska. The Company also provides a barge service between Dutch Harbor and
Akutan in Alaska. Matson is the only Jones Act containership operator providing service to Kodiak and Dutch Harbor in
Alaska, which are the primary loading ports for southbound seafood. Matson offers dedicated terminal services at the
Alaska ports of Anchorage, Kodiak and Dutch Harbor performed by MatNav, and at the port of Tacoma, Washington
performed by SSAT.
China Service: Major competitors to Matson’s China service include large international carriers such as ONE (formerly
“K” Line, NYK Line and MOL), Maersk, CMA CGM and its subsidiary APL, Evergreen, COSCO and SM Line.
Matson competes by offering a fast and reliable service from the ports of 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 marine terminal in Long Beach, California operated by SSAT, an off-dock container yard providing
fast truck turn times, dedicated chassis, one-stop intermodal connections, and providing world-class customer service.
6
Matson has offices located in Hong Kong, Shenzhen, Xiamen, Ningbo and Shanghai, and has contracted with terminal
operators in Ningbo and Shanghai.
Guam Service: Matson’s Guam service has one major competitor, APL, which operates a weekly U.S. flagged container
feeder service connecting the U.S. West Coast to Guam and Saipan, via transshipments over Yokohama, Japan.
Waterman operates a roll-on/roll-off service, which periodically calls at Guam. There are also several foreign carriers,
including APL, that call at Guam from foreign origin ports.
Japan Service: Matson’s Japan service competes primarily with APL, which operates a weekly U.S. flagged
containership service from the U.S. West Coast to the port of Naha, Okinawa, Japan.
Micronesia and 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.
Customer Concentration:
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 2019, 2018 and 2017, the Company’s 10 largest Ocean Transportation
customers accounted for approximately 23 percent, 24 percent and 23 percent of the Company’s Ocean Transportation
revenue, respectively. None of these customers individually account for more than 10 percent of Matson’s Ocean
Transportation operating revenues. For additional information on Ocean Transportation revenues for the years ended
December 31, 2019, 2018 and 2017, see Note 2 to the Consolidated Financial Statements in Item 8 of Part II below.
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.
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 the years ended December 31, 2019, 2018 and 2017, approximately 72 percent of Matson’s Ocean
Transportation revenues came from the Hawaii and Alaska 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 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 believes that the
ongoing war on terrorism and geopolitical environment have further solidified political support for U.S. flagged vessels
7
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 90 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.
Rate Regulations and Fuel-Related Surcharges:
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
other 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 a federal independent regulatory agency that is responsible for the
regulation of international oceanborne transportation to and from the U.S.
Matson applies a fuel-related surcharge rate to its Ocean Transportation customers. Changes in the fuel-related
surcharge levels are correlated to market rates for bunker fuel prices along with other factors related to fuel expense
recovery.
Other Environmental Regulations:
In addition to the vessel emission regulations discussed above, Matson’s operations are required to comply with other
environmental regulations and requirements including 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. The Company actively monitors its operations to ensure compliance with these and
other regulations.
For more information on Matson’s environmental stewardship initiatives, including its environmental goals, see
https://www.matson.com/corporate/about_us/environmental.html. The contents of our website are not incorporated by
reference into this Form 10-K.
(2)
LOGISTICS SEGMENT
Logistics Services:
Matson Logistics provides the following services:
Transportation Brokerage Services: Matson Logistics provides intermodal rail, highway, and other third-party logistics
services for North American customers and international ocean carrier customers, including MatNav. Matson Logistics
strives to reduce transportation costs for its customers through volume purchases of rail, motor carrier and ocean
transportation services, augmented by services such as shipment tracking and tracing, and single-vendor invoicing.
Matson Logistics operates customer service centers and has sales offices throughout North America.
8
Freight Forwarding Services: Matson Logistics provides LCL consolidation and freight forwarding services primarily
to the Alaska market through its wholly owned subsidiary, Span Intermediate, LLC (“Span Alaska”). Span Alaska’s
business aggregates LCL freight at its cross-dock facility in Auburn, Washington for consolidation and shipment to a
network of cross-dock facilities in Alaska. Span Alaska also provides trucking services to its Auburn cross-dock facility
and from its Alaska based cross-dock facilities to final customer destinations in Alaska.
Warehousing and Distribution Services: Matson Logistics operates two warehouses in Georgia and two warehouses in
Northern California providing warehousing, value-added packaging and distribution services.
Supply Chain Management and Other Services: Matson Logistics provides customers with a variety of logistics services
including purchase order management, customs brokerage, LCL and full container load NVOCC freight forwarding
services. Matson Logistics operates a customer service center in Shanghai, China to support its supply chain operations
in North America, China and other locations.
Investment in Anchorage Service Center:
During the fourth quarter of 2019, Span Alaska completed the construction of a new 54,000 square foot cross-dock
facility (“Anchorage Service Center”) to consolidate its Anchorage operations that previously operated from two smaller
leased facilities. The Anchorage Service Center is expected to improve Span Alaska’s operating efficiency while
providing additional capacity for long-term growth.
Operating Costs:
Matson Logistics’ operating costs primarily consist of the costs of purchased transportation, leases of warehouses, cross-
dock and other facility operating costs, salaries and benefits, and other operating overhead.
Competition:
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’ transportation brokerage services competes most directly with C.H. Robinson Worldwide, the Hub
Group, XPO and other freight brokers and intermodal marketing companies, and asset-invested market leaders such as
J.B. Hunt. Competition is differentiated by the depth, scale and scope of customer relationships; vendor relationships
and rates; network capacity; 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.
Matson Logistics’ freight forwarding services compete most directly with a variety of freight forwarding companies that
operate within Alaska including Carlile, Lynden, American Fast Freight and Alaska Traffic Company.
Customer Concentration:
Matson Logistics serves customers in numerous industries and geographical locations. In 2019, 2018 and 2017, the
Company’s 10 largest logistics customers accounted for approximately 21 percent, 23 percent and 19 percent of Matson
Logistics’ revenue, respectively. None of these customers individually accounts for more than 10 percent of Matson
Logistics’ operating revenues. For additional information on Logistics revenues for the years ended December 31, 2019,
2018 and 2017, see Note 2 to the Consolidated Financial Statements in Item 8 of Part II below.
Seasonality:
Matson Logistics’ services are generally not significantly impacted by seasonality factors, except for its freight
forwarding service to Alaska which is affected by the winter weather, the cyclical nature of the oil and construction
industries, and the seasonal nature of the tourism industry.
9
C.
EMPLOYEES AND LABOR RELATIONS
Employees:
As of December 31, 2019, Matson and its subsidiaries had 1,988 employees, of which 794 employees were covered by
collective bargaining agreements with shoreside unions. These numbers do not include billets on vessels discussed
below, employees of SSAT, or other non-employees, such as agents, temporary workers and contractors.
Matson’s fleet of active vessels require 298 billets to operate these vessels. 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. These amounts exclude billets related to Matson’s foreign flagged chartered vessels where the vessel owner
is responsible for its seagoing personnel. Matson’s vessel management services also employed personnel in 28 billets to
manage three vessels.
Bargaining Agreements:
Matson’s shoreside and seagoing employees are represented by a variety of unions. 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 these 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, lockouts
or other disruptions that may adversely impact Matson’s operations.
Additionally, 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. West Coast. The PMA/ILWU collective bargaining agreements cover substantially all U.S. West Coast
longshore labor. In August 2017, the ILWU agreed to extend its contract with the PMA to July 1, 2022.
Multi-employer Pension and Post-retirement Plans:
Matson contributes to a number of multi-employer pension and post-retirement plans. Matson has no present intention
of withdrawing from, and does not anticipate the termination of any of the multi-employer pension plans to which it
contributes (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).
D.
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 them 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 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.
10
Risks Related to the Jones Act
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 would be eroded if periodic efforts and attempts by foreign interests to
circumvent certain aspects of the Jones Act were ever successful. If maritime cabotage services were included in the
General Agreement on Trade in Services, the North American Free Trade Agreement, the United States-Mexico-Canada
Agreement, the U.S.-EU 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 or would have other adverse impacts.
The Company’s business would 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 would have an adverse effect on the Company’s financial condition
and results of operation.
Risks Related To Operations
Changes in U.S., global, regional economic conditions or governmental policies 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, a change in the cost of goods or currency exchange rates, imposition of tariffs and uncertainty of
tariff rates, or a change in international trade policies 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 our volumes and rates. For example, in December 2016, the Company’s major competitor in the Guam service
upgraded its U.S. flagged feeder containership from a bi-weekly service to a weekly service connecting the U.S. West
Coast to Guam and Saipan via transshipments over Yokohama, Japan. As a result of this and other potential competitor
actions, the Company could experience a reduction in profitability.
11
The loss of or damage to key customer or agent relationships may adversely affect the Company’s business.
The Company’s businesses are dependent on their relationships with customers and agents, and derive a significant
portion of their revenues from the Company’s largest customers. The Company’s business relies on its relationships
with the U.S. military, freight forwarders, large retailers and consumer goods and automobile manufacturers, as well as
other larger customers. In 2019, the Company’s Ocean Transportation segment’s 10 largest customers accounted for
approximately 23 percent of the business’ revenue. In 2019, the Company’s Logistics segment’s 10 largest customers
accounted for approximately 21 percent of the business’ revenue.
The Company could also be adversely affected by any changes in the services, or changes to the costs of services,
provided by agents. Relationships with railroads and shipping companies and agents are important in the Company’s
intermodal business as well as in the Guam, Micronesia, Japan and South Pacific services.
The loss of or damage to any of these key relationships may adversely affect the Company’s business and revenue.
The Company is dependent upon key vendors and 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 businesses are dependent upon key vendors who provide rail, truck and ocean transportation services. If
the Company cannot secure sufficient transportation equipment, capacity or services from these third-parties at
reasonable prices or rates to meet its or its customers’ needs and schedules, customers may seek to have their
transportation and logistics needs met by others on a temporary or permanent basis. If this were to occur, the
Company’s business, consolidated results of operations and financial condition could be adversely affected.
An increase in fuel prices, changes in the Company’s ability to collect fuel-related surcharges, and/or the cost or
limited availability of required fuels on the U.S. West Coast 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. Increases in fuel costs also can lead to increases in other expenses
such as energy costs and costs to purchase outside transportation services. In the Company’s Ocean Transportation and
Logistics services segments, the Company utilizes fuel-related surcharges, although increases in the fuel-related
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-related surcharges also may adversely affect
its results of operations.
Effective January 1, 2020, the IMO has imposed a world-wide regulation that generally requires that all ships must burn
compliant fuel oil with a maximum sulfur content of ≤0.5 percent. Currently, LSFO is priced significantly higher than
HSFO due to the need to refine the oil and the lack of sufficient quantities of LSFO on a global basis. While the
Company has entered into contracts to secure LSFO on the U.S. West Coast, there is no guarantee that sufficient
quantities will be available at a reasonable cost. In addition, prolonged use of LSFO on some Matson vessels could
degrade engine performance or lead to higher maintenance costs. While Matson has announced plans to install
scrubbers on additional vessels, there may be delays or other unexpected complications. The Company’s ability to
recover the higher costs of IMO 2020 compliant fuel through fuel-related surcharges, the availability of LSFO, and the
potential impact on vessel performance and maintenance costs may adversely affect the Company’s operations, business
and profit.
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, 2019, Matson and its subsidiaries had 1,988 employees, of which 794 employees were covered by
collective bargaining agreements with shoreside unions. In addition, Matson’s fleet of active vessels require 298 billets
to operate these vessels. Matson’s vessel management services also employed personnel in 28 billets to manage three
vessels. Such employees are also subject to collective bargaining agreements. Furthermore, the Company relies on the
services of third-parties including SSAT that employ persons covered by collective bargaining agreements. For
12
additional information on collective bargaining agreements with unions, see Item1. C. 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 of the Company or other companies 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 halls could have an adverse impact on Matson’s or SSAT’s operations.
The Company is susceptible to weather, natural disasters and other operating risks.
The Company’s operations are vulnerable to disruption as a result of weather, natural disasters and other climate driven
events, 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. These impacts could be particularly acute in certain ports in Alaska where the Company is
dependent on a single crane.
The Company’s vessels and their cargoes are also subject to operating risks such as mechanical failure, collisions and
human error. The occurrence of any of these events may result in damage to or loss of vessels or other property, or
injury or death of people. If any of these events were to occur, the Company could be exposed to reputational harm and
liability for resulting damages and possible penalties that, pursuant to typical maritime industry policies, it must pay and
then seek reimbursement from its insurer. Affected vessels may also be removed from service and thus would be
unavailable for income-generating activity.
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.
We face risks related to actual or threatened health epidemics, pandemics or other major health crises, which
could significantly disrupt our business.
Our business could be impacted adversely by the effects of public health epidemics, pandemics or other major heath
crises (which we refer to collectively as public health crises). Actual or threatened public health crises may have a
number of adverse impacts, including volatility in the global economy, impacts to our customers’ business operations,
reduced tourism in the markets we serve, or significant disruptions in ocean-borne transportation of goods, logistics
demand and supply chain activity, caused by a variety of factors such as quarantines, factory and office closures, port
closures, or other government-imposed restrictions, any of which could adversely impact our business, financial
condition, operating results and cash flows.
For example, on January 30, 2020, the World Health Organization declared COVID-19 a Public Health Emergency of
International Concern. On January 31, 2020, the U.S. Department of State raised their travel advisory for mainland
China from Level 3 (reconsider travel) to Level 4 (do not travel). The outbreak of COVID-19 has harmed the Chinese
economy, shut down business operations in China and disrupted manufacturing, travel, drayage of containers, and
transportation of goods within and from China. A reduction or delay in container volume from China resulting from
decreased manufacturing activity, lower transportation demand or service disruptions from restrictions related to
COVID-19 could adversely affect volumes or rates in our CLX service, Matson Logistics’ business related to China,
and/or SSAT lift volume at its U.S. West Coast terminals. Our operations in China may also be impacted adversely if
our employees’ ability to travel to or within China is restricted or they are otherwise unable to perform their duties.
Spread of COVID-19 may reduce tourism to Hawaii, Alaska and/or Guam and thereby lead to reduced demand for
13
freight that we would otherwise carry. In addition, vessel drydockings and scrubber installations could also be delayed
or become more expensive if Chinese shipyards are unable to accommodate demand. The continued spread of
COVID-19 or the occurrence of other public health crises may adversely impact our business, financial condition,
operating results and cash flows.
The Company’s significant operating agreements and leases could be replaced on less favorable terms or may not
be replaced when they expire.
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. For example, on November 26, 2018, a wholly-owned
subsidiary of the Company entered into agreements whereby Maunalei, a U.S. flagged and Jones Act qualified vessel,
was sold for $106.0 million and leased back from the buyer under an operating lease agreement. While the agreements
contain customary representations, warranties and covenants, there remain risks that (a) the lessor could lose its Jones
Act status, (b) that the Company could not replace Maunalei in the event it is no longer Jones Act eligible, or (c) if the
repurchase option is elected, that the Company would not be able to consummate the repurchase of Maunalei at the end
of the lease term.
The Company may face unexpected dry-docking or repair costs for its vessels.
We routinely engage shipyards to dry-dock our vessels for regulatory compliance and to provide repair and maintenance.
Vessels may also have to be dry-docked or repaired at sea in the event of accidents or other unforeseen damage. We also
operate a number of older active and reserve vessels that may require more frequent and extensive maintenance. The
cost of repairs are difficult to predict with certainty and can be substantial. Large dry-docking and other repair expenses
could adversely affect the Company’s results of operations and cash flows. In addition, the time when a vessel is out of
service for maintenance is determined by a number of factors, including regulatory deadlines, market conditions,
shipyard availability and customer requirements, and accordingly, the length of time that a vessel may be out of service
may be longer than anticipated, which could adversely affect the Company’s business, financial condition, results of
operations and cash flows.
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. We regularly update our information technology systems or implement new systems which
could cause substantial business interruption. There is no assurance that the systems upgrades or new systems will meet
our current or future business needs, or that they will operate as designed. Our information technology systems also 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 have in the past and may in the future 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 cloud
services for accounting, billing, disbursement, cargo booking and tracking, vessel scheduling and stowage, equipment
tracking, customer service, banking, payroll and employee communication systems. The Company also collects, stores
and transmits sensitive data, including its proprietary business information and that of its customers, and personally
identifiable information of its customers and employees. Despite our continuous efforts to make investments in our
information technology systems and system-wide data security program, 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, we have in the past experienced and may in the
14
future experience cybersecurity risks such as 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 through SSAT, other joint ventures at U.S. West Coast
terminals), 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;
• A joint venture partner at any time may have economic or business interests that are inconsistent with the
Company’s;
• A 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;
• A 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 SSAT for its stevedoring services at the ports of Long Beach and Oakland,
California, and Seattle and Tacoma, Washington 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 SSAT.
The Company is subject to risks associated with conducting business in foreign shipping markets.
Matson’s China, Micronesia, Japan 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 business associates 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;
15
• Competition with established and new carriers;
• Changes in vessel deployment by competitors that impact the Company’s services;
• Currency exchange rate fluctuations and our ability to manage these fluctuations;
• Political and economic instability;
• Dynamics involving U.S. trade relations with other countries, including measures such as the imposition of tariffs at
varying levels or other governmental actions, all of which may affect the Company’s operations; and
• Challenges caused by cultural differences.
Any of these risks has the potential to adversely affect the Company’s operating results.
The Company is subject to risks related to an 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 Agreement with NASSCO is subject to risks.
On August 25, 2016, MatNav and NASSCO entered into a definitive agreement pursuant to which NASSCO will
construct two new 3,500-TEU sized Kanaloa Class dual-fuel capable container and roll-on/roll-off vessels. The first
vessel, Lurline, was delivered on December 26, 2019. The second vessel, Matsonia, is expected to be delivered in the
fourth quarter of 2020. Failure of any party to the shipbuilding agreement to fulfill its obligations under the agreement
could have an adverse effect on the Company’s financial position and results of operations. Such a failure could happen
for a variety of reasons, including but not limited to (i) delivery delays, (ii) delivery of vessels that fail to meet any of the
required operating specifications (for example, capacity, fuel efficiency or speed), (iii) events which prevent one or more
significant subcontractors from performing, or (iv) the refusal or inability of NASSCO or any of its subcontractors to
perform for any reason.
The Company’s terminals in Hawaii and Alaska require modernization.
We are investing approximately $60 million, including the installation of three new gantry cranes and upgrade of three
existing cranes, as part of the first phase of a broader project to expand and improve the Company’s Sand Island terminal
in Honolulu Harbor. We have also begun discussions with state and local authorities in Anchorage, Alaska regarding
upgrades to those terminal and port facilities. Regulatory, construction or other delays or cost overruns related to the
expansion and modernization of the terminals could have an adverse impact on our business plans, financial condition
and results of operations. In addition, the terminal modernization programs may not result in improved operational
productivity or generate expected returns.
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, Guam or Alaska, thereby adversely affecting those economies
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.
Acquisitions may have an adverse effect on the Company’s business.
The Company’s growth strategy includes expansion through acquisitions, including, for example, the Company’s
acquisitions of Horizon Lines, Inc. (“Horizon”) in 2015 and Span Alaska in 2016. 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
16
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.
The Horizon and Span Alaska acquisitions 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. Similarly, in August 2016, we acquired Span Alaska subject to all of its liabilities and obligations. 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 and Span Alaska acquisitions become impaired.
We recorded significant intangible assets related to goodwill, customer relationships and trade name arising from the
Horizon and Span Alaska acquisitions. 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.
Risks Related to Financial Matters
A deterioration of the Company’s credit profile, disruptions of the credit markets or higher interest rates 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, as was the case in
connection with the U.S. Federal Reserve’s interest rate increases in 2018, which would adversely affect the Company’s
cash flow and results of operations. In addition, as the floating rate on certain borrowings under our revolving credit
facility is tied to LIBOR, the uncertainty regarding the future of LIBOR as well as the transition from LIBOR to an
alternate benchmark rate or rates could pose funding risks for the Company and adversely affect the Company’s
financing costs.
17
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 a
maximum ratio of debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”), a minimum ratio
of EBITDA to interest expense, the maintenance of no more than a maximum amount of priority debt as a percentage of
consolidated tangible assets, and the maintenance of minimum shareholders’ equity. If the Company does not maintain
these and other required covenants, and a breach of such covenants is not cured timely or waived by the lenders resulting
in a 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 Capital Construction Fund (“CCF”)
deductions, non-deductible expenses, and expenses eligible for tax credits; changes in the mix of earnings among
countries with varying tax rates; and 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 is 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.
18
Risks Related 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 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 the American Bureau of Shipping or similar classification societies, and must be periodically
inspected by, or on behalf of, the United States Coast Guard. We are subject to IMO regulations, including the new IMO
2020 regulations limiting the sulfur content of fuel oil. Federal environmental laws and certain State laws also 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,
changes in operating procedures and undergoing additional oversight inspections. 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 Act of 1990, 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 emission control areas. If our vessels are not operated in accordance with these requirements,
including waivers, permits or recordkeeping 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.
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.
19
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Matson leases terminal facilities including office and storage space at the following material locations:
Terminal Location
Honolulu, Hawaii
Anchorage, Alaska
Dutch Harbor, Alaska
Kodiak, Alaska
Tacoma, Washington
Polaris Point, Guam
Description of Facility
Terminal facility
Terminal facility
Terminal facility
Terminal facility
Terminal facility
Terminal storage
Acreage
105
38
18
6
13
30
The Company is currently renewing certain terminal leases which expire during 2020. The Company expects to be able
to renew these leases as they expire on similar terms to those that currently exist within these lease agreements. The
Company’s other primary terminal facilities located at the ports of Oakland and Long Beach, California, and the ports of
Seattle and Tacoma, Washington are leased by SSAT.
Other material facilities used in the Company’s operations include the following:
Other Material Facilities
Pooler, Georgia
Oakland, California
Pooler, Georgia
Oakland, California
Piti, Guam
Anchorage, Alaska
Auburn, Washington
Description of Facility
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Office / Cross-dock
Office / Cross-dock
Square Footage
710,844
406,463
324,832
132,000
62,478
54,000
51,250
ITEM 3. LEGAL PROCEEDINGS
Environmental Matters: The Company’s Ocean Transportation segment 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.
20
Other Matters: 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
Not Applicable.
21
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 24, 2020, there were 2,156 shareholders of record of Matson common stock.
Stockholder Return Performance Graph and Trading 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, 2019. The graph is a historical representation of past performance only and is not
necessarily indicative of future performance.
*
$100 invested on December 31, 2014 in stock or index, including reinvestment of dividends.
Trading volume averaged 155,804 shares a day in 2019, compared with 232,289 shares a day in 2018 and 241,338 shares
a day in 2017, as reported by the New York Stock Exchange.
22
Dividends: Dividends declared per share of common stock by the Company for each fiscal quarter during 2018 and
2019 were as follows:
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividends
Declared
0.20
0.20
0.21
0.21
0.21
0.21
0.22
0.22
$
$
$
$
$
$
$
$
Matson’s Board of Directors also declared a cash dividend of $0.22 per share for the first quarter 2020, payable on
March 5, 2020 to shareholders of record on February 6, 2020. 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.
Equity Compensation Plan Information: The following table sets forth, as of December 31, 2019, certain information
regarding Matson’s equity compensation plan:
Number of shares
to be issued
upon exercise of
Number of shares
remaining available for
future issuance under
Weighted-average
equity compensation
exercise price of
outstanding options, outstanding options, plans (excluding shares
warrants and rights warrants and rights reflected in column (a))
(b)
(a)
Plan Category
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
950,864 (1) $
—
950,864
$
22.30 (2)
—
22.30
(c)
1,359,020 (3)
—
1,359,020
(1)
In addition to 173,128 shares subject to outstanding stock option awards, this also includes 417,693 shares subject to unvested restricted stock
unit awards and 360,043 shares subject to unvested Performance Share awards.
(2) As restricted stock unit and Performance Share awards do not have exercise prices, the weighted average exercise price is computed using only
outstanding stock option awards.
(3) These shares are available for issuance under the Company’s 2016 Incentive Compensation Plan.
23
ITEM 6. SELECTED FINANCIAL DATA
The comparative selected financial data of the Company is presented for each of the five years in the period ended
December 31, 2019. The information 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”. All fiscal years include 52 weeks, except for the year ended December 31, 2016 which includes 53 weeks:
(In millions, except per share amounts)
Operating Revenue: (1)
Ocean Transportation
Logistics
Total Operating Revenue
Operating and Net Income: (1)
Ocean Transportation (2)
Logistics
Total Operating Income
Interest expense
Other income (expense), net
Income before Income Taxes
Income taxes (3)
Net Income
Identifiable Assets: (1)(6)
Ocean Transportation (4)
Logistics
Total Assets
Capital Expenditure: (5)
Ocean Transportation
Logistics
Total Capital Expenditures
Depreciation and Amortization:
Ocean Transportation
Logistics
Deferred Dry-docking Amortization — Ocean Transportation
Total Depreciation and Amortization
2019
2018
2017
2016
2015
$ 1,666.6 $ 1,641.3 $ 1,571.8 $ 1,541.1 $ 1,498.0
386.9
$ 2,203.1 $ 2,222.8 $ 2,046.9 $ 1,941.6 $ 1,884.9
536.5
581.5
475.1
400.5
$
$
90.8 $ 131.1 $ 126.4 $ 144.5 $ 192.3
12.2
8.8
20.9
38.3
156.7
201.1
147.3
129.1
(24.1)
(18.5)
(24.2)
(22.5)
(2.1)
(4.8)
2.1
1.2
130.5
177.8
125.2
107.8
(74.8)
(49.1)
105.8
(25.1)
81.4 $ 103.0
82.7 $ 109.0 $ 231.0 $
32.7
163.8
(18.7)
2.6
147.7
(38.7)
$ 2,424.5 $ 2,071.6 $ 1,941.5 $ 1,726.3 $ 1,605.1
68.8
$ 2,845.4 $ 2,430.4 $ 2,251.6 $ 2,019.6 $ 1,673.9
420.9
310.1
293.3
358.8
$ 294.5 $ 385.4 $ 305.3 $ 179.1 $
15.8
15.8
1.7
0.3
$ 310.3 $ 401.2 $ 307.0 $ 179.4 $
67.5
0.3
67.8
$
93.6 $
6.8
100.4
34.3
81.4
2.0
83.4
23.1
$ 134.7 $ 131.8 $ 147.4 $ 136.0 $ 106.5
93.3 $
7.9
101.2
46.2
87.0 $
7.4
94.4
37.4
92.6 $
4.5
97.1
38.9
Earnings Per Share in Net Income:
Basic
Diluted
$
$
1.93 $
1.91 $
2.55 $
2.53 $
5.38 $
5.35 $
1.89 $
1.87 $
2.37
2.34
Cash dividends per share declared
$
0.86 $
0.82 $
0.78 $
0.74 $
0.70
As of December 31:
Total debt obligations — including current portion
Total Shareholders' equity
Shares outstanding
$ 958.4 $ 856.4 $ 857.1 $ 738.9 $ 429.9
$ 805.7 $ 755.3 $ 677.2 $ 494.9 $ 450.6
43.5
42.9
42.7
42.5
42.9
(1) 2015 and subsequent selected financial data includes the operations of Horizon acquired as of May 29, 2015, and Span Alaska acquired as of August 4, 2016.
(2) The Ocean Transportation segment includes $20.8 million, $36.8 million, $28.2 million, $15.8 million and $16.5 million of equity in income from the Company’s
(3)
investment in SSAT, for 2019, 2018, 2017, 2016 and 2015, respectively.
Income taxes for the years ended December 31, 2019, 2018 and 2017 include a non-cash income tax (expense)/benefit of $2.9 million, $(2.9) million and
$154.0 million, respectively, related to the remeasurement of the Company’s deferred assets and liabilities and other discrete adjustments as a result of applying the
Tax Cut and Jobs Act of 2017.
(4) The Ocean Transportation segment includes $76.2 million, $87.0 million, $93.2 million, $82.4 million and $66.4 million related to the Company’s investment in
SSAT as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.
(5) Excludes expenditures related to Matson’s acquisition of Horizon and Span Alaska which were classified as payments for acquisitions in Cash Flows used in
Investing Activities within the Consolidated Statements of Cash Flows.
Identifiable assets for 2019 includes Operating lease right of use assets resulting from the adoption of the new lease accounting standard.
(6)
24
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 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 2020 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. Discussion and analysis of the financial condition and results of
operations of Matson for the years ended December 31, 2018 and 2017 can be found in Part II, Item 7 of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 4, 2019.
MD&A is presented in the following sections:
Business Outlook
Consolidated Results of Operations
Analysis of Operating Revenue and Income by Segment
Liquidity and Capital Resources
Contractual Obligations, Commitments, Contingencies and Off-Balance Sheet Arrangements
Critical Accounting Estimates
Other Matters
25
BUSINESS OUTLOOK
The following is the Company’s fourth quarter 2019 discussion and 2020 outlook:
Ocean Transportation: The Company’s container volume in the Hawaii service in the fourth quarter 2019 was
1.1 percent higher year-over-year primarily due to positive container market growth. Although Hawaii’s rate of
economic growth is expected to continue slowing, recent increases in key economic factors, such as construction activity
and visitor traffic, are expected to support continued GDP growth. The Company expects volume in 2020 to be higher
compared to the level achieved in 2019, reflecting favorable economic conditions in Hawaii and stable market share.
In China, the Company’s container volume in the fourth quarter 2019 was 4.3 percent higher year-over-year primarily
due to larger vessel capacity deployed in the tradelane coupled with strong demand for Matson’s differentiated service.
Matson continued to realize a sizeable rate premium in the fourth quarter 2019 and achieved average freight rates that
were modestly lower than the exceptional level achieved in the fourth quarter 2018. In the fourth quarter of 2018, the
Company experienced unusually strong performance as a result of the U.S.-China trade situation. For 2020, the
Company expects to face challenging conditions in the first half of the year as a result of COVID-19, but expects the
second half of the year to be comparable to the strong performance achieved in the second half of 2019. Therefore, the
Company expects volume in 2020 to be modestly lower than the prior year and average freight rates in 2020 to
approximate the levels achieved in 2019.
In Guam, the Company’s container volume in the fourth quarter 2019 was 7.7 percent lower on a year-over-year basis
primarily due to typhoon relief volume in the year ago period. For 2020, the Company expects volume to approximate
the level achieved last year and expects the highly competitive environment to remain.
In Alaska, the Company’s container volume for the fourth quarter 2019 declined 0.7 percent year-over-year. The
Company experienced slightly lower northbound volume and modestly higher southbound volume compared to the
levels achieved in fourth quarter 2018. For 2020, the Company expects volume to be modestly higher than the level
achieved in 2019, with higher northbound volume, including volume in the first quarter related to the dry-docking of a
competitor’s vessel, and slightly lower southbound volume compared to the levels achieved in 2019.
The contribution in the fourth quarter 2019 from the Company’s SSAT joint venture investment was $5.0 million lower
than the fourth quarter 2018. The decrease was primarily due to higher terminal operating costs and lower lift volume.
For 2020, the Company expects the contribution from SSAT to be lower due to lower lift volume primarily driven by the
negative effects of COVID-19, partially offset by improved operating cost efficiencies.
As a result of the business outlook noted above, the Company expects full year 2020 Ocean Transportation operating
income to be higher than the $90.8 million achieved in 2019. In the first quarter 2020, the Company expects Ocean
Transportation operating income to be approximately breakeven versus the $9.4 million achieved in the year ago period.
The vast majority of the estimated $15 million COVID-19 financial impact is factored into the Ocean Transportation
operating income outlook for the first quarter 2020.
Logistics: In the fourth quarter 2019, operating income for the Company’s Logistics segment was $1.5 million lower
compared to the operating income achieved in the fourth quarter 2018. For 2020, the Company expects Logistics
operating income to be lower than the level achieved in 2019 of $38.3 million. In the first quarter 2020, the Company
expects Logistics operating income to be lower than the $8.1 million achieved in the first quarter 2019. The full year
2020 and first quarter 2020 operating income outlook includes a modest negative financial impact from COVID-19.
Depreciation and Amortization: For the full year 2020, the Company expects depreciation and amortization expense to
be approximately $135 million, inclusive of dry-docking amortization of approximately $25 million.
Other Income (Expense): The Company expects full year 2020 other income (expense) to be approximately $2 million
in income, which is attributable to other component costs related to the Company’s pension and post-retirement plans.
Interest Expense: The Company expects interest expense for the full year 2020 to be approximately $33 million.
26
Income Taxes: In the fourth quarter 2019, the Company’s effective tax rate was 22.4 percent. For the full year 2020, the
Company expects its effective tax rate to be approximately 26.0 percent.
Net Income, Operating Income and EBITDA: The Company expects net income in 2020 to be flat year-over-year and
expects consolidated operating income and EBITDA in 2020 to be approximately $143 million and $280 million,
respectively, including approximately $15 million negative impact from COVID-19.
Capital and Vessel Dry-docking Expenditures: For the full year 2019, the Company made other capital expenditure
payments of $91.2 million, capitalized vessel construction expenditures of $219.1 million, and dry-docking payments of
$25.9 million. For the full year 2020, the Company expects to make other capital expenditure payments, including
maintenance capital expenditures, of approximately $110 million, vessel construction expenditures (including capitalized
interest and owner’s items) of approximately $75 million, and dry-docking payments of approximately $15 million.
CONSOLIDATED RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations of Matson for the years ended December 31,
2019 and 2018 should be read in conjunction with the Consolidated Financial Statements in Item 8 of Part II below.
Consolidated Results: 2019 compared with 2018:
(Dollars in millions, except per share amounts)
Operating revenue
Operating costs and expenses
Operating income
Interest expense
Other income (expense), net
Income before income taxes
Income taxes
Net income
Basic earnings per share
Diluted earnings per share
Years Ended December 31,
2019
2018
Change
$ 2,203.1 $ 2,222.8 $ (19.7) (0.9)%
(15.0)
0.7 %
(34.7) (21.2)%
(3.8) 20.3 %
(1.4) (53.8)%
(39.9) (27.0)%
13.6 (35.1)%
$ (26.3) (24.1)%
$ (0.62) (24.3)%
$ (0.62) (24.5)%
(2,074.0)
129.1
(22.5)
1.2
107.8
(25.1)
82.7 $
1.93 $
1.91 $
(2,059.0)
163.8
(18.7)
2.6
147.7
(38.7)
109.0
2.55
2.53
$
$
$
Fiscal Year: Fiscal years ended December 31, 2019 and 2018 include 52 weeks.
Consolidated Operating Revenue for the year ended December 31, 2019 decreased $19.7 million, or 0.9 percent,
compared to the prior year. The decrease was due to an increase in Ocean Transportation revenue of $25.3 million offset
by a decrease in Logistics revenue of $45.0 million.
Operating Costs and Expenses for the year ended December 31, 2019 increased $15.0 million, or 0.7 percent, compared
to the prior year. The increase was due to an increase in Ocean Transportation operating costs and expenses of
$65.6 million which was partially offset by a decrease in Logistics operating costs and expenses of $50.6 million.
Operating Income for the year ended December 31, 2019 decreased $34.7 million, or 21.2 percent, compared to the prior
year. The decrease was due to a decrease in Ocean Transportation operating income of $40.3 million which was
partially offset by an increase in Logistics operating income of $5.6 million.
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.
Interest Expense was $22.5 million for the year ended December 31, 2019, compared to $18.7 million in the prior year.
The increase in interest expense was due to higher interest on increased borrowings under the revolving credit facility
and a lower offset amount of capitalized interest associated with the new vessel construction.
Other Income (Expense), net was $1.2 million for the year ended December 31, 2019, compared to $2.6 million in the
prior year, and relates to the amortization of certain components of net periodic benefit costs or gains related to the
Company’s pension and post-retirement plans.
27
Income Taxes for the year ended December 31, 2019 was $25.1 million, or 23.3 percent of income before income taxes,
compared to $38.7 million, or 26.2 percent of income before income taxes in the prior year. The 2019 income tax rate is
lower than the 2018 income tax rate primarily due to $2.9 million, or 2.7 percent of non-cash benefit included in income
tax expense in 2019, compared to a $2.9 million, or 2.0 percent of non-cash expense included in income tax expense in
2018 related to discrete tax adjustments resulting from applying the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).
Net Income during the year ended December 31, 2019 decreased $26.3 million, or 24.1 percent, compared to the prior
year.
ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT
The following analysis of operating revenue and income by segment for the years ended December 31, 2019 and 2018
should be read in conjunction with the Company’s reportable segments information included in Item 6 of Part II and
Note 3 to the Consolidated Financial Statements in Item 8 of Part II.
Ocean Transportation: 2019 compared with 2018:
(Dollars in millions)
Ocean Transportation revenue
Operating costs and expenses
Operating income
Operating income margin
Volume (Forty-foot equivalent units (FEU), except for automobiles) (1)
Years Ended December 31,
2019
2018
Change
$ 1,666.6 $ 1,641.3 $
(1,575.8)
$
25.3 1.5 %
(65.6) 4.3 %
131.1 $ (40.3) (30.7)%
(1,510.2)
90.8 $
5.4 %
8.0 %
Hawaii containers
Hawaii automobiles
Alaska containers
China containers
Guam containers
Other containers (2)
146,600
62,900
69,400
64,000
19,400
16,900
148,700
63,100
69,100
61,600
19,700
16,300
(2,100)
(200)
300
2,400
(300)
600
(1.4)%
(0.3)%
0.4 %
3.9 %
(1.5)%
3.7 %
(1) Approximate 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.
Includes containers from services in various islands in Micronesia and the South Pacific, and Okinawa, Japan.
(2)
Ocean Transportation revenue increased $25.3 million, or 1.5 percent, during the year ended December 31, 2019,
compared with the year ended December 31, 2018. The increase was primarily due to higher freight revenue in Alaska,
higher freight rates in Hawaii, and higher revenue in China, partially offset by lower container volume in Hawaii and
lower fuel-related surcharge revenue.
On a year-over-year FEU basis, Hawaii container volume decreased 1.4 percent primarily due to negative container
market growth and weather-related impacts in the first quarter of 2019; Alaska volume increased by 0.4 percent
primarily due to higher northbound volume, partially offset by northbound volume related to the dry-docking of a
competitor’s vessel in the year ago period and lower southbound volume; China volume was 3.9 percent higher
primarily due to stronger volume post Lunar New Year; Guam volume was 1.5 percent lower primarily due to typhoon
relief volume in fourth quarter 2018; and Other containers volume increased 3.7 percent.
Ocean Transportation operating income decreased $40.3 million, or 30.7 percent, during the year ended December 31,
2019, compared with the year ended December 31, 2018. The decrease was primarily due to higher terminal handling
costs, higher vessel operating costs (including Maunalei lease expense), and a lower contribution from SSAT, partially
offset by a higher contribution from the Alaska service.
The Company’s SSAT terminal joint venture investment contributed $20.8 million during the year ended December 31,
2019, compared to a contribution of $36.8 million during the year ended December 31, 2018. The decrease was
primarily due to higher terminal operating costs and the absence of favorable one-time items in the year ago period,
partially offset by higher lift volume.
28
Logistics: 2019 compared with 2018:
(Dollars in millions)
Logistics revenue
Operating costs and expenses
Operating income
Operating income margin
Years Ended December 31,
2019
2018
$ 536.5 $ 581.5 $ (45.0)
Change
$
(498.2)
(548.8) 50.6
5.6
38.3 $ 32.7 $
5.6 %
7.1 %
(7.7)%
(9.2)%
17.1 %
Logistics revenue decreased $45.0 million, or 7.7 percent, during the year ended December 31, 2019, compared with the
year ended December 31, 2018. The decrease was primarily due to lower transportation brokerage revenue, partially
offset by higher freight forwarding revenue.
Logistics operating income increased $5.6 million, or 17.1 percent, for the year ended December 31, 2019, compared
with the year ended December 31, 2018. The increase was due primarily to higher contributions from freight forwarding
and transportation brokerage.
LIQUIDITY AND CAPITAL RESOURCES
Sources of liquidity available to the Company at December 31, 2019 compared to December 31, 2018, were as follows:
Cash and Cash Equivalents, Restricted Cash and Accounts Receivable: Cash and cash equivalents, restricted cash and
accounts receivable, net, as of December 31, 2019 and 2018 were as follows:
(In millions)
Cash and cash equivalents
Restricted cash
Accounts receivable, net (1)
As of December 31,
2018
19.6 $
4.9 $
Change
1.6
$
2.3
$
$ 205.9 $ 223.7 $ (17.8)
2019
21.2 $
7.2 $
(1) Eligible accounts receivable of $1.7 million and $1.0 million at December 31, 2019 and 2018, respectively, were assigned to the CCF.
Changes in the Company’s cash, cash equivalents and restricted cash for the years ended December 31, 2019, 2018 and
2017 were as follows:
As of December 31,
2019
2018
2017
$ 248.8 $ 305.0 $ 224.9 $ (56.2) $
(306.9)
62.0
3.9
24.5
(260.3)
(40.0)
4.7
19.8
$ 28.4 $ 24.5 $ 19.8 $
(276.9)
57.9
5.9
13.9
2019-2018 2018-2017
80.1
16.6
(97.9)
(1.2)
5.9
4.7
(46.6)
102.0
(0.8)
4.7
3.9 $
(In millions)
Net cash provided by operating activities (1)
Net cash used in investing activities (2)
Net cash provided by (used in) financing activities (3)
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of the period
Cash, cash equivalents and restricted cash, end of the period
29
(1) Changes in Net Cash Provided by Operating Activities: Changes in net cash provided by operating activities for the
years ended December 31, 2019, 2018 and 2017 were as follows:
Change
(In millions)
Net income from operations
Non-cash deferred income taxes
Amortization of operating lease right of use assets
Other non-cash related changes, net
Income and distributions from SSAT, net
Operating lease liabilities
Deferred dry-docking payments
Accounts receivable, net
Prepaid expenses and other assets
Accounts payable, accruals and other liabilities
Other long-term liabilities
Total
2019-2018
$
(26.3) $
(5.7)
60.7
2.6
(0.8)
(59.9)
(6.7)
46.9
20.3
(85.1)
(2.2)
(56.2) $
2018-2017
(122.0)
157.2
—
(19.5)
15.9
—
35.4
(24.0)
(10.2)
50.8
(3.5)
80.1
$
The change in deferred income taxes is primarily related to the remeasurement of the Company’s deferred assets and
liabilities, and other discrete tax adjustments resulting from applying the Tax Act as of December 31, 2017. The change
in amortization of operating lease right of use assets and operating lease liabilities relates to the adoption of the new
lease accounting standard during the year ended December 31, 2019. The Company’s share of income from SSAT was
$20.8 million during the year ended December 31, 2019, compared to $36.8 million in the prior year, while distributions
from SSAT was $25.2 million during the year ended December 31, 2019, compared to $42.0 million of distributions
received in the prior year. Deferred dry-docking payments were $25.9 million for the year ended December 31, 2019,
compared to $19.2 million in the prior year. The increase in deferred dry-docking payments was due to an increase in
vessel dry-docking activities during the year ended December 31, 2019, compared to the prior year. Changes in
accounts receivable are due to the timing of collections as of December 31, 2019, compared to the prior year. Changes
in prepaid expenses and other assets are due to the timing of prepaid income taxes, changes in the amount of insurance
related receivables and changes in other prepaid amounts as of December 31, 2019, compared to the prior year. Changes
in accounts payable, accruals and other liabilities for the year ended December 31, 2019, compared to the prior year are
due to the timing of payments associated with those liabilities.
(2) Changes in Net Cash Used in Investing Activities: Changes in net cash used in investing activities for the years
ended December 31, 2019, 2018 and 2017 were as follows:
Change
(In millions)
Capitalized vessel construction expenditures
Cash deposits into CCF
Withdrawals from CCF
Other capital expenditures
Proceeds from disposal of property and equipment, net
Proceeds from sale of other investments
Total
2019-2018
$
119.5 $
243.8
(244.7)
(28.6)
(132.9)
(3.7)
(46.6) $
$
2018-2017
(86.6)
(168.6)
139.2
(7.6)
136.5
3.7
16.6
Capitalized vessel construction expenditures (including capitalized interest and owners’ items) was $219.1 million for
the year ended December 31, 2019, compared to $338.6 million in the prior year. The decrease in capitalized vessel
construction expenditures (including cash deposited into the CCF less cash withdrawals from the CCF which are used
for vessel construction related payments) is due to a reduction in progress payments related to the construction of new
vessels. Other capital expenditures (excluding capitalized vessel construction expenditures) was $91.2 million for the
year ended December 31, 2019, compared to $62.6 million for the prior year. The increase was primarily due to higher
levels of capital expenditures related to the installation of scrubbers on vessels, the Hawaii Sand Island terminal
expansion and modernization program, and the construction of the Anchorage Service Center during the year ended
December 31, 2019, compared to the prior year. Proceeds from the disposal of property and equipment was $3.4 million
for the year ended December 31, 2019, compared to $136.3 million for the prior year. Disposals of property and
equipment during the year ended December 31, 2018 included net proceeds of approximately $106.0 million from the
30
sale and leaseback of a vessel, and $28.4 million from other container and equipment sale and leaseback transactions.
There were no sale and leaseback transactions in 2019. Proceeds from the sale of other investments of $3.7 million for
the year ended December 31, 2018 related to the surrender of life insurance policies. There were no sales of other
investments during the year ended December 31, 2019.
(3) Changes in Net Cash Provided by (Used in) Financing Activities: Changes in net cash provided by (used in)
financing activities for the years ended December 31, 2019, 2018 and 2017 were as follows:
Change
(In millions)
Repayments of fixed interest debt and capital leases
Borrowings under revolving credit facility, net
Repurchase of Matson common stock
Dividends paid
Change in other payments, net
Total
2019-2018
$
(11.4) $
114.1
—
(1.8)
1.1
102.0 $
2018-2017
1.1
(120.0)
19.3
(1.6)
3.3
(97.9)
$
Repayments of fixed interest debt and capital leases increased to $42.1 million for the year ended December 31, 2019,
compared to $30.7 million in the prior year due to scheduled fixed interest debt payments. Net borrowings from the
Company’s revolving credit facility was $144.1 million for the year ended December 31, 2019, compared to $30.0
million in the prior year. The increase in borrowing under the revolving credit facility was primarily due to vessel
construction payments and other capital expenditure. There was no repurchase of Matson stock during the years ended
December 31, 2019 or 2018. During the year ended December 31, 2017, the Company repurchased $19.3 million of
Matson stock. Dividends paid was $37.2 million for the year ended December 31, 2019, compared to $35.4 million for
the year ended December 31, 2018.
Debt: Total debt as of December 31, 2019 and 2018 is as follows:
(In millions)
Revolving credit facility
Fixed interest debt
Total Debt
As of December 31,
2018
2019
Change
$ 379.1 $ 235.0 $ 144.1
(42.1)
$ 958.4 $ 856.4 $ 102.0
621.4
579.3
Total debt increased by $102.0 million during the year ended December 31, 2019, compared to the prior year. The
increase in the Company’s revolving credit facility was primarily due to the funding of progress payments related to the
construction of new vessels and other capital expenditure during the year ended December 31, 2019. The reduction in
fixed interest debt was due to scheduled debt payments made during the year ended December 31, 2019.
As of December 31, 2019, the Company had $75.1 million of remaining availability under the revolving credit facility,
with a maturity date of June 29, 2022. The Company’s debt is described in Note 8 to the Consolidated Financial
Statements in Item 8 of Part II.
Working Capital: The Company had working capital deficiency of $147.1 million at December 31, 2019, compared to
working capital deficiency of $52.4 million at December 31, 2018. The increase in working capital deficiency at
December 31, 2019 is partially due to the recording of the short-term portion of operating lease liabilities of
$66.6 million as of December 31, 2019, in accordance with the adoption of the new lease accounting standard, and a
$17.8 million decrease in accounts receivable. Working capital is impacted by the timing of collections associated with
accounts receivable and other assets, and the timing of payments associated with accounts payable, accruals and other
liabilities.
31
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET
ARRANGEMENTS
Contractual Obligations:
At December 31, 2019, the Company had the following estimated contractual obligations:
Payment Due By Period
Contractual Obligations (in millions)
Vessel construction obligations (1)
Total debt obligations (2)
Estimated interest on debt (3)
Vendor and other obligations (4)
Qualified defined benefit pension obligations (5)
Non-qualified pension obligations (5)
Post-retirement benefit obligations (5)
Multi-employer withdrawal obligations (6)
Operating lease obligations (7)
Total
Total
— $
— $
— $
2021-2022 2023-2024 Thereafter
2020
$ 64.8 $
48.4
36.0
29.6
13.6
2.2
1.0
10.8
75.9
64.8
958.4
175.9
29.6
147.2
4.8
11.2
91.1
314.3
$ 282.3 $ 686.9 $ 247.0 $ 581.1 $ 1,797.3
301.1
55.0
—
76.2
0.5
5.7
63.9
78.7
115.7
28.3
—
29.3
2.1
2.4
8.2
61.0
493.2
56.6
—
28.1
—
2.1
8.2
98.7
(1) Vessel construction obligations represent contractual agreements entered into for the construction of new vessels.
(2) Total debt obligations include principal repayments of outstanding debt (see Note 8 to the Consolidated Financial Statements in Item 8 of Part II
below, for additional information).
(3) Estimated interest on debt is determined based on: (i) the stated interest rate for fixed debt, and (ii) the estimated variable interest on revolving
credit facility assuming the balance at December 31, 2019 remains outstanding until maturity.
(4) Vendor and other obligations include: (i) non-cancellable contractual capital project obligations (excluding vessel construction obligations shown
in (1) above); (ii) dry-docking related obligations; and (iii) other contractual obligations. Amounts are considered obligations if a contract has
been agreed to specifying significant terms of the contract, and the amounts are not reflected in the Consolidated Balance Sheets.
(5) Qualified defined benefit pension, non-qualified pension and post-retirement benefit obligations include estimated payments for the next ten
years. The amounts noted in the column labeled “Thereafter” represent estimated benefit payments for 2025 through 2029 (see Note 11 to the
Consolidated Financial Statements in Item 8 of Part II below, for additional information).
(6) Multi-employer withdrawal obligations relate to the discounted liability associated with Horizon’s mass withdrawal from Puerto Rico’s multi-
employer ILA-PRSSA and the partial withdrawal liability associated with the Local 153 Fund of the OPEIU (see Note 12 to the Consolidated
Financial Statements in Item 8 of Part II below, for additional information).
(7) Operating lease obligations primarily consist of real estate and terminal leases, vessel charter leases, operations equipment and other leases
entered into under non-cancellable arrangements (see Note 9 to the Consolidated Financial Statements in Item 8 of Part II below, for additional
information).
Estimated timing and amount of payments related to unrecognized tax benefits of $16.4 million as of December 31, 2019
are excluded from the table due to the uncertainty of such timing and payments, if any.
Commitments, Contingencies and Off-Balance Sheet Arrangements:
Commitments and Contingencies: A description of other commitments and contingencies is set forth in Note 9, Note 11
and Note 17 to the Consolidated Financial Statements in Item 8 of Part II below, and is incorporated herein by reference.
Off-balance sheet Arrangements: Except as described below, the Company is not party to any off-balance sheet
arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial
condition, results of operations or cash flows.
Future minimum payments under operating leases are $314.3 million as of December 31, 2019. In addition, the
Company provided a lessor with a maximum residual value guarantee related to the lease of a vessel. Additional
information related to leases and the vessel lease guarantee is set forth in Note 9 to the Consolidated Financial
Statements in Item 8 of Part II below, and is incorporated herein by reference.
32
CRITICAL ACCOUNTING ESTIMATES
The Company’s significant accounting policies are described in Note 2 to the Consolidated Financial Statements in
Item 8 of Part II below. The preparation of Consolidated Financial Statements in conformity with accounting principles
generally accepted in the United States of America, upon which the Company’s Management Discussion and Analysis of
Financial Condition and Results of Operations is based, requires that management exercise judgment when making
accounting estimates 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 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
accounting 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.
Long-Lived Assets, Intangible Assets and Goodwill: The Company evaluates its long-lived assets, intangible assets
and goodwill 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. The Company has reporting units within the
Ocean Transportation and Logistics reportable segments.
Long-lived Assets and Finite-lived Intangible Assets: Long-lived assets and finite-lived intangible assets are grouped at
the lowest level reporting unit for which identifiable cash flows are available. In evaluating for impairment, the
estimated future undiscounted cash flows generated by each of these asset groups are compared with the carrying value
recorded for each asset group to determine if its carrying value is 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, potential impact of future events, including changes in economic conditions and operating
performance, and future costs of maintenance and improvements of the assets. 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. The Company has evaluated its long-lived assets and finite-lived intangible assets
for impairment and determined that there was no impairment for the years ended December 31, 2019, 2018 and 2017.
Indefinite-life Intangible Assets and Goodwill: The Company’s intangible assets include goodwill, customer
relationships and a trade name, and are grouped at the lowest level reporting unit for which identifiable cash flows are
available. 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, income 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 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 makes judgments
about the comparability of 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 indefinite-life intangible assets and goodwill for impairment and determined that there was no impairment for the
years ended December 31, 2019, 2018 and 2017.
33
Uninsured Risks and Related Liabilities: The Company is uninsured for certain risks but when feasible, many of
these risks are mitigated by insurance. The Company purchases insurance with deductibles or self-insured retentions.
Such insurance includes, but is not limited to, employee health, workers’ compensation, marine liability, cybersecurity,
auto liability and physical damage to property and equipment. For certain risks, the Company elects to not purchase
insurance because of the excessive cost of such insurance or the perceived remoteness of the risk. In addition, the
Company retains all risk of loss that exceeds the limits of the Company’s insurance policies.
When estimating its reserves for uninsured risks and related 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 estimates used to determine the adequacy of the
Company’s reserves for uninsured risks and related liabilities. The Company’s uninsured risks and related 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 of 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 Plans: The estimation of the Company’s pension and post-retirement benefit expenses
and liabilities requires the Company to 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 (loss).
Additionally, these unamortized gains and losses are amortized and reclassified to income (loss) over future periods.
Additional information about the Company’s pension and post-retirement plans and assumptions used is included in
Note 11 to the Consolidated Financial Statements in Item 8 of Part II below.
Income Taxes: The Company’s income tax expense requires the Company to make various estimates and judgments.
These estimates and judgments are applied in the calculation of taxable income, 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, costs and expenses for tax purposes. The calculation of deferred tax assets and liabilities may be
impacted by various factors including but not limited to changes in tax rates; changes in tax laws, regulations, and
rulings; changes in interpretations of existing tax laws, regulations and rulings; and changes in the evaluation of the
Company’s ability to realize deferred tax assets including operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when the temporary
differences reverse. Significant changes to these estimates may result in an increase or decrease to the Company’s
income taxes in a subsequent period.
The Company records a valuation allowance 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.
Additional information about the Company’s income taxes is included in Note 10 to the Consolidated Financial
Statements in Item 8 of Part II below.
OTHER MATTERS
New Accounting Pronouncements: See Note 2 to the Consolidated Financial Statements in Item 8 of Part II below for
additional information on new accounting pronouncements.
34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Debt and Interest Rate Risks: The Company 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 and private placement term loans. In order to manage its exposure to changes in interest rates,
the Company utilizes a balanced mix of both fixed-rate and variable-rate debt with various maturity dates. The nature
and amount of the Company’s outstanding debt are expected to fluctuate as a result of future business requirements,
market conditions and other factors. The Company’s outstanding variable and fixed rate debt was $379.1 million and
$579.3 million as of December 31, 2019, and $235.0 million and $621.4 million as of December 31, 2018, respectively.
Other than in certain events of default, the Company is not obligated to prepay its variable and fixed rate debt prior to
maturity. For fixed rate debt, changes in market interest rates would not affect the Company’s financial condition or
results of operations. For variable rate debt, a 100 basis point increase in the variable interest rate would have an impact
on the Company’s results of operations for 2019 of approximately $3.8 million, assuming the December 31, 2019
balance of the variable rate debt was outstanding throughout the year. This change is not expected to have a material
impact on the fair value of the Company’s variable rate debt.
Interest on borrowing from some of the Company’s debt is calculated based upon a London Interbank Offered Rate
(“LIBOR”) benchmark interest rate measurement. It is anticipated that the use of LIBOR will be discontinued during the
year ending 2021. The expected discontinuation of LIBOR will require the Company and its lenders to transition from a
LIBOR measurement to an alternative benchmark interest rate. The transition from LIBOR to another benchmark rate or
rates could have an adverse impact on the Company’s outstanding debt that currently use LIBOR as a benchmark rate,
and ultimately, adversely affect the Company’s financial condition and results of operations.
Additional information about the Company’s debt is included in Note 8 to the Consolidated Financial Statements in Item
8 of Part II below.
Investment Risks: From time to time, the Company 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 the Company’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 had a nominal amount on deposit in money market
funds as of December 31, 2019 and 2018.
Through its Capital Construction Fund (“CCF”), the Company may, from time to time, invest in money market funds or
other eligible investments. The Company’s cash deposits in the CCF as of December 31, 2019 and 2018 were nominal.
Foreign Currency Risks: The Company 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, Guam, Alaska and
other locations. Transactions related to the Company’s 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 the Company’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.
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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.
Description of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reportable Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
4.
Investment in SSAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.
Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.
7.
Capital Construction Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.
10.
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.
Pension and Post-Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12. Multi-Employer Withdrawal Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13. Accumulated Other Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.
Share-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.
Fair Value of Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.
17.
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarterly Information (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18.
Page
37
38
40
41
42
43
44
44
44
49
51
52
52
53
54
56
58
61
68
68
69
69
70
71
72
36
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,
2019. 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, 2019, 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.
/s/ Matthew J. Cox
Matthew J. Cox
Chairman and Chief Executive Officer
February 28, 2020
/s/ Joel M. Wine
Joel M. Wine
Senior Vice President and Chief Financial Officer
February 28, 2020
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Matson, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Matson, Inc. and subsidiaries (the “Company”) as of
December 31, 2019 and 2018, 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, 2019, and the related notes (collectively referred
to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2019, 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, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by
COSO.
Change in Accounting Principle
As discussed in Note 9 to the financial statements, effective January 1, 2019, the Company adopted FASB ASC Topic 842,
Leases, using the modified retrospective approach.
Basis for Opinions
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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.
38
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Goodwill – Span Alaska Reporting Unit — Refer to Notes 2 and 6 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its
carrying value. 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 EBITDA. The discounted cash flow approach requires the Company to
make several business assumptions related to discount rates and forecasts of future revenues. 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 either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance was $327.8
million as of December 31, 2019, of which $78.6 million is allocated to a reporting unit in the Logistics reportable segment,
resulting from the acquisition of Span Intermediate, LLC (“Span Alaska”) in fiscal year 2016. The Company has evaluated its
goodwill for impairment as part of its annual assessment in fiscal year 2019 and determined that the fair value of the Span
Alaska reporting unit exceeded the carrying amount as of the date of the impairment review.
We identified goodwill related to Span Alaska as a critical audit matter because of the significant estimates and assumptions
management made to estimate the fair value of Span Alaska. Specifically, due to the sensitivity of Span Alaska’s operations to
changes in the Alaskan economy, performing audit procedures to evaluate the reasonableness of management’s estimates and
assumptions related to forecasts of future revenues and selection of the discount rate, required a high degree of auditor
judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenue, specifically as they relate to Span Alaska, and the selection of
the discount rate for Span Alaska included the following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the
forecasts of future revenue and the selection of the discount rate.
• We evaluated management’s ability to accurately forecast future revenue by comparing actual results to management’s
historical forecasts.
• We evaluated the reasonableness of management’s revenue forecast by comparing the forecasts to (1) historical revenues
and operating margins, (2) internal communications to management and the Board of Directors, (3) external
communications made by management to analysts and investors, (4) trends in the logistics industry and (5) trends in the
Alaskan economy.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate, including testing the
source information underlying the determination of the discount rate, testing the mathematical accuracy of the calculation,
and developing a range of independent estimates and comparing those to the discount rate selected by management.
/s/ Deloitte & Touche LLP
San Francisco, California
February 28, 2020
We have served as the Company’s auditor since at least 1976; however, an earlier year could not be reliably determined.
39
MATSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In millions, except per share amounts)
Operating Revenue:
Ocean Transportation
Logistics
Total Operating Revenue
Costs and Expenses:
Operating costs
Income from SSAT
Selling, general and administrative
Total Costs and Expenses
Operating Income
Interest expense
Other income (expense), net
Income before Income Taxes
Income taxes
Net Income
Other Comprehensive Income (Loss), Net of Income Taxes:
Net Income
Other Comprehensive Income (Loss):
Net gain in prior service cost
Amortization of prior service cost
Amortization of net loss
Other adjustments
Total Other Comprehensive (Loss) Income
Comprehensive Income
Basic Earnings Per Share
Diluted Earnings Per Share
Weighted Average Number of Shares Outstanding:
Basic
Diluted
Years Ended December 31,
2018
2017
2019
$ 1,666.6 $ 1,641.3 $ 1,571.8
475.1
2,046.9
536.5
2,203.1
581.5
2,222.8
(1,878.0)
20.8
(216.8)
(2,074.0)
(1,875.0)
36.8
(220.8)
(2,059.0)
(1,721.0)
28.2
(206.8)
(1,899.6)
129.1
(22.5)
1.2
107.8
(25.1)
82.7 $
163.8
(18.7)
2.6
147.7
(38.7)
109.0 $
147.3
(24.2)
2.1
125.2
105.8
231.0
$
$
82.7 $
109.0 $
231.0
—
(4.5)
2.7
(0.6)
(2.4)
80.3 $
—
(4.7)
1.1
—
(3.6)
105.4 $
0.8
(4.0)
1.7
0.2
(1.3)
229.7
1.93 $
1.91 $
2.55 $
2.53 $
5.38
5.35
$
$
$
42.8
43.3
42.7
43.0
42.9
43.2
See Notes to Consolidated Financial Statements.
40
MATSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other assets
Total current assets
Long-term Assets:
Investment in SSAT
Property and equipment, net
Operating lease right of use assets
Goodwill
Intangible assets, net
Deferred dry-docking costs, net
Other long-term assets
Total long-term assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of debt
Accounts payable and accruals
Operating lease liabilities
Other liabilities
Total current liabilities
Long-term Liabilities:
Long-term debt
Long-term operating lease liabilities
Deferred income taxes
Other long-term liabilities
Total long-term liabilities
Commitments and Contingencies
Shareholders’ Equity:
As of December 31,
2018
2019
$
21.2 $
205.9
62.5
289.6
19.6
223.7
75.1
318.4
76.2
1,598.1
256.1
327.8
202.9
56.9
37.8
2,555.8
87.0
1,366.6
—
327.8
214.0
67.1
49.5
2,112.0
$ 2,845.4 $ 2,430.4
$
48.4 $
235.7
66.6
86.0
436.7
42.1
246.8
—
81.9
370.8
910.0
198.0
337.6
157.4
1,603.0
814.3
—
312.7
177.3
1,304.3
Common stock - common stock without par value; authorized, 150.0 million shares
($0.75 stated value per share); outstanding, 42.9 million shares in 2019 and 42.7 million
shares in 2018
Additional paid in capital
Accumulated other comprehensive loss, net
Retained earnings
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
32.2
306.2
(36.9)
504.2
805.7
32.0
297.8
(34.5)
460.0
755.3
$ 2,845.4 $ 2,430.4
See Notes to Consolidated Financial Statements.
41
MATSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Cash Flows From Operating Activities:
Net income
Reconciling adjustments:
Depreciation and amortization
Amortization of operating lease right of use assets
Deferred income taxes
Loss (Gain) on disposal of property and equipment
Share-based compensation expense
Income from SSAT
Distributions from SSAT
Changes in assets and liabilities:
Accounts receivable, net
Deferred dry-docking payments
Deferred dry-docking amortization
Prepaid expenses and other assets
Accounts payable, accruals and other liabilities
Operating lease liabilities
Other long-term liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities:
Capitalized vessel construction expenditure
Other capital expenditures
Proceeds from (payments for) disposal of property and equipment
Cash deposits into Capital Construction Fund
Withdrawals from Capital Construction Fund
Proceeds from sale of other investments
Net cash used in investing activities
Cash Flows From Financing Activities:
Repayments of debt
Repayment of capital leases
Proceeds from revolving credit facility
Repayments of revolving credit facility
Payment of financing costs
Proceeds from issuance of common stock
Dividends paid
Repurchase of Matson common stock
Tax withholding related to net share settlements of restricted stock units
Net cash provided by (used in) financing activities
Net Increase in Cash, Cash Equivalents and Restricted Cash
Cash, Cash Equivalents and Restricted Cash, Beginning of the Year
Cash, Cash Equivalents and Restricted Cash, End of the Year
Reconciliation of Cash, Cash Equivalents, and Restricted Cash, at End of the Year:
Cash and Cash Equivalents
Restricted Cash
Total Cash, Cash Equivalents and Restricted Cash, End of the Year
Supplemental Cash Flow Information:
Interest paid, net of capitalized interest
Income tax paid, net of income tax refunds
Non-cash Information:
Capital expenditures included in accounts payable, accruals and other liabilities
See Notes to Consolidated Financial Statements.
42
Years Ended December 31,
2018
2017
2019
$
82.7
$
109.0
$
231.0
100.4
60.7
23.6
(1.4)
11.3
(20.8)
25.2
17.8
(25.9)
34.3
24.5
(13.9)
(59.9)
(9.8)
248.8
(219.1)
(91.2)
3.4
(96.2)
96.2
—
(306.9)
(42.0)
(0.1)
622.1
(478.0)
—
0.3
(37.2)
—
(3.1)
62.0
3.9
24.5
28.4
21.2
7.2
28.4
22.0
(24.2)
$
$
$
$
$
94.4
—
29.3
(1.9)
12.1
(36.8)
42.0
(29.1)
(19.2)
37.4
4.2
71.2
—
(7.6)
305.0
(338.6)
(62.6)
136.3
(340.0)
340.9
3.7
(260.3)
(30.0)
(0.7)
963.9
(933.9)
—
0.7
(35.4)
—
(4.6)
(40.0)
4.7
19.8
24.5
19.6
4.9
24.5
18.3
5.2
$
$
$
$
$
101.2
—
(127.9)
3.0
11.1
(28.2)
17.5
(5.1)
(54.6)
46.2
14.4
20.4
—
(4.1)
224.9
(252.0)
(55.0)
(0.2)
(171.4)
201.7
—
(276.9)
(30.0)
(1.8)
469.0
(319.0)
(1.7)
1.9
(33.8)
(19.3)
(7.4)
57.9
5.9
13.9
19.8
19.8
—
19.8
23.9
2.6
8.5
$
4.1
$
1.2
$
$
$
$
$
$
MATSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the three years ended December 31, 2019
Accumulated
Common Stock
Stated
Additional
Paid In
Other
Comprehensive Retained
Shares Value Capital Income (Loss)
(In millions, except per share amounts)
Balance at December 31, 2016
Net income
Other comprehensive income (loss), net of tax
Share-based compensation
Shares issued, net of shares withheld for employee taxes
Shares repurchased
Dividends ($0.78 per share)
Balance at December 31, 2017
Net income
Other comprehensive income (loss), net of tax
Share-based compensation
Shares issued, net of shares withheld for employee taxes
Shares repurchased
Dividends ($0.82 per share)
Balance at December 31, 2018
Net income
Adoption of new lease accounting standard (see Note 9)
Other comprehensive income (loss), net of tax
Share-based compensation
Shares issued, net of shares withheld for employee taxes
Dividends ($0.86 per share)
SSAT’s adoption of new lease accounting standard (see Note
4)
Balance at December 31, 2019
42.9 $ 32.1 $ 289.8 $
—
—
—
0.3
(0.7)
—
42.5
—
—
—
0.2
—
—
42.7
—
—
—
—
0.2
—
—
—
—
0.3
(0.5)
—
31.9
—
—
—
0.1
—
—
32.0
—
—
—
—
0.2
—
—
—
11.1
(5.7)
(5.5)
—
289.7
—
—
12.1
(4.0)
—
—
297.8
—
—
—
11.3
(2.9)
—
Earning
Total
s
(23.6) $ 196.6 $ 494.9
231.0
231.0
(1.3)
—
11.1
—
(5.4)
—
(19.3)
(13.3)
(33.8)
(33.8)
677.2
380.5
109.0
109.0
(3.6)
6.0
12.1
—
(3.9)
—
(0.1)
(0.1)
(35.4)
(35.4)
755.3
460.0
82.7
82.7
4.4
4.4
(2.4)
—
11.3
—
(2.7)
—
(37.3)
(37.3)
—
(1.3)
—
—
—
—
(24.9)
—
(9.6)
—
—
—
—
(34.5)
—
—
(2.4)
—
—
—
—
—
—
42.9 $ 32.2 $ 306.2 $
—
(5.6)
(5.6)
(36.9) $ 504.2 $ 805.7
See Notes to Consolidated Financial Statements.
43
MATSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
DESCRIPTION OF THE BUSINESS
Matson, Inc., a holding company incorporated 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 on the Company’s reportable segments for the three years ended
December 31, 2019, see Note 3.
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 provides a vital
lifeline of ocean freight transportation services to the domestic non-contiguous economies of Hawaii, Alaska and Guam,
and to other island economies in Micronesia. MatNav also operates a premium, expedited service from China to Long
Beach, California, and provides services to Okinawa, Japan and various islands in the South Pacific. In addition,
subsidiaries of MatNav provide container stevedoring, refrigerated cargo services, inland transportation and other
terminal services for MatNav and other ocean carriers on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai, and in
the Alaska locations of Anchorage, Kodiak and Dutch Harbor.
Matson has a 35 percent ownership interest in SSA Terminals, LLC, a joint venture between Matson Ventures, Inc., a
wholly-owned subsidiary of MatNav, and SSA Ventures, Inc., a subsidiary of Carrix, Inc. (“SSAT”). SSAT provides
terminal and stevedoring services to various carriers at eight terminal facilities on the U.S. West Coast, including four
facilities dedicated for MatNav’s use. Matson records its share of income from SSAT in Costs and Expenses in the
Consolidated Statements of Income and Comprehensive Income, and within the Ocean Transportation segment due to
the nature of SSAT’s operations.
Logistics: Matson’s Logistics business is conducted through Matson Logistics, Inc. (“Matson Logistics”), a wholly-
owned subsidiary of MatNav. Established in 1987, Matson Logistics is an asset-light business that provides a variety of
logistics services to its customers including: (i) multimodal transportation brokerage of domestic and international rail
intermodal services, long-haul and regional highway trucking services, specialized hauling, flat-bed and project services,
less-than-truckload services, and expedited freight services (collectively, “Transportation Brokerage” services);
(ii) less-than-container load (“LCL”) consolidation and freight forwarding services (collectively, “Freight Forwarding”
services); (iii) warehousing and distribution services; and (iv) supply chain management, non-vessel operating common
carrier (“NVOCC”) freight forwarding and other 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 intercompany amounts and transactions. 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. The Company
accounts for its investment in SSAT using the equity method of accounting (see Note 4).
Fiscal Year: The year end for Matson is December 31. The period end for MatNav occurred on the last Friday in
December, except for Matson Logistics Warehousing, Inc. whose period closed on December 31. Included in these
Consolidated Financial Statements are 52 weeks in the 2019, 2018 and 2017 fiscal years for MatNav.
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 (gain) 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 Costs and Expenses in the Consolidated Statements of
Income and Comprehensive Income.
44
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; impairment of long-lived assets,
intangible assets and goodwill; capitalized interest; allowance for doubtful accounts; legal contingencies; uninsured risks
and related liabilities; accrual estimates; pension and post-retirement estimates; multi-employer withdrawal liabilities;
operating lease assets and liabilities; and income taxes. Future results could be materially affected if actual results differ
from these estimates and assumptions.
Cash, Cash Equivalents and Restricted Cash: Cash equivalents consist of highly-liquid investments with original
maturities of three months or less. The Company carries these investments at cost, which approximates fair value.
Outstanding checks in excess of funds on deposit totaled $13.8 million and $16.4 million at December 31, 2019 and
2018, respectively, and are included in current liabilities in the Consolidated Balance Sheets. Restricted cash relates to
amounts that are subject to contractual restrictions and are not readily available. At December 31, 2019 and 2018,
restricted cash was $7.2 million and $4.9 million, respectively, and are included in prepaid expenses and other assets in
the Consolidated Balance Sheets.
Accounts Receivable, net: Accounts receivable represent amounts due from trade customers arising in the normal course
of business. Accounts receivable are shown net of allowance for doubtful accounts receivable in the Consolidated
Balance Sheets. Allowance for doubtful accounts receivable is established by management based on estimates of
collectability. Estimates of collectability are principally based on an evaluation of the current financial condition of the
customer and the potential risks to collection, the customer’s payment history, expected future credit losses and other
factors which are regularly monitored by the Company.
Changes in the allowance for doubtful accounts receivable for the three years ended December 31, 2019, 2018 and 2017
were as follows:
Year (in millions)
2019
2018
2017
Balance at
Beginning of Year Expense (1)
$
$
$
4.8 $
4.6 $
4.2 $
0.6 $
0.8 $
1.0 $
Write-offs
and Other
Balance at
End of Year
4.3
4.8
4.6
(1.1) $
(0.6) $
(0.6) $
(1) Expense is shown net of amounts recovered from previously reserved doubtful accounts.
Prepaid Expenses and Other Assets: Prepaid expenses and other assets consist of the following at December 31, 2019
and 2018:
Prepaid Expenses and Other Assets (in millions)
Prepaid fuel
Prepaid insurance and insurance related receivables
Income tax receivables
Restricted cash - vessel construction obligations
Prepaid operating expenses
Other
Total
As of December 31,
2018
2019
13.7 $
13.4
12.8
7.2
5.7
9.7
62.5 $
16.3
12.6
26.8
4.9
6.8
7.7
75.1
$
$
Other Long-Term Assets: Other long-term assets consist of the following at December 31, 2019 and 2018:
Other Long-Term Assets (in millions)
Vessel and equipment spare parts
Income tax receivables
Insurance related receivables
Deferred charges and other
Total
45
As of December 31,
2019
2018
12.4 $
11.5
10.6
3.3
37.8 $
13.1
21.5
11.2
3.7
49.5
$
$
Impairment of SSAT: The Company’s investment in SSAT, a related party, is reviewed for impairment annually, or
whenever there is evidence that fair value may be below its carrying cost. No impairment was identified during the
years ended December 31, 2019, 2018 and 2017.
Property and Equipment: Property and equipment is stated at cost. 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
30 years
35 years
Capitalized Interest: The Company capitalizes interest costs during the period the qualified assets are being readied for
their intended use. The Company determined that the vessel construction costs are considered qualifying assets for the
purposes of capitalizing interest on these assets. The amount of capitalized interest is calculated based on the amount of
payments incurred related to the construction of these vessels using a weighted average interest rate. The weighted
average interest rate is determined using the Company’s average borrowings outstanding during the period. Capitalized
interest is included in vessel construction in progress in property and equipment in the Company’s Consolidated Balance
Sheets (see Note 5). During the years ended December 31, 2019, 2018 and 2017, the Company capitalized
$15.6 million, $18.7 million and $7.5 million of interest related to the construction of new vessels, respectively.
Leases: The Company adopted Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) on January 1,
2019. ASC 842 requires lessees to record leases on their balance sheets but recognize the expenses in their income
statements in a manner similar to pre-adoption practice. ASC 842 states that a lessee would recognize a lease liability
for the obligation to make lease payments, and a right-of-use asset for the underlying leased asset for the period of the
lease term. Refer to Note 9 for additional information on the Company’s adoption of ASC 842 and other lease related
disclosures.
Deferred Dry-docking Costs: U.S. flagged vessels must meet specified seaworthiness standards established by U.S.
Coast Guard rules and classification society rules. These standards require U.S. flagged vessels to undergo two dry-
docking inspections within a five-year period, with a maximum of 36 months between them. However, U.S. flagged
vessels that are enrolled in the U.S. Coast Guard’s Underwater Survey in Lieu of Dry-docking (“UWILD”) program are
allowed to have their Intermediate Survey dry-docking requirement met with a less costly underwater inspection. Non-
U.S. flag vessels are required to meet applicable classification society rules and their own local standards for
seaworthiness, which also mandate vessels to undergo two dry-docking inspections every five years.
The Company is responsible for maintaining its vessels in compliance with U.S. and international standards. 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 scheduled date of the next required dry-docking, which is
usually over a two to five-year period. Amortization of deferred dry-docking costs are charged to operating expenses of
the Ocean Transportation segment in the Consolidated Statements of Income and Comprehensive Income. Routine
vessel maintenance and repairs are charged to expense as incurred.
Goodwill and Intangible Assets: Goodwill and intangible assets arise as a result of acquisitions made by the Company
(see Note 6). Intangible assets consist of customer relationships which are being amortized using the straight-line
method over the expected useful lives ranging up to 21 years, and a trade name that has an indefinite life.
Impairment of Long-Lived Assets, Intangible Assets and Goodwill: The Company evaluates its long-lived assets,
intangible assets and goodwill 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. The Company
has reporting units within the Ocean Transportation and Logistics reportable segments.
Long-lived assets and finite-lived intangible assets are grouped at the lowest level reporting unit for which identifiable
cash flows are available. In evaluating for impairment, the estimated future undiscounted cash flows generated by each
of these asset groups are compared with the carrying value recorded for each asset group to determine if its carrying
46
value is 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. No impairment charges of long-lived assets and finite-lived
intangible assets were recorded for the years ended December 31, 2019, 2018 and 2017.
Indefinite-life intangible assets and goodwill are grouped at the lowest level reporting unit for which identifiable cash
flows are available. 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. Based upon the Company’s evaluation of its indefinite-life intangible assets and goodwill for impairment,
the Company determined that the fair value of each reporting unit exceeds book value. No impairment charges of
indefinite-life intangible assets and goodwill were recorded for the years ended December 31, 2019, 2018 and 2017.
Other liabilities: Other liabilities consist of the following at December 31, 2019 and 2018:
Other Liabilities (in millions)
Payroll and vacation
Employee incentives and other
Uninsured risks and related liabilities - short term
Multi-employer withdrawal liabilities - short term (see Note 12)
Deferred revenues
Interest on debt
Pension and post-retirement liabilities - short term (see Note 11)
Other short-term liabilities
Total
As of December 31,
2018
2019
28.5 $
14.7
12.6
10.8
6.9
4.9
3.1
4.5
86.0 $
25.7
19.5
9.9
10.8
5.7
5.1
3.0
2.2
81.9
$
$
Other long-term liabilities: Other long-term liabilities consist of the following at December 31, 2019 and 2018:
Other Long-Term Liabilities (in millions)
Pension and post-retirement liabilities (see Note 11)
Multi-employer withdrawal liability (see Note 12)
Uninsured risks and related liabilities
Other long-term liabilities
Total
$
As of December 31,
2018
2019
79.4
73.4 $
56.6
54.8
27.3
26.6
14.0
2.6
$ 157.4 $ 177.3
Pension and Post-Retirement Plans: The Company is a member 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 Company directly negotiates 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 rates 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. Additional information about the Company’s pension and post-
retirement plans is included in Note 11.
Uninsured Risks and Related Liabilities: The Company is uninsured for certain risks but when feasible, many of these
risks are mitigated by insurance. The Company purchases insurance with deductibles or self-insured retentions. Such
insurance includes, but is not limited to, employee health, workers’ compensation, marine liability, cybersecurity, auto
liability and physical damage to property and equipment. For certain risks, the Company elects to not purchase
insurance because of the excessive cost of insurance or the perceived remoteness of the risk. In addition, the Company
retains all risk of loss that exceeds the limits of the Company’s insurance policies.
47
When estimating its reserves for uninsured risks and related 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 estimates used to determine the adequacy of the
Company’s reserves for uninsured risks and related liabilities.
Recognition of Revenues and Expenses: Revenue in the Company’s Consolidated Financial Statements is presented net
of elimination of intercompany transactions. The following is a description of the Company’s principal revenue
generating activities by segment, and the Company’s revenue recognition policy for each activity for the periods
presented:
Ocean Transportation (in millions) (1)
Ocean Transportation services
Terminal and other related services
Fuel sales
Vessel management and related services
Total
2019
2017
Year Ended December 31,
2018
$ 1,625.8 $ 1,599.3 $ 1,531.8
23.5
9.9
6.6
$ 1,666.6 $ 1,641.3 $ 1,571.8
23.0
12.2
6.8
24.8
10.1
5.9
(1) Ocean Transportation revenue transactions are primarily denominated in U.S. dollars except for less than 3 percent of Ocean Transportation
services revenue and fuel sales revenue categories which are denominated in foreign currencies.
Ocean Transportation services revenue is recognized ratably over the duration of a voyage based on the relative
transit time completed in each reporting period. Vessel operating costs and other ocean transportation operating
costs, such as terminal operating overhead and general and administrative expenses, are charged to operating costs
as incurred.
Terminal and other related services revenue is recognized as the services are performed. Related costs are
recognized as incurred.
Fuel sales revenue and related costs are recognized when the Company has completed delivery of the product to the
customer in accordance with the terms and conditions of the contract.
Vessel management and related services revenue is recognized in proportion to the services completed. Related
costs are recognized as incurred.
Logistics (in millions) (1)
Transportation Brokerage and Freight Forwarding services
Warehouse and distribution services
Supply chain management and other services
Total
$
$
Year Ended December 31,
2018
549.1 $
19.1
13.3
581.5 $
2019
504.8 $
20.6
11.1
536.5 $
2017
445.1
17.5
12.5
475.1
(1) Logistics revenue transactions are primarily denominated in U.S. dollars except for less than 3 percent of transportation brokerage and freight
forwarding services revenue, and supply chain management and other services revenue categories which are denominated in foreign currencies.
Transportation Brokerage and Freight Forwarding services revenue consists of amounts billed to customers for
services provided. The primary costs include third-party purchased transportation services, labor and equipment.
Revenue and the related purchased third-party transportation costs are recognized over the duration of a delivery
based upon the relative transit time completed in each reporting period. Labor and other operating costs are
expensed as incurred. The Company reports revenue on a gross basis as the Company serves as the principal in
these transactions because it is responsible for fulfilling the contractual arrangements with the customer and has
latitude in establishing prices.
Warehousing and distribution services revenue consist of amounts billed to customers for storage, handling, and
value-added packaging of customer merchandise. Storage revenue is recognized in the month the service is
provided to the customer. Storage related costs are recognized as incurred. Other warehousing and distribution
services revenue and related costs are recognized in proportion to the services performed.
Supply chain management and other services revenue, and related costs are recognized in proportion to the services
performed.
The Company generally invoices its customers at the commencement of the voyage or the transportation service being
provided, or as other services are being performed. Revenue is deferred when services are invoiced in advance to the
customer. The Company’s receivables are classified as short-term as collection terms are for periods of less than one
48
year. The Company expenses sales commissions and contract acquisition costs as incurred because the amounts are
generally immaterial. These expenses are included in selling, general and administration expenses in the Consolidated
Statements of Income and Comprehensive Income.
Customer Concentration: The Ocean Transportation segment 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 2019, 2018 and
2017, the 10 largest Ocean Transportation customers accounted for approximately 23 percent, 24 percent and 23 percent
of Ocean Transportation revenue, respectively. None of these customers individually account for more than 10 percent
of Ocean Transportation operating revenues.
The Logistics segment serves customers in numerous industries and geographical locations. In 2019, 2018 and 2017, the
10 largest Logistics customers accounted for approximately 21 percent, 23 percent and 19 percent of Logistics revenue,
respectively. None of these customers individually account for more than 10 percent of Logistics operating revenues.
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 awards made to
employees and directors. The Company’s various stock-based compensation plans are more fully described in Note 15.
Income Taxes: The estimate of the Company’s income tax expense requires the Company to make various estimates and
judgments. These estimates and judgments are applied in the calculation of taxable income, 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, costs and expenses for tax purposes. Deferred tax assets and liabilities are adjusted to the
extent necessary to reflect tax rates expected to be in effect when the temporary differences reverse.
The Company records a valuation allowance 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.
The Company’s income taxes are more fully described in Note 10.
Rounding: Amounts in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements are
rounded to millions, except for per share calculations and percentages which 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.
New Accounting Pronouncements:
Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”): In June 2016, the FASB issued
ASU 2016-13 which amends the current approach to estimate credit losses on certain financial assets, including trade
and other receivables, available-for-sale securities and other financial instruments. ASU 2016-13 requires entities to
establish a valuation allowance for the expected lifetime losses of certain financial instruments. Subsequent changes in
the valuation allowance are recorded in current earnings and reversal of previous losses is permitted. The new standard
is effective for interim and annual periods beginning on or after December 15, 2019, and early adoption is permitted.
The Company is in the process of evaluating this new standard, but does not expect the adoption of ASU 2016-13 to
have a significant impact on the Company’s Consolidated Financial Statements.
3.
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 income. 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 SSAT segment has been aggregated into the Company’s
49
Ocean Transportation segment due to the operations of SSAT being an integral part of the Company’s Ocean
Transportation business (see Note 4).
The Company’s Ocean Transportation segment provides ocean transportation services to the Logistics segment, and the
Logistics segment provides logistics services to the Ocean Transportation segment in certain transactions. Accordingly,
inter-segment revenue of $102.3 million, $95.4 million and $81.3 million for the years ended December 31, 2019, 2018
and 2017, respectively, have been eliminated from operating revenues in the table below.
Reportable segment financial information for the years ended December 31, 2019, 2018 and 2017, and identifiable asset
segment information at December 31, 2019 and 2018, are as follows:
(In millions)
Operating Revenue:
Ocean Transportation (1)
Logistics (2)
Total Operating Revenue
Operating Income:
Ocean Transportation (3)
Logistics
Total Operating Income
Interest expense, net
Other income (expense), net
Income before Income Taxes
Income taxes
Net Income
Capital Expenditures:
Ocean Transportation
Logistics
Total Capital Expenditures
Depreciation and Amortization:
Ocean Transportation
Logistics
Deferred dry-docking amortization - Ocean Transportation
Total Depreciation and Amortization
Years Ended December 31,
2018
2017
2019
$ 1,666.6 $ 1,641.3 $ 1,571.8
475.1
$ 2,203.1 $ 2,222.8 $ 2,046.9
536.5
581.5
$
$
90.8 $
38.3
129.1
(22.5)
1.2
107.8
(25.1)
82.7 $
131.1 $
32.7
163.8
(18.7)
2.6
147.7
(38.7)
109.0 $
126.4
20.9
147.3
(24.2)
2.1
125.2
105.8
231.0
$
$
294.5 $
15.8
310.3 $
385.4 $
15.8
401.2 $
305.3
1.7
307.0
$
93.6 $
87.0 $
6.8
100.4
34.3
7.4
94.4
37.4
$
134.7 $
131.8 $
93.3
7.9
101.2
46.2
147.4
(1) Ocean Transportation operating revenue excludes inter-segment revenue of $52.8 million, $51.7 million and $40.3 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
(2) Logistics operating revenue excludes inter-segment revenue of $49.5 million, $43.7 million and $41.0 million for the years ended December 31,
2019, 2018 and 2017, respectively.
(3) Ocean Transportation segment information includes $20.8 million, $36.8 million, and $28.2 million of equity in income from the Company’s
equity investment in SSAT for the years ended December 31, 2019, 2018 and 2017, respectively.
(In millions)
Identifiable Assets:
Ocean Transportation (1)
Logistics
Total Assets
As of December 31,
2019
2018
$ 2,424.5 $ 2,071.6
358.8
$ 2,845.4 $ 2,430.4
420.9
(1) The Ocean Transportation segment includes $76.2 million and $87.0 million related to the Company’s equity investment in SSAT as of
December 31, 2019 and 2018, respectively.
50
4.
INVESTMENT IN SSAT
The Company accounts for its 35 percent ownership interest in SSAT using the equity method of accounting. The
Company records its share of income from SSAT in costs and expenses within the Ocean Transportation segment due to
operations of SSAT being an integral part of the Company’s Ocean Transportation business. The Company’s investment
in SSAT was $76.2 million and $87.0 million at December 31, 2019 and 2018, respectively.
The Company’s share of income recorded in the Consolidated Statements of Income and Comprehensive Income and
dividends received by the Company during the years ended December 31, 2019, 2018 and 2017 are as follows:
(In millions)
Company's share of net income
Distributions received
Years Ended December 31,
2018
2017
2019
$ 20.8 $ 36.8 $ 28.2
$ 25.2 $ 42.0 $ 17.5
SSAT adopted the new lease accounting standard ASC 842 during the year ended December 31, 2019. As part of the
adoption, the Company recorded a net adjustment that reduced retained earnings by $5.6 million representing its portion
of SSAT’s total impact of adopting the new lease accounting standard.
The Company’s Ocean Transportation segment operating costs include $218.7 million, $213.4 million and
$181.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, for terminal services provided by
SSAT. Accounts payable and accrued liabilities in the Consolidated Balance Sheets include $63.6 million and $59.2
million for terminal services payable to SSAT at December 31, 2019 and 2018, respectively.
A summary of the condensed balance sheets of SSAT at December 31, 2019 and 2018 is as follows:
Condensed Balance Sheets (in millions)
Current assets
Non-current assets (1)
Total Assets
Current liabilities (1)
Non-current liabilities (1)
Equity
Total Liabilities and Equity
$
As of December 31,
2019
2018
300.8 $ 310.4
152.1
$ 1,583.8 $ 462.5
1,283.0
$
201.9 $
71.0
156.2
235.3
$ 1,583.8 $ 462.5
1,179.2
202.7
(1) Non-current assets, current liabilities and non-current liabilities include $1,117.0 million, $135.7 million and $1,033.1 million at December 31,
2019, respectively, related to operating lease right of use assets and operating lease liabilities recorded as a result of the adoption of the new lease
accounting standard during the year ended December 31, 2019.
A summary of the condensed statements of operating income and net income of SSAT for years ended December 31,
2019, 2018 and 2017 are as follows:
Condensed Statements of Operating Income and Net Income (in millions)
Operating revenue
Operating costs and expenses
Operating income
Net Income (1)
Years Ended December 31,
2018
2019
2017
$ 1,098.3 $ 1,074.2 $ 933.5
850.2
83.3
80.9
1,035.3
63.0
57.2 $
963.7
110.5
104.9 $
$
(1)
Includes earnings from equity method investments held by SSAT less earnings allocated to non-controlling interests.
51
5.
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2019 and 2018, and depreciation expense for the years ended December 31,
2019, 2018 and 2017 is as follows:
As of December 31, 2019
As of December 31, 2018
Accumulated
Depreciation Net Book Value
(In millions)
Vessels
Containers and equipment
Terminal facilities and other property
Vessel construction in progress
Other construction in progress
Cost
$ 1,653.5 $
544.5
114.4
488.9
35.4
818.5 $
378.8
41.3
—
—
Total
$ 2,836.7 $ 1,238.6 $
(In millions)
Depreciation expense
Cost
835.0 $ 1,489.2 $
165.7
73.1
488.9
35.4
513.6
66.0
487.2
59.2
1,598.1 $ 2,615.2 $ 1,248.6 $
Accumulated
Depreciation Net Book Value
642.1
150.7
27.4
487.2
59.2
1,366.6
847.1 $
362.9
38.6
—
—
Years Ended December 31,
2018
2017
2019
$
86.3 $
80.5 $
86.7
Property and equipment included assets subject to capital leases with a net book value of $0.1 million, net of
accumulated depreciation of $0.7 million at December 31, 2018. There were no capital leases outstanding as of
December 31, 2019. Depreciation of assets subject to capital leases recorded in the Consolidated Statement of Income
and Comprehensive Income was $0.5 million and $1.5 million for the years ended December 31, 2018 and 2017,
respectively.
6.
GOODWILL AND INTANGIBLE ASSETS
Goodwill by segment as of December 31, 2019 and 2018 consists of the following:
Ocean
(In millions)
Goodwill
Transportation Logistics Total
$
105.2 $ 327.8
222.6 $
Logistics goodwill of $105.2 million includes $78.6 million acquired as part of the acquisition of Span Intermediate,
LLC (“Span Alaska”) in August 2016 that was allocated to the Span Alaska reporting unit, and $26.6 million relates to
other Logistics acquisitions that were allocated to the Logistics reporting unit.
Intangible assets by segment as of December 31, 2019 and 2018 consist of the following:
As of December 31, 2019
As of December 31, 2018
(In millions)
Ocean Transportation - Customer relationships $ 140.6 $
Logistics:
Gross Accumulated
Amount Amortization Net Book Value Amount Amortization Net Book Value
116.2
Gross Accumulated
109.4 $ 140.6 $
31.2 $
24.4 $
Customer relationships
Trade name
Total Logistics
Total
90.1
27.3
117.4
$ 258.0 $
23.9
—
23.9
55.1 $
66.2
27.3
93.5
202.9 $ 258.0 $
90.1
27.3
117.4
19.6
—
19.6
44.0 $
70.5
27.3
97.8
214.0
Ocean Transportation intangible assets of $140.6 million relate to customer relationships acquired as part of the
acquisition of Horizon Lines, Inc. (“Horizon”) on May 29, 2015, and are being amortized over 21 years. Logistics
intangible assets include $79.3 million of customer relationships which are being amortized over 20 years, and
$27.3 million of an indefinite life trade name, both acquired as part of the Span Alaska acquisition. The remaining
Logistics customer relationships of $10.8 million are being amortized over a period of up to 13 years.
52
Intangible assets related amortization expense for 2019, 2018 and 2017, is as follows:
(In millions)
Amortization expense
Years Ended December 31,
2018
2017
2019
$
11.1 $
11.2 $
11.4
As of December 31, 2019, estimated amortization expense related to customer relationships intangible assets during the
next five years and thereafter is as follows:
Year (in millions)
2020
2021
2022
2023
2024
Thereafter
Total
Customer
Relationships
$
$
11.0
10.9
10.7
10.7
10.7
121.6
175.6
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 fleet.
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 built in the U.S. and
used between covered U.S. ports as described by the Merchant Marine Act, and for other qualifying expenditures (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 income tax provision. Qualified withdrawals from the CCF do not give
rise to a current income 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.
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 in the Consolidated Balance Sheets either as obligations of the Company’s current assets or as receivables from
the CCF.
As of December 31, 2019 and 2018, $1.7 million and $1.0 million, respectively, of eligible accounts receivable were
assigned to the CCF. Due to the nature of the assignment of eligible accounts receivable into the CCF, such assigned
amounts are classified as part of accounts receivable in the Consolidated Balance Sheets. At December 31, 2019 and
2018, the amounts on deposit in the CCF invested in a money market fund, which is classified as other long-term assets
in the Company’s Consolidated Balance Sheets, were nominal.
53
8.
DEBT
At December 31, 2019 and 2018, the Company’s debt consisted of the following:
(In millions)
Private Placement Term Loans:
5.79 %, payable through 2020
3.66 %, payable through 2023
4.16 %, payable through 2027
3.37 %, payable through 2027
3.14 %, payable through 2031
4.31 %, payable through 2032
4.35 %, payable through 2044
3.92 %, payable through 2045
Title XI Debt:
5.34 %, payable through 2028
5.27 %, payable through 2029
Revolving credit facility, maturity date of June 29, 2022
Capital leases
Total Debt
Less: Current portion
Total Long-term Debt
The following is a description of the Company’s debt:
$
As of December 31,
2018
2019
3.5 $
31.9
39.3
75.0
188.0
30.3
100.0
69.5
10.5
41.0
44.5
75.0
200.0
32.7
100.0
71.4
19.8
22.0
379.1
—
958.4
(48.4)
22.0
24.2
235.0
0.1
856.4
(42.1)
$ 910.0 $ 814.3
Private Placement 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 $170.0 million of unsecured notes, which funded in three
tranches, $77.5 million at an interest rate of 3.66 percent, $55.0 million at an interest rate of 4.16 percent, and
$37.5 million at an interest rate of 4.31 percent (the “2012 Notes”). Principal and interest are payable semi-annually.
The 2012 Notes began to amortize in 2015 with aggregate semi-annual payments of $4.6 million which continued
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 $100.0 million of 30-year senior unsecured notes at an interest rate of
4.35 percent, payable semi-annually (the “2014 Notes”). 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 issued $75.0 million of 30-year senior unsecured notes at an interest rate of 3.92 percent,
payable semi-annually (the “2015 Notes”). The 2015 Notes began 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.
In September 2016, the Company issued $200.0 million of 15-year senior unsecured notes (the “Series D Notes”) at an
interest rate of 3.14 percent, payable semi-annually. The Series D Notes began to amortize in 2019, with semi-annual
principal payments of $6.0 million. During the years 2020 through 2023, semi-annual principal payments will be
$9.2 million. Starting in 2024, and in each year thereafter through maturity in 2031, the semi-annual principal payments
will be $7.15 million.
In December 2016, the Company issued $75 million of 11-year senior unsecured notes at an interest rate of 3.37 percent,
payable semi-annually (the "Series A Notes"). The Series A Notes will begin to amortize in 2021, with principal
payments of $5.8 million in 2021 and $11.5 million per year, paid semi-annually, from 2022 through 2027.
54
Title XI Debt: In September 2003, MatNav issued $55.0 million in U.S. Government guaranteed vessel finance bonds
(Title XI) to finance the delivery of Manukai. The secured bonds have a final maturity in September 2028 with a coupon
rate of 5.34 percent. The bonds are amortized by semi-annual payments of $1.1 million plus interest. In August 2004,
MatNav issued $55.0 million of U.S. Government guaranteed vessel finance bonds (Title XI) to finance the delivery of
Maunawili. The secured bonds have a final maturity in July 2029 with a coupon rate of 5.27 percent. The bonds are
amortized by semi-annual payments of $1.1 million plus interest.
Revolving Credit Facility: On June 29, 2017 (the “Closing Date”), the Company entered into an amended and restated
credit agreement that provides the Company with additional sources of liquidity for working capital, capital expenditures
and investment opportunities, and amends and restates the Company’s previously amended and restated credit agreement
(the “Credit Agreement” or the “revolving credit facility”). The Credit Agreement expires on June 29, 2022, and
provides for committed aggregate borrowing of up to $650 million, with an uncommitted option to increase the
aggregate borrowing by up to $250 million. The aggregate borrowing within the Credit Agreement includes a
$100 million sublimit for the issuance of standby and commercial letters of credit, and a $50 million sublimit for swing
line loans. The Company may prepay any amounts outstanding under the Credit Agreement without premium or
penalty. All obligations of the Company under the Credit Agreement are guaranteed by Matson’s principal operating
subsidiary MatNav and by certain other subsidiaries.
Depending on the Company’s consolidated net leverage ratio, borrowings under the Credit Agreement bear interest at
either LIBOR plus a margin of between 1.00 percent and 1.75 percent or the base rate plus a margin of between zero
percent and 0.75 percent. Letters of credit are subject to fees based on the Company’s consolidated net leverage ratio at
a rate of between 1.00 percent and 1.75 percent. The Company also pays a commitment fee of between 0.15 percent and
0.30 percent depending on the Company’s consolidated net leverage ratio.
As of December 31, 2019, the Company had $75.1 million of remaining availability under the Credit Agreement. The
Company used $7.7 million of the sublimit for letters of credit outstanding as of December 31, 2019. Based on the
Company’s consolidated net leverage ratio, which stipulates borrowing margins, the interest rate applicable to revolving
credit facility usage was approximately 3.33 percent at December 31, 2019.
Amendments to Existing Private Placement Term Loan Facilities and New Shelf Facilities (“Private Loan Facilities”):
On June 29, 2017, the Company and the holders of the Company’s term loans entered into amendments (collectively, the
“2017 Amendments”) to each of the term loan agreements and amendments thereto, previously issued prior to the
Closing Date. The 2017 Amendments provide for amendments to certain covenants and other terms, including (at the
Company’s option under certain circumstances) adjustments to the required consolidated leverage ratio, and, in
connection with the exercise of such option, the payment of additional interest for certain pre-defined periods. Interest
rates and other substantive terms remained unchanged.
Interest Rates: The Company incurs interest on debt based upon the levels of outstanding borrowings throughout the
year and the related interest rates as described above. Interest rates on the private placement term loans increase when
the Company elects for Special Relief Periods to the maximum consolidated leverage ratio as defined within the 2017
Amendments.
Debt Covenants in the Private Placement Term Loans and the Revolving Credit Facility: The Credit Agreement and
Private Loan Facilities (collectively, the “Private Debt Agreements”) contain affirmative, negative and financial
covenants customary for financings of this type, including, among other things, limitations on certain other indebtedness,
loans and investments, liens, mergers, asset sales, and transactions with affiliates as defined within the Private Debt
Agreements. The Private Debt Agreements also contain customary events of default, including cross defaults to other
material indebtedness, including the Title XI Debt (as defined below). A brief description of the principal covenants
contained in the Private Debt Agreements includes, but is not limited to the following (as defined within the
Agreements):
Minimum Consolidated Interest Coverage Ratio as of the end of any fiscal quarter is not permitted to be less than
3.50 to 1.0;
Maximum Consolidated Leverage Ratio as of the end of any fiscal quarter is not permitted to exceed 3.25 to 1.0,
subject to the Company’s election of Special Relief Periods in which the Maximum Consolidated Leverage Ratio is
55
not permitted to exceed 3.75 to 1.0 as described in the Private Debt Agreements;
The principal amount of Priority Debt: (i) is not permitted to exceed 20 percent of Consolidated Tangible Assets at
any time (subject to a reduction to 17.5 percent upon the earlier of December 31, 2017, or upon the occurrence of
certain events), and; (ii) the principal amount of Priority Debt that is not Title XI Priority Debt at any time is not
permitted to exceed 10 percent of Consolidated Tangible Assets.
Principal covenants generally will restrict the incurrence of liens except for permitted liens, which include, without
limitation, liens securing Title XI Debt up to certain thresholds, as defined within the Private Debt Agreements. The
Company was in compliance with these covenants as of December 31, 2019.
Debt Covenants in the Title XI Debt Agreements: The Title XI debt agreements contain customary representations and
warranties as well as affirmative and negative covenants, defaults and other provisions typical for MARAD-guaranteed
financings of this type, with definitions and limitations as defined within the Title XI debt agreements. These covenants
include, among other things, minimum working capital and net worth requirements, limitations on certain other
indebtedness, loans and investments, liens, mergers, asset sales, sale and leaseback transactions, and transactions with
affiliates as defined within the Title XI debt agreements. Certain of the covenants in the Title XI debt agreements are
applicable only upon and during the continuance of either (i) an event of default or (ii) the failure of MatNav to meet
certain financial requirements.
Capital Leases: The Company’s capital lease obligations represent leasing of containers and other equipment, and have
been classified as current and long-term debt in the Company’s Consolidated Balance Sheets. As of December 31, 2019,
there were no capital lease obligations.
Debt Security and Guarantees: All of the debt of the Company and MatNav, including related guarantees, as of
December 31, 2019 was unsecured, except for the Title XI Debt.
Debt Maturities: At December 31, 2019, debt maturities during the next five years and thereafter are as follows:
Year (in millions)
2020
2021
2022
2023
2024
Thereafter
Total debt
9.
LEASES
Total
48.4
54.2
439.0
59.9
55.8
301.1
958.4
$
$
New Lease Accounting Standard: The Company adopted the new lease accounting standard ASC 842 on January 1,
2019, and made the following elections:
Applied the transition requirements that resulted in a cumulative-effect adjustment of $4.4 million recorded to
retained earnings at January 1, 2019, due to the elimination of deferred gains from the Company’s sale and
leaseback transactions recorded in the Consolidated Balance Sheet as of December 31, 2018;
Elected to apply the package of practical expedient permitted under the transition guidance which allows, among
other things, the historical lease classification and initial direct costs to be carried forward;
Elected the short-term lease exception which allows the Company to exclude leases with an initial term of one year
or less from recognition on the Consolidated Balance Sheets;
Elected to separate non-lease components by underlying asset class for real estate and terminal leases and operations
equipment leases; and
Elected to use a portfolio approach in applying discount rates to leases based upon the lease terms in the following
categories: (i) one to five years; (ii) six to ten years; (iii) eleven to fifteen years; and (iv) sixteen years and greater,
regardless of the type of underlying asset class.
56
Upon adoption of ASC 842, the Company recorded a right-of-use asset of $251.4 million and a corresponding operating
lease liability of $259.1 million at January 1, 2019. As part of the adoption, the Company recorded a net adjustment to
retained earnings of $4.4 million at January 1, 2019. The adoption of ASC 842 did not have a significant impact on the
Company’s current earnings, liquidity or existing debt covenant requirements. Significant assumptions and judgments
made in applying the new lease accounting standard include determining the Company’s incremental borrowing rate and
evaluating the probability of exercising lease options.
Description of Operating Leases: The Company has different types of operating leases, the specific terms and
conditions of which vary from lease to lease. Certain operating lease agreements include terms such as: (i) renewal and
early termination options; (ii) early buy-out and purchase options; and (iii) rent escalation clauses. The lease agreements
also include provisions for the maintenance of the leased asset and payment of lease related costs. The Company
reviews the specific terms and conditions of each lease and, as appropriate, notifies the lessor of any intent to exercise
any option in accordance with the terms of the lease. In the normal course of business, the Company expects to be able
to renew or replace most of its operating leases with other similar leases as they expire. Except for the residual value
guarantee described below, the Company’s leases do not contain any other residual value guarantees.
The Company’s sub-lease income was nominal to the Company’s Consolidated Statements of Income and
Comprehensive Income for the year ended December 31, 2019. The Company did not have any finance leases during
the year ended December 31, 2019. Certain of the Company’s lease agreements include rental payments that may be
adjusted in the future based on economic conditions and others include rental payments adjusted periodically for
inflation. Variable lease expense is disclosed for the adjusted portion of such payments.
The lease type by underlying asset class and maximum terms of the Company’s operating leases are as follows:
Lease Type:
Real estate and terminal leases
Vessel charter leases
Operations equipment and other leases
Life
65 years
10 years
8 years
Incremental Borrowing Rate: As most of the Company’s operating leases do not provide an implicit rate, the Company
uses an estimated incremental borrowing rate based on information available at the date of adoption and subsequent
lease commencement dates in calculating the present value of its operating lease liabilities. The incremental borrowing
rate is determined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and the collateralized
nature of operating leases.
Components of Lease Cost: Components of lease cost recorded in the Company’s Consolidated Statement of Income
and Comprehensive Income for the year ended December 31, 2019 consisted of the following:
(In millions)
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Year Ended
December 31,
2019
$
$
71.4
5.9
0.4
77.7
Other Lease Information: Other information related to the Company’s operating leases for the year ended December 31,
2019 is as follows:
(In millions)
Cash paid for amounts included in operating lease liabilities
Right of use assets obtained in the exchange for new operating lease liabilities
Weighted-average remaining operating lease term
Weighted-average incremental borrowing rate
57
Year Ended
December 31,
2019
$
$
71.3
65.3
As of
December 31, 2019
7.5 years
4.2%
Maturities of operating lease liabilities at December 31, 2019 are as follows:
Year (in millions)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Interest
Present value of operating lease liabilities
Less: Short-term portion
Long-term operating lease liabilities
Future minimum payments under operating lease agreements at December 31, 2018 are as follows:
Year (in millions)
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Vessel Charter and Buyer-Lessor Guaranty
As of
December 31, 2019
75.9
$
55.1
43.6
38.0
23.0
78.7
314.3
(49.7)
264.6
(66.6)
198.0
$
Total
68.3
59.2
44.8
34.7
30.5
83.6
321.1
$
$
Vessel Charter: On November 26, 2018, a wholly-owned subsidiary of the Company entered into agreements whereby a
vessel, Maunalei, owned by the subsidiary, was sold for $106.0 million and subsequently leased back from the buyer-
lessor under a Bareboat Charter Agreement (the “Charter”). The transaction qualified for sale and leaseback treatment
under ASC 840, Leases, with the Charter treated as an operating lease for accounting purposes. Lease payments are
approximately $3.0 million per quarter, and the base term of the Charter is five years with a two year end-of-term
renewal option. Total future minimum lease payments were $47.9 million at December 31, 2019, and are included in the
maturities of operating lease liabilities table at December 31, 2019.
Prior to the expiration of the base term of the Charter, the subsidiary may, at its option, elect to: (i) purchase the vessel at
the option price; (ii) exercise the option to renew the Charter for an additional two years; or (iii) remarket the vessel to
sell to a third-party on behalf of the buyer-lessor. The purchase option price is $68.9 million after the base term and
$58.3 million after the extended term. The Charter also includes a maximum residual value guarantee amount of
$50.9 million after five years, or $47.7 million after the extended term. Proceeds from the sale of the vessel reduces the
subsidiary’s residual value guarantee.
Buyer-Lessor Guaranty: Matson, Inc. provided the buyer-lessor with a guaranty of all obligations of the wholly-owned
subsidiary related to the Charter as defined in the guaranty agreement.
10.
INCOME TAXES
Income Taxes: On December 22, 2017, the Tax Act was signed into law and included numerous changes to existing tax
law, including a reduction in the federal corporate income tax rate from 35 percent to 21 percent. The rate reduction and
other changes took effect on January 1, 2018. Other changes such as remeasurement of deferred tax assets and liabilities
were effective as of the fourth quarter of 2017.
In connection with the Company’s analysis of the impact of the Tax Act, the Company recorded a net tax benefit of
$154.0 million related to the remeasurement and other discrete adjustments to the Company’s deferred tax assets and
liabilities during the year ended December 31, 2017. In addition, the Company recorded a non-cash tax adjustment of
58
$2.9 million that increased current income taxes during the year ended December 31, 2018. This adjustment related to
the application of an estimated 6.2 percent sequestration on alternative minimum tax (AMT) refunds for the years 2018
to 2021. On January 19, 2019, the Internal Revenue Service issued new guidance indicating that sequestration would not
apply to refundable AMT credits. In accordance with this new guidance, the Company recorded a non-cash tax
adjustment of $2.9 million that reduced current income taxes during the year ended December 31, 2019.
Income taxes for the years ended December 31, 2019, 2018 and 2017 consisted of the following:
(In millions)
Current:
Federal
State
Foreign
Discrete adjustments related to the Tax Act (1)
Total
Deferred:
Deferred tax expense
Remeasurement and discrete adjustments related to the Tax Act (2)
Total
Total income taxes
Years Ended December 31,
2018
2017
2019
$
0.2 $
3.2
1.3
(2.9)
1.8
1.5 $
2.1
0.9
2.9
7.4
21.1
2.2
0.5
—
23.8
23.3
—
23.3
25.1 $
24.4
31.3
(154.0)
—
(129.6)
31.3
38.7 $ (105.8)
$
(1) Current income taxes for the years ended December 31, 2019 and 2018 include a non-cash income tax benefit of $2.9 million and a non-cash
income tax expense of $2.9 million, respectively, which relates to discrete adjustments as a result of applying the provisions of the Tax Act.
(2) Deferred income taxes for the year ended December 31, 2017 includes a non-cash income tax benefit of $154.0 million, which relates to the
remeasurement of the Company’s deferred tax assets and liabilities and other discrete adjustments as a result of applying the provisions of the
Tax Act.
Income taxes for the years ended December 31, 2019, 2018 and 2017 differ from amounts computed by applying the
statutory federal rate to income before income taxes for the following reasons:
Computed federal income tax expense
State income tax
Valuation allowance
Foreign taxes
Remeasurement and discrete adjustments related to the Tax Act (1)
Share-based payments
Other — net
Effective income tax rate
Years Ended December 31,
2017
2018
2019
21.0 % 21.0 % 35.0 %
2.6 %
3.4 %
4.1 %
1.4 %
(0.7)%
(0.3)%
0.6 %
0.1 %
1.2 %
2.0 % (123.0) %
(2.7)%
(1.4) %
0.1 %
(0.1)%
0.1 %
0.8 %
(0.2)%
23.3 % 26.2 % (84.5) %
(1) Effective income tax rate for the years ended December 31, 2019, 2018 and 2017 includes the impact of a non-cash income tax benefit of
$2.9 million, or 2.7 percent, a non-cash income tax expense of $2.9 million, or 2.0 percent, and a non-cash income tax benefit of $154.0 million,
or 123.0 percent, respectively, related to the remeasurement of the Company’s deferred assets and liabilities and other discrete adjustments as a
result of applying the provisions of the Tax Act.
59
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2019 and 2018, were as follows:
(In millions)
Deferred tax assets:
Operating lease liabilities
Pension and post-retirement plans
Multi-employer withdrawal liabilities
Federal net operating losses
State net operating losses
U.S. State alternative minimum tax credits
Insurance reserves
Deferred compensation
Foreign losses
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Basis differences for property and equipment
Operating lease right of use assets
Intangibles
Lease financing
Capital Construction Fund
Investment in SSAT
Other
Total deferred tax liabilities
Deferred tax liability, net
$
As of December 31,
2018
2019
63.1 $
19.2
16.1
14.3
7.3
6.7
5.9
5.8
3.9
2.0
144.3
(10.6)
133.7
—
20.2
16.6
15.2
7.4
5.9
5.6
7.0
5.1
4.7
87.7
(11.5)
76.2
319.2
61.1
39.7
23.7
12.5
7.4
7.7
471.3
302.1
—
38.4
26.0
7.0
11.4
4.0
388.9
$ 337.6 $ 312.7
Valuation Allowance: Valuation allowances recorded against the Company’s foreign income tax net operating losses
(“NOLs”) and a portion of the state income tax NOLs were $10.6 million and $11.5 million as of December 31, 2019
and 2018, respectively. The Company believes that it is more likely than not that the benefit from these amounts will not
be realized. The Company recorded a decrease (increase) to its valuation allowance of $0.9 million, ($1.1) million and
$1.7 million during the years ended December 31, 2019, 2018 and 2017, respectively.
Net Operating Losses and Tax Credit Carryforwards: The Company’s NOLs and tax credit carryforwards at
December 31, 2019 and 2018 were as follows:
(In millions)
U.S. Federal income tax NOLs
U.S. State income tax NOLs (1)
U.S. State alternative minimum tax credit
Foreign income tax NOLs (2)
Expiration Date
Various dates beginning in 2027
Various dates beginning in 2032
No expiration date
No expiration date
2019
2018
$
$
$
$
71.2 $
184.5 $
6.7 $
14.0 $
74.5
189.2
5.9
18.4
(1) The Company does not expect to benefit from $157.9 million and $152.0 million of U.S. State income tax NOLs as of December 31, 2019 and
2018, respectively.
(2) The Company has recorded a valuation allowance of $14.0 million and $18.4 million against the foreign income tax NOLs as of December 31,
2019 and 2018, respectively.
The U.S. federal and state income tax NOLs in the Company’s filed income tax returns include unrecognized tax
benefits. The deferred tax assets recognized for those NOLs are presented net of these unrecognized tax benefits. As a
result of changes in tax legislation, the 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 federal and state income tax NOLs and tax credit
carryforwards may expire before being applied to reduce future income tax liabilities.
60
Unrecognized Tax Benefits: Total unrecognized benefits represent the amount that, if recognized, would favorably
affect the Company’s incomes taxes and effective tax 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:
Unrecognized Tax Benefits (in millions)
Balance at December 31, 2016
Changes in tax positions of prior years, net
Reductions for lapse of statute of limitations
Revaluation of unrecognized tax benefits due to the Tax Act (1)
Balance at December 31, 2017
Changes in tax positions of prior years, net
Reductions for lapse of statute of limitations
Balance at December 31, 2018
Changes in tax positions of prior years, net
Reductions for lapse of statute of limitations
Balance at December 31, 2019
$
Amount
20.4
1.1
(0.1)
(5.5)
15.9
(0.3)
(0.5)
15.1
2.1
(0.8)
16.4
$
(1) Amount relates to the impact of applying the Tax Act during the year ended December 31, 2017.
Included in the balance of unrecognized tax benefits at December 31, 2019 are potential benefits of $13.5 million that, if
recognized, would affect the Company’s income taxes and effective tax rate. The Company recognizes potential accrued
interest and penalties related to unrecognized tax benefits in income taxes. 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 Company’s income taxes. Interest accrued related to the balance of unrecognized tax
benefits totaled $0.1 million and $0.4 million as of December 31, 2019 and 2018, respectively.
The Company is no longer subject to U.S. federal income tax audits for years before 2014. The Company is routinely
involved in state, local income and excise tax audits, and foreign 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. Most non-bargaining retirees pay a portion of the
benefit costs.
Plan Administration, Investments and Asset Allocations: The Company has a Benefits Investment Committee that meets
regularly with investment advisors to establish investment policies, direct investments and select investment options for
the qualified plans. The Benefits 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 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.
61
The Company’s target and actual asset allocations at December 31, 2019 and 2018 were as follows:
Asset Categories
Domestic equity securities
International equity securities
Debt securities
Real estate
Other and cash
Total
Target 2019 2018
53 % 59 % 57 %
15 % 17 % 16 %
22 % 17 % 19 %
7 %
6 %
1 %
1 %
100 % 100 % 100 %
5 %
5 %
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 target 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.
Actual return on plan assets for the periods presented are as follows:
Actual Return on Plan Assets
One-year return
Three-year return
Five-year return
Long-term average return (since plan inception in 1989)
Returns
22.5 %
9.5 %
6.9 %
8.4 %
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 and Private Equity Funds: The fair value of real estate and private equity funds are determined by the issuer
based on their net asset value (“NAV”). NAV is determined by dividing the fund’s net assets, as recorded in the fund’s
audited financial statements, 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 funds 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.
62
The fair values of the Company’s pension plan assets at December 31, 2019 and 2018 by asset category, were as
follows:
Fair Value Measurements at December 31, 2019
Asset Category (in millions)
Cash
Equity securities:
U.S. large-cap
U.S. mid- and small-cap
International large-cap
Fixed income securities:
U.S. Treasuries
Investment grade U.S. corporate bonds
High-yield U.S. corporate bonds
Total
Investment measured at NAV (1)
Total plan assets
Asset Category (in millions)
Cash
Equity securities:
U.S. large-cap
U.S. mid- and small-cap
International large-cap
Fixed income securities:
U.S. Treasuries
Municipal bonds
Investment grade U.S. corporate bonds
High-yield U.S. corporate bonds
Total
Investment measured at NAV (1)
Total plan assets
Total
(Level 1)
Quoted Prices in Significant
Observable
Active Markets
Significant
Unobservable
Inputs (Level 2) Inputs (Level 3)
—
— $
6.3 $
23.7
33.9
—
—
—
—
63.9 $
38.7
15.7
6.6
14.1
18.2
0.1
93.4 $
—
—
—
—
—
—
—
Fair Value Measurements at December 31, 2018
Total
(Level 1)
Quoted Prices in Significant
Observable
Active Markets
Significant
Unobservable
Inputs (Level 2) Inputs (Level 3)
—
— $
6.2 $
24.9
25.8
—
—
—
—
—
56.9 $
25.7
12.6
5.5
8.0
0.1
20.8
0.5
73.2 $
—
—
—
—
—
—
—
—
$
6.3 $
62.4
49.6
6.6
14.1
18.2
0.1
157.3 $
37.5
$ 194.8
$
6.2 $
50.6
38.4
5.5
8.0
0.1
20.8
0.5
130.1 $
32.2
$ 162.3
(1) Real estate and private equity funds for which fair value is measured using the NAV per share as a practical expedient are not leveled within the
fair value hierarchy and are included as a reconciling item to total plan assets.
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. The Company’s funding policy is to
contribute cash to its pension plans so that it meets at least the minimum contribution requirements. In 2019 and 2017,
the Company contributed $10.0 million and $3.0 million, respectively, in pension contributions in these plans. There
was no pension contribution to these plans in 2018.
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.
63
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, 2019 and 2018 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,
Post-retirement
Benefits
December 31,
2019
2018
2019
2018
$ 217.4 $ 232.1 $ 22.2 $ 27.7
0.6
1.0
0.9
(6.2)
(1.8)
—
22.2
4.4
8.6
—
(14.1)
(12.0)
(1.6)
217.4
4.7
9.3
—
22.2
(12.2)
(1.5)
239.9
0.4
0.9
0.8
3.4
(1.7)
—
26.0
162.2
36.3
—
10.0
(12.2)
(1.5)
194.8
—
—
0.9
0.9
(1.8)
—
—
$ (45.1) $ (55.2) $ (26.0) $ (22.2)
186.7
(10.9)
—
—
(12.0)
(1.6)
162.2
—
—
0.8
0.9
(1.7)
—
—
Qualified pension and post-retirement benefits plans liabilities recognized in the Consolidated Balance Sheets and
expenses recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 were as
follows:
Pension Benefits
December 31,
Post-retirement
Benefits
December 31,
(In millions)
Non-current assets
Current liabilities
Non-current liabilities, net
Total
Net loss, net of taxes
Prior service credit, net of taxes
Total
2019
$
2018
2019
2018
1.0 $
—
(46.1)
—
(1.2)
(21.0)
$ (45.1) $ (55.2) $ (26.0) $ (22.2)
0.8 $
—
(56.0)
(1.0)
(25.0)
— $
$ (56.2) $ (61.8) $ (2.8) $ (0.1)
21.8
$ (51.9) $ (55.8) $ 16.3 $ 21.7
19.1
6.0
4.3
The information for qualified defined benefit pension plans with an accumulated benefit obligation in excess of plan
assets at December 31, 2019 and 2018 is shown below:
(In millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2019
2018
$ 238.3 $ 215.9
$ 237.9 $ 215.6
$ 192.2 $ 159.9
The estimated net loss and prior service credit for the qualified pension plans that will be amortized from accumulated
other comprehensive income (loss) is a net periodic cost of $1.5 million, net of tax, in 2020. The estimated net loss and
prior service credit for the post-retirement benefit plans that will be amortized from accumulated other comprehensive
income (loss) is a net periodic benefit credit of $2.3 million, net of tax, in 2020.
64
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 benefit plans during 2019, 2018 and 2017 were as follows:
(In millions)
Components of Net Periodic Benefit Cost (Benefit):
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Amortization of prior service credit
Net periodic benefit cost
Pension Benefits
December 31,
2018
2017
2019
Post-retirement Benefits
December 31,
2018
2017
2019
$
4.7 $
9.3
(11.9)
5.2
(2.3)
5.0
4.4 $
8.6
(13.5)
4.6
(2.3)
1.8
4.0 $
9.7
(13.5)
5.1
(2.3)
3.0
0.4 $
0.9
—
(0.1)
(3.8)
(2.6)
0.6 $ 0.5
1.1
1.0
—
—
1.2
1.5
(3.8)
(3.8)
(1.0)
(0.7)
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income, net of tax:
Net loss (gain)
Amortization of net (loss) gain
Amortization of prior service credit
Total recognized in other comprehensive (income) loss
Total recognized in net periodic benefit cost and other
comprehensive (income) loss
(1.7)
(3.9)
1.7
(3.9)
7.8
(3.5)
1.7
6.0
0.8
(3.1)
1.4
(0.9)
2.5
0.2
2.8
5.5
(4.7)
(1.1)
2.8
(3.0)
1.1
(0.7)
2.3
2.7
$
1.1 $
7.8 $
2.1 $
2.9 $
(3.7) $ 1.7
The weighted average assumptions used to determine benefit information during 2019, 2018 and 2017 were as follows:
Discount rate (1)
Expected return on plan assets
Rate of compensation increase
Initial health care cost trend rate:
Pre-65 group
Post-65 group
Ultimate health care cost trend rate
Year ultimate health care cost trend rate is reached:
Pre-65 group
Post-65 group
Pension Benefits
December 31,
Post-retirement Benefits
December 31,
2019 2018 2017 2019 2018 2017
3.40 % 4.40 % 3.80 % 3.50 % 4.50 % 3.90 %
7.50 % 7.50 % 7.75 %
3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 %
5.70 % 6.00 % 6.30 %
5.90 % 6.30 % 6.80 %
4.40 % 4.40 % 4.40 %
2037
2036
2037
2036
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.
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, 2019, 2018 and 2017 and the net periodic post-retirement benefit cost
for 2019, 2018 and 2017, would have increased or decreased as follows:
(In millions)
Effect on total of service cost and interest cost components
Effect on post-retirement benefit obligation
65
Post-retirement Benefits
One Percentage Point
Increase
Decrease
2019 2018 2017 2019 2018 2017
$ 0.2 $ 0.3 $ 0.3 $ (0.2) $ (0.2) $ (0.2)
$ 3.3 $ 2.6 $ 4.0 $ (2.6) $ (2.0) $ (3.0)
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. Non-qualified pension plan liabilities recognized in the Consolidated Balance Sheets and
expenses recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 are as follows:
(In millions)
Current liabilities
Non-current liabilities, net
Total
Net loss, net of taxes
Prior service credit, net of taxes
Total
Non-qualified
Pension Benefits
December 31,
2019
2018
$
$
$
$
(2.1) $
(2.3)
(4.4) $
(0.6) $
0.2
(0.4) $
(1.8)
(2.4)
(4.2)
(0.4)
0.3
(0.1)
Discount rates of 2.8 percent and 4.0 percent were used in determining the 2019 and 2018 non-qualified pension plan
obligations, respectively. The estimated net loss and prior service credit for the non-qualified pension plans that will be
amortized from accumulated other comprehensive income (loss) in 2020 is nominal.
Estimated Benefit Payments: The estimated future benefit payments for the next ten years as of December 31, 2019
were as follows:
Year (in millions)
2020
2021
2022
2023
2024
2025-2029
Total
Non-qualified
Pension
Benefits
Pension
Benefits
Post-retirement
Benefits (1)
13.6 $
13.9
14.2
14.6
14.7
76.2
147.2 $
2.2 $
—
—
2.1
—
0.5
4.8 $
1.0
1.0
1.1
1.2
1.2
5.7
11.2
$
$
(1) Net of plan participants’ contributions and Medicare Part 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 and makes other non-discretionary contributions. For the year
ended December 31, 2019, the Company provided discretionary matching contributions of up to 3 percent of eligible
employee compensation. The Company’s matching contributions expensed in 2019, 2018 and 2017 were $2.9 million,
$2.4 million and $2.4 million, respectively.
The Company may also provide a discretionary profit sharing contribution under the qualified defined contribution
plans, 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 certain eligible employees, 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. Discretionary profit sharing contributions expensed in 2019, 2018 and 2017 were $0.5 million, $1.4 million and
$2.3 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
66
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, 2019, the
Company’s estimated benefit plan withdrawal obligations were $266.7 million. Except as described in Note 12, no
withdrawal obligations have been recorded by the Company in the Consolidated Balance Sheets at December 31, 2019
and 2018, 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 2019 and
2018 is for the plan’s year-end at December 31, 2019 and 2018, 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 orange zone are both a) less than 80 percent funded and
b) have an accumulated/expected funding deficiency in any of the next six plan years, net of any amortization
extensions; plans in the yellow zone meet either one of the criteria mentioned in the orange zone; 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.
Pension Funds
American Radio Association Pension Fund
Hawaii Terminals Multiemployer Pension
Plan
Hawaii Stevedoring Multiemployer
Retirement Plan
Master, Mates and Pilots Pension Plan
Pension
Protection Act
Zone as of
December 31,
FIP/RP Status
Contributions of Matson
Pending/
5%
(in millions)
Surcharge Expiration
Notes 2019 2018 Implemented Contributor 2019 2018 2017 Imposed Date (3)
Green Green Implemented
Yes
$ 1.1 $ 1.0 $ 1.0
No
6/15/2028
EIN/Pension
Plan Number
13-6161999-001
20-0389370-001
Orange Yellow Implemented
Yes
5.7
5.7
5.7
No
6/30/2022
99-0314293-001
13-6372630-001
Yellow Yellow Implemented
Green Green
No
Yes
Yes
4.4
3.4
4.3
3.0
3.8
3.0
No
No
Masters, Mates and Pilots Adjustable Pension
Plan
37-1719247-001
(1)
(1)
MEBA Pension Trust - Defined Benefit Plan 51-6029896-001
Green Green
No
No
Yes
1.9
1.7
1.7
No
Yes
4.3
4.0
4.4
No
OCU Trust Pension Plan
MFOW Supplementary Pension Plan
SIU Pacific District Pension Plan
Alaska Teamster - Employer Pension Plan
26-1574440-001
94-6201677-001
94-6061923-001
92-6003463-024
Green Green
Green Green
Green Green
Red Red Implemented
No
No
No
No
Yes
Yes
Yes
0.2
0.1
1.5
1.9
0.2
—
1.2
1.9
0.2
—
0.7
2.4
No
No
No
Yes
6/30/2022
6/15/2027,
6/15/2028
6/15/2027,
6/15/2028
6/15/2022,
6/15/2028
6/30/2023
6/30/2021
6/30/2021
6/30/2020,
6/30/2021,
6/30/2022,
6/30/2023
6/30/2020
All Alaska Longshore Pension Plan
Western Conference of Teamsters Pension
Plan
Western Conference of Teamsters
Supplemental Benefit Trust
OPEIU Local 153 Pension Plan
Seafarers Pension Trust
Total
91-6085352-001
Green Green
91-6145047-001
Green Green
95-3746907-001
Green
Green
No
No
No
13-2864289-001
13-6100329-001
Red Red Implemented
(2) Green Green
No
Yes
1.2
1.0
0.1
No
No
No
No
No
1.5
1.4
1.3
No
3/31/2023
—
0.1
—
—
0.1
—
$ 27.3 $ 25.5 $ 24.4
—
0.1
—
No
No
No
3/31/2023
11/09/2020
6/30/2022
(1) 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.
(2) 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.
(3) Represents the expiration date of the collective bargaining agreement.
The Company also contributes to multi-employer plans that provide post-retirement 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 and prescription drug. These plans are not
subject to the PBGC plan termination and withdrawal liability provisions of ERISA applicable to multi-employer
67
defined benefit pension plans. Contributions to these multi-employer postretirement health and other benefits were
$32.8 million, $30.0 million and $27.0 million in 2019, 2018 and 2017, respectively.
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 $5.3 million,
$4.8 million and $5.0 million in 2019, 2018 and 2017, respectively.
12.
MULTI-EMPLOYER WITHDRAWAL LIABILITIES
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 assumed this liability as part of the acquisition of
Horizon on May 29, 2015. The Company estimated the mass withdrawal liability based upon the required undiscounted
quarterly payment of approximately $1.0 million to be paid to the ILA-PRSSA pension fund over a period which ends in
March 2040, discounted to present value using the Company’s incremental borrowing rate. Future estimated annual
payments to be paid to the ILA-PRSSA pension fund as of December 31, 2019 were as follows:
Year (in millions)
2020
2021
2022
2023
2024
Thereafter
Total
$
Total remaining future undiscounted payments due to the ILA-PRSSA pension fund
Less: amount representing interest
Present value of multi-employer withdrawal liability
Current portion of multi-employer withdrawal liability (see Note 2)
Long-term portion of multi-employer withdrawal liability (see Note 2)
$
4.1
4.1
4.1
4.1
4.1
63.9
84.4
(25.5)
58.9
(4.1)
54.8
Furthermore, the Company assumed a partial withdrawal liability related to the Local 153 Fund of the OPEIU. The
partial withdrawal liability resulted from a decline in the number of contribution base units related to the Local 153 Fund
caused by Horizon terminating all of its operations in Puerto Rico during the first quarter of 2015. The Company
included the partial withdrawal liability of $6.7 million within other liabilities in the Consolidated Balance Sheets as of
December 31, 2019 and 2018.
13.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows:
(In millions)
Balance at December 31, 2017
Reclassification adjustment related to the Tax Act (1)
Amortization of prior service cost
Amortization of net loss (gain)
Balance at December 31, 2018
Amortization of prior service cost
Amortization of net loss (gain)
Other adjustments
Balance at December 31, 2019
Benefits Benefits Other
Accumulated
Other
Non-
Qualified
Post-
Pension Retirement Pension
Benefits
$ (40.6) $
(9.2)
(1.7)
(4.3)
(55.8)
(1.7)
5.6
—
15.6 $ (0.3) $ 0.4 $
(0.2)
(0.1)
0.5
(0.1)
(0.1)
(0.2)
—
16.3 $ (0.4) $ (0.9) $
—
—
(0.7)
(0.3)
(0.1)
0.1
(0.6)
3.4
(2.9)
5.6
21.7
(2.6)
(2.8)
—
Comprehensive
Income (Loss)
(24.9)
(6.0)
(4.7)
1.1
(34.5)
(4.5)
2.7
(0.6)
(36.9)
$ (51.9) $
(1) Reclassification from accumulated other comprehensive income (loss) to retained earnings for the remeasurement tax effects resulting from
applying the Tax Act in accordance with ASU 2018-02.
68
Other comprehensive income (loss) in the Consolidated Statements of Income and Comprehensive Income is shown net
of tax benefit (expense) of $(0.3) million, $0.2 million and $(4.4) million for the years ended December 2019, 2018 and
2017, respectively.
14.
EARNINGS PER SHARE
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 a
nominal amount of anti-dilutive non-qualified stock options for each of the years 2019, 2018 and 2017.
The denominators used to compute basic and diluted earnings per share for the years ended December 31, 2019, 2018
and 2017 are as follows:
(In millions, except per share amounts)
Basic:
Effect of Dilutive Securities:
Diluted:
Year Ended December 31, 2019 Year Ended December 31, 2018 Year Ended December 31, 2017
Weighted
Average Common
Common
Weighted
Average Common
Common
Weighted
Average Common
Common
Share
Share
Per
Per
Per
Net
Income
$ 82.7
$ 82.7
Share
Net
Shares Amount
Income
42.8 $ 1.93 $ 109.0
0.5 (0.02)
43.3 $ 1.91 $ 109.0
Net
Shares Amount
Income
42.7 $ 2.55 $ 231.0
0.3 (0.02)
43.0 $ 2.53 $ 231.0
Shares Amount
42.9 $ 5.38
0.3 (0.03)
43.2 $ 5.35
15.
SHARE-BASED AWARDS
The Company has share-based compensation plans which are described as follows:
2016 Incentive Compensation Plan: The 2016 Incentive Compensation Plan (the “2016 Plan”) serves as a successor to
the 2007 Incentive Compensation Plan and all other predecessor plans. No further grants will be made under the
predecessor stock option plans. Under the 2016 Plan, 2.5 million shares of common stock were reserved for issuance.
Shareholders approved the 2016 Plan at the 2016 Annual Meeting of Shareholders.
The 2016 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 generally 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.
Automatic Grant Program — 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, under the
automatic grant program. Awards of restricted stock units granted under the program generally vest on the one-year
anniversary of the grant date.
The shares of common stock authorized to be issued under the 2016 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.
69
Share-based compensation expense and other information related to share-based awards for the years ended
December 31, 2019, 2018 and 2017 are as follows:
Share-based compensation expense, net of estimated forfeitures (in millions)
Share-based compensation expense
Intrinsic value of options exercised
Tax benefit realized upon stock vesting
Fair value of stock vested
Years Ended December 31,
2017
2018
2019
$ 11.3 $ 12.1 $ 11.1
$ 0.5 $ 0.5 $ 0.7
$ 2.0 $ 2.7 $ 6.8
$ 8.2 $ 10.8 $ 17.3
As of December 31, 2019, there was no unrecognized compensation cost related to non-vested stock options. As of
December 31, 2019, unrecognized compensation cost related to non-vested restricted stock units and performance-based
equity awards was $11.7 million. Unrecognized compensation cost is expected to be recognized over a weighted
average period of approximately 1.7 years.
Stock option activity for the year ended December 31, 2019 was as follows (in thousands, except weighted average
exercise price and weighted average contractual life):
Weighted Weighted
Average
Exercise Contractual
Average
Price
Life
Aggregate
Intrinsic
Value
2007 Plan
Shares
Outstanding at December 31, 2018
Exercised
Outstanding at December 31, 2019
Exercisable at December 31, 2019
196 $ 21.81
(23) $ 18.12
173 $ 22.30
173 $ 22.30
1.7 $ 3,203
1.7 $ 3,203
The following table summarizes non-vested restricted stock unit activity through December 31, 2019 (in thousands,
except weighted average grant-date fair value amounts):
Outstanding at December 31, 2018
Granted
Settlement of Performance Shares (1)
Vested
Canceled
Outstanding at December 31, 2019
(1) Represents 2016 Performance Shares paid out below target.
Weighted
2007 Plan 2016 Plan Total
Restricted Restricted Restricted Average Grant-
Stock Units Stock Units Stock Units Date Fair Value
33.92
33.65
37.68
34.36
33.17
33.39
759 $
363 $
(66) $
(240) $
(38) $
778 $
595
363
—
(150)
(38)
770
164
—
(66)
(90)
—
8
16.
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, cash equivalents and restricted cash, and Level 2 inputs
for its variable and fixed rate debt. The fair values of cash, cash equivalents and restricted cash, and variable rate debt
approximate their carrying values due to the nature of the instruments. The fair value of fixed rate debt is calculated
based upon interest rates available for debt with terms and maturities similar to the Company’s existing debt
arrangements.
70
The carrying value and fair value of the Company’s financial instruments as of December 31, 2019 and 2018 are as
follows:
(In millions)
Cash and cash equivalents
Restricted cash
Variable rate debt
Fixed rate debt
(In millions)
Cash and cash equivalents
Restricted cash
Variable rate debt
Fixed rate debt
Total
Carrying Value Total
December 31, 2019
$
$
$
$
21.2 $ 21.2 $
7.2 $ 7.2 $
379.1 $ 379.1 $
579.3 $ 585.9 $
Quoted Prices in
Significant
Active Markets Observable
Significant
Unobservable
Inputs (Level 2) Inputs (Level 3)
(Level 1)
Fair Value Measurements at December 31, 2019
21.2 $
7.2 $
— $
— $
— $
— $
379.1 $
585.9 $
—
—
—
—
December 31, 2018
$
$
$
$
19.6 $ 19.6 $
4.9 $
4.9 $
235.0 $ 235.0 $
621.4 $ 584.5 $
Fair Value Measurements at December 31, 2018
—
—
—
—
— $
— $
235.0 $
584.5 $
19.6 $
4.9 $
— $
— $
17.
COMMITMENTS AND CONTINGENCIES
Commitments and contractual obligations, excluding debt obligations (see Note 8), lease commitments (see Note 9),
pension and post-retirement plan commitments, and multi-employer bargaining plan withdrawal obligations (see Note 11
and 12), are as follows as of December 31, 2019:
Commitments and Contractual Obligations (in millions)
Standby letters of credit (1)
Bonds (2)
Vessel construction obligations (3)
Vendor and other obligations (4)
Total
7.7
33.1
64.8
29.6
$
$
$
$
(1) Standby letters of credit are required for the Company’s uninsured workers’ compensation and other insurance programs, and other needs.
(2) Bonds are required for U.S. Customs and other related matters.
(3) Vessel construction obligations represent remaining contractual obligations entered into for the construction of new vessels.
(4) Vendor and other obligations include: (i) non-cancellable contractual capital project obligations (excluding vessel construction obligations); (ii)
dry-docking related obligations; and (iii) other contractual 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.
Contingencies: Contingencies and other litigation related matters are described as follows:
Environmental Matters: The Company’s Ocean Transportation segment 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.
Other Matters: 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.
71
18.
QUARTERLY INFORMATION (Unaudited)
Segment results by quarter for 2019 and 2018 are as follows:
(In millions, except per share amounts)
Operating Revenue:
Ocean Transportation
Logistics
Total Operating Revenue
Operating Income:
Ocean Transportation
Logistics
Total Operating Income
Interest expense, net
Other income (expense), net
Income before Income Taxes
Income Taxes
Net Income
Basic Earnings Per Share:
Diluted Earnings Per Share:
(In millions, except per share amounts)
Operating Revenue:
Ocean Transportation
Logistics
Total Operating Revenue
Operating Income:
Ocean Transportation
Logistics
Total Operating Income
Interest expense, net
Other income (expense), net
Income before Income Taxes
Income Taxes
Net Income
Basic Earnings Per Share:
Diluted Earnings Per Share:
Quarters in the Year Ended December 31, 2019
Q1
Q4
Q2
Q3
$ 397.9 $ 415.4 $ 437.2 $ 416.1
124.6
$ 532.4 $ 557.9 $ 572.1 $ 540.7
142.5
134.5
134.9
$
9.4 $ 19.7 $ 43.9 $ 17.8
7.6
8.1
25.4
17.5
(5.6)
(4.6)
0.3
0.6
20.1
13.5
(4.5)
(1.0)
$ 12.5 $ 18.4 $ 36.2 $ 15.6
11.3
55.2
(6.2)
(0.5)
48.5
(12.3)
11.3
31.0
(6.1)
0.8
25.7
(7.3)
$ 0.29 $ 0.43 $ 0.84 $ 0.36
$ 0.29 $ 0.43 $ 0.84 $ 0.36
Quarters in the Year Ended December 31, 2018
Q1
Q4
Q3
Q2
$ 379.3 $ 406.6 $ 437.3 $ 418.1
146.8
$ 511.4 $ 557.1 $ 589.4 $ 564.9
150.5
132.1
152.1
$ 24.5 $ 36.5 $ 48.7 $ 21.4
9.1
30.5
(4.3)
0.7
26.9
(6.3)
$ 14.2 $ 32.6 $ 41.6 $ 20.6
9.9
58.6
(4.4)
0.7
54.9
(13.3)
4.2
28.7
(5.0)
0.8
24.5
(10.3)
9.5
46.0
(5.0)
0.4
41.4
(8.8)
$ 0.33 $ 0.76 $ 0.97 $ 0.48
$ 0.33 $ 0.76 $ 0.97 $ 0.48
The following infrequent transactions impacted the Company’s quarterly segment results during the years ended
December 31, 2019 and 2018:
(In millions)
Income taxes - Discrete adjustments related to the Tax Act (1)
(In millions)
Income taxes - Discrete adjustments related to the Tax Act (1)
Quarters in the Year Ended December 31, 2019
Q1
$
2.9 $
— $
— $
Q2
Q3
Q4
—
Quarters in the Year Ended December 31, 2018
Q1
$
(3.3) $
0.2 $
— $
Q2
Q3
Q4
0.2
(1) Amounts relate to discrete adjustments as a result of applying the Tax Act during the years ended December 31, 2019 and 2018.
72
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 37 for management’s annual report on internal control over financial reporting, which is incorporated herein by
reference.
See page 38 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,
2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
73
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A.
Directors
PART III
The information about the Directors of Matson required under this item will be included under the section captioned
“Election of Directors” in Matson’s Proxy Statement for the 2020 Annual Meeting of Shareholders to be filed with the
SEC within 120 days of the fiscal year ended December 31, 2019 (“Matson’s 2020 Proxy Statement”), which section is
incorporated herein by reference.
B.
Executive Officers
The information about the executive officers of Matson required under this item will be included under the subsection
captioned “Executive Officers” in Matson’s 2020 Proxy Statement, which subsection is incorporated herein by
reference.
C.
Corporate Governance
The information about the Audit Committee of the Matson Board of Directors and compliance with Section 16(a) of the
Exchange Act, will be included under the subsections captioned “Board of Directors and Committees of Board” and
“Delinquent Section 16(a) Reports” in Matson’s 2020 Proxy Statement, which subsections are incorporated herein by
reference.
D.
Code of Ethics
The information about Matson’s Code of Ethics required under this item will be included under the subsection captioned
“Code of Ethics” in Matson’s 2020 Proxy Statement, which subsection is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item will be included under the section captioned “Executive Compensation” and
the subsections captioned “Compensation of Directors” and “Pay Risk Assessment” in Matson’s 2020 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
The information required under this item will be included under the section captioned “Security Ownership of Certain
Shareholders” and the subsections captioned “Security Ownership of Directors and Executive Officers” in Matson’s
2020 Proxy Statement, which section and subsections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required under this item will be included in the section captioned “Election of Directors” and the
subsection captioned “Certain Relationships and Transactions” in Matson’s 2020 Proxy Statement, which section and
subsection are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information concerning principal accountant fees and services required under this item will be included under the
sections captioned “Audit Committee Report” and “Ratification of Appointment of Independent Registered Public
Accounting Firm” in Matson’s 2020 Proxy Statement, which sections are incorporated herein by reference.
74
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
Except as described below, 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.
At December 31, 2019, the Company’s investment in SSAT exceeded the 10.0 percent and 20.0 percent thresholds in at
least one of the tests under Rule 3-09 and Rule 4-08(g) of Regulation S-X, and as such the audited financial statements
of SSAT are required to be filed as financial statement schedules herein within 90 days of SSAT’s fiscal year end, which
is January 31. Accordingly, the financial statements of SSAT will be filed via an amendment to this Annual Report on
Form 10-K on or before April 30, 2020.
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
2.1
2.2
2.3
2.4
2.5
3
3.1
Plan of acquisition, reorganization, arrangement, liquidation or succession.
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).
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).
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 13, 2014).
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).
Membership Interest Purchase Agreement, dated as of July 18, 2016, by and between Matson Logistics,
Inc. and Span Holdings, LLC (incorporated by reference to Exhibit 2.1 of Matson’s Form 8-K dated
July 19, 2016).
Articles of incorporation and bylaws.
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).
75
3.2
3.3
4**
10
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Articles of Amendment to Change Corporate Name (incorporated by reference to Exhibit 4.2 of Matson’s
Form S-8 dated October 26, 2012).
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).
Description of Registered Securities.
Material contracts.
Amended and Restated Credit Agreement among Matson, Inc., Bank of America, N.A., as the Agent, and
the lenders thereto, dated as of June 29, 2017 (incorporated by reference to Exhibit 10.1 of Matson’s Form
8-K dated June 30, 2017).
Amendment to Note Purchase Agreement among Matson, Inc. and the purchasers named therein, dated as
of June 29, 2017 (incorporated by reference to Exhibit 10.2 of Matson’s Form 8-K dated June 30, 2017).
Amendment to Note Purchase Agreement among Matson, Inc. and the purchasers named therein, dated as
of June 29, 2017 (incorporated by reference to Exhibit 10.3 of Matson’s Form 8-K dated June 30, 2017).
Amendment to Third Amended and Restated Note Purchase Agreement among Matson, Inc. and the
purchasers named therein, dated as of June 29, 2017 (incorporated by reference to Exhibit 10.4 of
Matson’s Form 8-K dated June 30, 2017).
Amendment to Note Purchase Agreement among Matson, Inc. and the purchasers named therein, dated as
of June 29, 2017 (incorporated by reference to Exhibit 10.5 of Matson’s Form 8-K dated June 30, 2017).
Note Purchase Agreement among Matson, Inc. and the purchasers party thereto, dated as of December 21,
2016 (incorporated by reference to Exhibit 10.1 of Matson’s Form 8-K dated December 22, 2016).
Third Amended and Restated Note Purchase and Private Shelf Agreement among Matson, Inc. and the
purchasers party thereto, dated as of September 14, 2016 (incorporated by reference to Exhibit 10.1 of
Matson’s Form 8-K dated September 14, 2016).
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).
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).
First Amendment to Note Purchase Agreement among 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).
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).
Amended and Restated Limited Liability Company Agreement of SSA Terminals, 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).
10.13
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
76
10.14
10.15
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
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).
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).
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).
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).
Form of Notice of Stock Option Grant (incorporated by reference to Exhibit 99.2 to Matson’s Form S-8
dated October 26, 2012).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
77
10.30*,**
Letter Agreement Counter Party.
10.31*
10.32*
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41*
10.42*
10.43*
10.44*
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).
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).
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).
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).
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).
Contract for Construction of Two Vessels, dated as of August 25, 2016, by and between Matson
Navigation Company, Inc. and National Steel and Shipbuilding Company (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 September 30,
2016).
Purchaser’s Corporate Guaranty Agreement, by Matson, Inc., dated as of August 25, 2016 (incorporated
by reference to Exhibit 10.2 of Matson’s Form 10-Q for the quarter ended September 30, 2016).
Contractor’s Corporate Guaranty Agreement, by General Dynamics Corporation, dated as of August 25,
2016 (incorporated by reference to Exhibit 10.3 of Matson’s Form 10-Q for the quarter ended
September 30, 2016).
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).
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).
Matson, Inc. 2016 Incentive Compensation Plan, amended as of October 25, 2017 (incorporated by
reference to Exhibit 10.56 of Matson’s Form 10-K for the year ended December 31, 2017).
Amended and Restated Matson, Inc. Cash Incentive Plan, effective January 1, 2016 (incorporated by
reference to Exhibit 10.63 of Matson’s Form 10-K for the year ended December 31, 2016).
Form of 2016 Plan Restricted Stock Unit Award Agreement for Non-Employee Directors (No Deferral)
(incorporated by reference to Exhibit 10.64 of Matson’s Form 10-K for the year ended December 31,
2016).
Form of 2016 Plan Restricted Stock Unit Award Agreement for Non-Employee Directors (Deferral
Election) (incorporated by reference to Exhibit 10.65 of Matson’s Form 10-K for the year ended
December 31, 2016).
78
10.45*
10.46*
10.47*
10.48*
10.49*
10.50*
10.51*
10.52*
10.53*
21**
23**
31.1**
31.2**
32***
Form of 2016 Plan Time-Based Restricted Stock Unit Agreement for Non-Executive Employees
(incorporated by reference to Exhibit 10.60 of Matson’s Form 10-K for the year ended December 31,
2017).
Form of 2016 Plan Time-Based Restricted Stock Unit Agreement for Executive Employees (incorporated
by reference to Exhibit 10.61 of Matson’s Form 10-K for the year ended December 31, 2017).
Form of 2016 Plan Performance Share Award Agreement for Non-Executive Employees (incorporated by
reference to Exhibit 10.62 of Matson’s Form 10-K for the year ended December 31, 2017).
Form of 2016 Plan Performance Share Award Agreement for Executive Employees (incorporated by
reference to Exhibit 10.63 of Matson’s Form 10-K for the year ended December 31, 2017).
Form of Notice of 2016 Plan Performance Share Award Grant for Non-Executive Employees
(incorporated by reference to Exhibit 10.70 of Matson’s Form 10-K for the year ended December 31,
2016).
Form of Notice of 2016 Plan Performance Share Award Grant for Executive Employees (incorporated by
reference to Exhibit 10.71 of Matson’s Form 10-K for the year ended December 31, 2016).
Form of Notice of 2016 Time-Based Restricted Stock Unit Award Grant for Non-Executive Employees
(incorporated by reference to Exhibit 10.72 of Matson’s Form 10-K for the year ended December 31,
2016).
Form of Notice of 2016 Time-Based Restricted Stock Unit Award Grant for Executive Employees
(incorporated by reference to Exhibit 10.73 of Matson’s Form 10-K for the year ended December 31,
2016).
Addendum to Award Agreements for Outstanding Equity Awards, effective as of October 25, 2017
(incorporated by reference to Exhibit 10.68 of Matson’s Form 10-K for the year ended December 31,
2017)
Matson, Inc. Subsidiaries as of February 19, 2020.
Consent of Deloitte & Touche, LLP dated February 28, 2020.
Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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**
104**
XBRL Instance Document – the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL 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
Cover Page Interactive Data File – the cover page interactive data file does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
* Indicates management contract or compensatory plan or arrangement.
** Filed herewith.
*** Furnished herewith.
79
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 28, 2020
MATSON, INC.
(Registrant)
/s/ Matthew J. Cox
Matthew J. Cox
Chairman and
Chief Executive Officer
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
Chairman and Chief Executive Officer
February 28, 2020
Director
Director
Director
Director
Director
/s/ Matthew J. Cox
Matthew J. Cox
/s/ Blake Baird
W. Blake Baird
/s/ Thomas B. Fargo
Thomas B. Fargo
/s/ Mark H. Fukunaga
Mark H. Fukunaga
/s/ Constance H. Lau
Constance H. Lau
/s/ Jenai S. Wall
Jenai S. Wall
/s/ Joel M. Wine
Joel M. Wine
/s/ Kevin L. Stuck
Kevin L. Stuck
/s/ Stanley M. Kuriyama
Stanley M. Kuriyama
Director
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
Senior Vice President and Chief Financial Officer
February 28, 2020
Vice President and Controller (principal accounting officer)
February 28, 2020
*****
80
INVESTOR INFORMATION Corporate news releases, SEC filings, the Company’s annual
report and other pertinent information about the Company are available at matson.com.
TRANSFER AGENT & REGISTRAR | Computershare
Shareholders and institutional investors with questions about the Company may
representatives of the Transfer Agent may be reached at: 1-800-522-6645
correspond with:
LEE J. FISHMAN Director, Investor Relations, email: investor-relations@matson.com
Computershare, P.O. BOX 30170, College Station, TX 77842-3170
www.computershare.com/investor
For questions regarding stock certificates, dividends or other transfer-related matters,
Shareholders who wish to communicate with the Board of Directors may correspond with:
RACHEL C. LEE Corporate Secretary, email: corpsec@matson.com
AUDITORS | Deloitte & Touche LLP, San Francisco, CA
NON-GAAP MEASURES
Matson reports financial results in accordance with U.S. generally accepted accounting
disproportional positive or negative impact on results in any particular period. These
principles (“GAAP”). The Company also considers other non-GAAP measures to evaluate
non-GAAP measures include but are not limited to adjusted effective tax rate, Earnings
performance, make day-to-day operating decisions, help investors understand our ability
Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), Return on Invested Capital
to incur and service debt and to make capital expenditures, and to understand period-
(“ROIC”), Return on Equity (“ROE”) and Net Debt-to-EBITDA.
over-period operating results separate and apart from items that may, or could, have a
($ in millions, except ROIC and ROE)
2019
2018
2017
2016
2015
For the years ended December 31
Total debt
Less: total cash and cash equivalents
Less: cash on deposit in Capital Construction Fund
Net debt
Net income
Add: income taxes
Add: interest expense
Add: depreciation and amortization
EBITDA
Net income (A)
Add: interest expense (tax-effected) 1
Total return (B)
Average total debt
Average shareholders’ equity (C)
Total invested capital (D)
ROIC = (B)/(D)
ROE = (A)/(C)
958.4
(21.2)
-
937.2
82.7 2
25.1
22.5
134.0
264.3
82.7 2
16.7
99.4
907.4
780.5
1,687.9
5.9%
10.6%
856.4
(19.6)
-
836.8
109.03
38.7
18.7
130.9
297.3
109.03
14.2
123.2
856.8
716.3
1,573.1
7.8%
15.2%
857.1
(19.8)
(0.9)
836.4
231.0 4
(105.8)
24.2
146.6
296.0
231.0 4
14.9
245.9
798.0
586.1
1,384.1
17.8%
39.4%
738.9
(13.9)
(31.2)
693.8
81.4
49.1
24.1
135.4
290.0
81.4
15.1
96.5
584.4
472.8
1,057.2
9.1%
17.2%
429.9
(25.5)
-
404.4
103.0
74.8
18.5
105.8
302.1
103.0
10.7
113.7
401.8
407.1
808.9
14.1%
25.3%
1 The effective tax rates each year in the period 2015–2019 were 42.1%, 37.6%, (84.5%), 26.2% and 23.3%, respectively. The effective tax rates for 2017, 2018 and 2019, excluding adjustments
related to the Tax Cuts and Jobs Act, would have been 38.5%, 24.2% and 26.0%, respectively.
2 Includes a non-cash tax benefit of $2.9 million or $0.07 per diluted share related to discrete adjustments as a result of applying the provisions of the Tax Cuts and Jobs Act.
3 Includes a non-cash tax expense of $2.9 million or $0.07 per diluted share related to discrete adjustments as a result of applying the provisions of the Tax Cuts and Jobs Act.
4 Includes the benefit of a one-time, non-cash adjustment of $154.0 million or $3.56 per diluted share related to the enactment of the Tax Cuts and Jobs Act.
FORWARD-LOOKING STATEMENTS
Statements in this Annual Report that are not historical facts are “forward-looking
statements,” within the meaning of the Private Securities Litigation Reform Act of 1995,
including without limitation those statements regarding earnings, net income, operating
significant premium; the imposition of tariffs or a change in international trade policies; the
magnitude and timing of the impact of public health crises, including COVID-19; the ability
of the NASSCO shipyard to construct and deliver Matsonia on the contemplated timeframe;
any unanticipated dry-dock or repair expenses; any delays or cost overruns related to
income, depreciation and amortization including dry-dock amortization, other income
the modernization of terminals; consummating and integrating acquisitions; changes in
(expense), interest expense, profitability, cash flow expectations and uses of cash and
general economic and/or industry-specific conditions; competition and growth rates within
cash flows, fleet renewal progress, vessel deployments and operating efficiencies, vessel
the logistics industry; freight levels and increasing costs and availability of truck capacity
transit times, fuel strategy and scrubber program, organic growth opportunities, economic
or alternative means of transporting freight; changes in relationships with existing truck,
effects of competitors’ services, trends in volumes, rate premiums and market conditions in
rail, ocean and air carriers; changes in customer base due to possible consolidation among
the China service, economic growth and drivers in Hawaii and Alaska, Sand Island terminal
customers; conditions in the financial markets; changes in our credit profile and our future
upgrades, lift volumes and operating costs at SSAT, timing and amount of SSAT income and
financial performance; our ability to obtain future debt financings; continuation of the Title
cash distributions, debt leverage levels, and effective tax rates. These statements involve
XI and CCF programs; the impact of future and pending legislation, including environmental
a number of risks and uncertainties that could cause actual results to differ materially from
legislation; government regulations and investigations; relations with our unions;
those contemplated by the relevant forward-looking statement, including but not limited
satisfactory negotiation and renewal of expired collective bargaining agreements without
to risks and uncertainties relating to repeal, substantial amendment or waiver of the Jones
significant disruption to Matson’s operations; war, terrorist attacks or other acts of violence;
Act or its application, or our failure to maintain our status as a United States citizen under
the use of our information technology and communication systems and cybersecurity
the Jones Act; regional, national and international economic conditions; new or increased
attacks; and the occurrence of marine accidents, poor weather or natural disasters. These
competition or improvements in competitors’ service levels; fuel prices, our ability to collect
forward-looking statements are not guarantees of future performance. This Annual Report
fuel-related surcharges and/or the cost or limited availability of low-sulfur fuel; delays
should be read in conjunction with our Annual Report on Form 10-K and our other filings with
or cost overruns related to the installation of scrubbers; our relationship with vendors,
the SEC through the date of this report, which identify important factors that could affect the
customers and partners and changes in related agreements; the actions of our competitors;
forward-looking statements in this report. We do not undertake any obligation to update our
our ability to offer a differentiated service in China for which customers are willing to pay a
forward-looking statements.
DESIGN & PHOTOGRAPHY John McNeil Studio, CA | ADDITIONAL PHOTOGRAPHY Tim Rue, HI | Lewis Harrington, HI | Eleventh Essence, Guam | PRINTED IN CALIFORNIA by Sprinkel Media
006187_Cover_singlePage_v2.indd 4
006187_Cover_singlePage_v2.indd 4
3/2/20 4:27 PM
3/2/20 4:27 PM
M
A
T
S
O
N
,
I
N
C
.
2
0
1
9
A
N
N
U
A
L
R
E
P
O
R
T
+
F
O
R
M
1
0
-
K
006187_Cover_singlePage_v2.indd 1
006187_Cover_singlePage_v2.indd 1
3/2/20 4:26 PM
3/2/20 4:26 PM