What changed in this filing

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Item 1. Financial Statements

2020-08-05 compared with 2020-05-05 · 146 added, 188 removed, 391 unchanged (46% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

(In millions, except per share amounts)

16 unchanged sentences

Other adjustments

Total Other Comprehensive (Loss) Income

Total Other Comprehensive Income (Loss)

Comprehensive Income

27 unchanged sentences

Long-term Liabilities:

Long-term debt

Long-term debt, net of deferred loan fees

Long-term operating lease liabilities

12 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

24 unchanged sentences

Cash Flows From Financing Activities:

Proceeds from issuance of debt

Repayments of debt

2 unchanged sentences

Payment of financing costs

Proceeds from issuance of capital stock

Dividends paid

1 unchanged sentence

Net cash used in financing activities

Net Decrease in Cash, Cash Equivalents and Restricted Cash

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash, Beginning of the Period

6 unchanged sentences

Interest paid, net of capitalized interest

Income tax payments, net

Income tax (refunds) and payments, net

Non-cash Information:

Capital expenditures included in accounts payable, accruals and other liabilities

Accrued dividends

See Notes to Condensed Consolidated Financial Statements.

11 unchanged sentences

Balance at March 31, 2020

Other comprehensive income, net of tax

Share-based compensation

Shares issued, net of shares withheld for employee taxes

Dividends ($ 0.22 per share and $ 0.23 per share)

Balance at June 30, 2020

Comprehensive

8 unchanged sentences

Balance at March 31, 2019

Other comprehensive loss, net of tax

Share-based compensation

Shares issued, net of shares withheld for employee taxes

Dividends ($ 0.21 per share and $ 0.22 per share)

Balance at June 30, 2019

See Notes to Condensed Consolidated Financial Statements.

32 unchanged sentences

Fiscal Period:

The period end for Matson covered by this report is March 31, 2020.

The period end for MatNav and its subsidiaries covered by this report occurred on the last Friday in March, or March 27, 2020, for the first quarter 2020.

The period end for Matson covered by this report is June 30, 2020.

The period end for MatNav and its subsidiaries covered by this report occurred on the last Friday in June, or June 26, 2020.

Significant Accounting Policies:

22 unchanged sentences

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:

Three Months Ended

Six Months Ended

Ocean Transportation (in millions) (1)

11 unchanged sentences

Related costs are recognized as incurred.

Three Months Ended

Six Months Ended

Logistics (in millions) (1)

4 unchanged sentences

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.

(2) The Company has reclassified $ 3.1 million from transportation brokerage and freight forwarding services to warehouse and distribution services for the quarter ended March 31, 2019 to be consistent with its current period presentation.

There was no change in total Logistics revenue for the quarter ended March 31, 2019.

(2) The Company has reclassified $ 3.0 million and $ 6.1 million from transportation brokerage and freight forwarding services to warehouse and distribution services for the three and six months ended June 30, 2019, respectively, to be consistent with its current period presentation.

There was no change in total Logistics revenue for the three and six months ended June 30, 2019.

◾ 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.

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.

12 unchanged sentences

The Company’s Capital Construction Fund (“CCF”) is described in Note 7 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

As of March 31, 2020 and December 31, 2019, $ 1.7 million of eligible accounts receivable was assigned to the CCF.

As of June 30, 2020 and December 31, 2019, $ 1.7 million of eligible accounts receivable was 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 Condensed Consolidated Balance Sheets.

Cash on deposit in the CCF is held in a money market account and classified as a long-term asset in the Company’s Condensed Consolidated Balance Sheets, as the Company intends to use qualified cash withdrawals to fund long-term investment in the construction of new vessels.

During the three months ended March 31, 2020 and 2019, the Company deposited $ 70.4 million and $ 13.4 million into the CCF, and made qualifying cash withdrawals of $ 70.4 million and $ 13.4 million from the CCF, respectively.

The balance of cash on deposit at March 31, 2020 and December 31, 2019 was nominal.

During the three and six months ended June 30, 2020, the Company deposited $ 26.7 million and $ 97.1 million into the CCF, and made qualifying cash withdrawals of $ 26.7 million and $ 97.1 million from the CCF, respectively.

The balance of cash on deposit at June 30, 2020 and December 31, 2019 was nominal.

Investment in SSAT:

Condensed income statement information (unaudited) for SSAT for the three months ended March 31, 2020 and 2019 consisted of the following:

Condensed income statement information (unaudited) for SSAT for the three and six months ended June 30, 2020 and 2019 consisted of the following:

Three Months Ended

Six Months Ended

(In millions)

6 unchanged sentences

(2) The Company records its share of net income from SSAT in costs and expenses in the Condensed Consolidated Statement of Income and Comprehensive Income due to the nature of SSAT’s operations.

The Company’s investment in SSAT was $ 74.3 million and $ 76.2 million at March 31, 2020 and December 31, 2019, respectively.

During the three months ended March 31, 2020, the Company recorded an increase of $ 2.2 million in its investment in SSAT and a corresponding increase in retained earnings related to the formation of a new subsidiary of SSAT, whose controlling interest is retained by SSAT.

The Company’s investment in SSAT was $ 77.5 million and $ 76.2 million at June 30, 2020 and December 31, 2019, respectively.

During the six months ended June 30, 2020, the Company recorded an increase of $ 2.2 million in its investment in SSAT and a corresponding increase in retained earnings related to the formation of a new subsidiary of SSAT, whose controlling interest is retained by SSAT.

Deferred Loan Fees:

The Company records deferred loan fees, excluding those related to the revolving credit facility, as a reduction to Total Debt in the Company’s Condensed Consolidated Balance Sheets in accordance with Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30):

Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”).

These costs are being amortized over the life of the related debt using the effective interest method (see Note 6).

Deferred loan fees related to the Company’s revolving credit facility are recorded in other long-term assets in the Company’s Condensed Consolidated Balance Sheets.

These deferred loan fees are being amortized using the straight-line method as the difference between that and the use of the effective interest method is not material.

These deferred loan fees were $ 2.8 million and $ 1.3 million at June 30, 2020 and December 31, 2019, respectively.

Contingencies:

4 unchanged sentences

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.

The Company’s first quarter 2020 cash dividend of $ 0.22 per share was paid on March 5, 2020.

On April 23, 2020, the Company’s Board of Directors declared a cash dividend of $ 0.22 per share payable on June 4, 2020.

The Company’s second quarter 2020 cash dividend of $ 0.22 per share was paid on June 4, 2020.

On June 25, 2020, the Company’s Board of Directors declared a cash dividend of $ 0.23 per share payable on September 3, 2020.

New Accounting Pronouncements:

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”):

In June 2016, the Financial Accounting Standards Board 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.

In June 2016, the Financial Accounting Standards Board (“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.

6 unchanged sentences

The Company’s accounting policy related to allowance for doubtful accounts receivable is described above.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”):

In August 2018, FASB issued ASU 2018-15 which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain internal-use software.

The Company adopted ASU 2018-15 on a prospective basis effective January 1, 2020.

During the six months ended June 30, 2020, the Company capitalized costs of $ 1.3 million related to cloud computing arrangements and which were included in other long-term assets on the Company’s Condensed Consolidated Balance Sheets as of June 30, 2020.

REPORTABLE SEGMENTS

6 unchanged sentences

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 $ 19.4 million and $ 21.8 million for the three months ended March 31, 2020 and 2019, respectively, have been eliminated from operating revenues in the table below.

Reportable segment financial information for the three months ended March 31, 2020 and 2019 are as follows:

Accordingly, inter-segment revenue of $ 24.2 million and $ 25.3 million for the three months ended June 30, 2020 and 2019, and $ 43.6 million and $ 47.1 million for the six months ended June 30, 2020 and 2019, respectively, have been eliminated from operating revenues in the table below.

Reportable segment financial information for the three and six months ended June 30, 2020 and 2019 are as follows:

Three Months Ended

Six Months Ended

(In millions)

9 unchanged sentences

Income before Income Taxes

(1) Ocean Transportation operating revenue excludes inter-segment revenue of $ 9.4 million and $ 11.4 million for the three months ended March 31, 2020 and 2019, respectively.

(2) Logistics operating revenue excludes inter-segment revenue of $ 10.0 million and $ 10.4 million for the three months ended March 31, 2020 and 2019, respectively.

(3) Ocean Transportation segment information includes $ 4.0 million and $ 8.5 million of equity in income from the Company’s equity investment in SSAT for the three months ended March 31, 2020 and 2019, respectively.

(1) Ocean Transportation operating revenue excludes inter-segment revenue of $ 11.9 million and $ 13.8 million for the three months ended June 30, 2020 and 2019, and $ 21.3 million and $ 25.2 million for the six months ended June 30, 2020 and 2019, respectively.

(2) Logistics operating revenue excludes inter-segment revenue of $ 12.3 million and $ 11.5 million for the three months ended June 30, 2020 and 2019, and $ 22.3 million and $ 21.9 million for the six months ended June 30, 2020 and 2019, respectively.

(3) Ocean Transportation segment information includes $ 3.7 million and $ 0.9 million of equity in income from the Company’s equity investment in SSAT for the three months ended June 30, 2020 and 2019, and $ 7.7 million and $ 9.4 million for the six months ended June 30, 2020 and 2019, respectively.

PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 2020 and December 31, 2019 consisted of the following:

Property and equipment as of June 30, 2020 and December 31, 2019 consisted of the following:

(In millions)

7 unchanged sentences

Vessel construction in progress relates to progress payments for the construction of new vessels, capitalized owner’s items and capitalized interest.

During the three months ended March 31, 2020, the newly constructed vessel, Lurline was placed into service resulting in $ 308.2 million, including $ 16.5 million of capitalized interest, being transferred from the Vessel construction in progress category to the Vessels category within Property and Equipment.

Capitalized interest included in Vessel construction in progress was $ 7.4 million and $ 22.0 million at March 31, 2020 and December 31, 2019, respectively.

During the six months ended June 30, 2020, the newly constructed vessel Lurline was placed into service resulting in $ 308.2 million, including $ 16.5 million of capitalized interest, being transferred from the Vessel construction in progress category to the Vessels category within Property and Equipment.

Capitalized interest included in Vessel construction in progress was $ 9.1 million and $ 22.0 million at June 30, 2020 and December 31, 2019, respectively.

GOODWILL AND INTANGIBLES

Goodwill by segment as of March 31, 2020 and December 31, 2019 consisted of the following:

Goodwill by segment as of June 30, 2020 and December 31, 2019 consisted of the following:

(In millions)

Transportation

Intangible assets as of March 31, 2020 and December 31, 2019 consisted of the following:

Intangible assets as of June 30, 2020 and December 31, 2019 consisted of the following:

(In millions)

8 unchanged sentences

The Company considered the deterioration in general economic and market conditions due to the COVID-19 pandemic and its impact on the performance of each of the Company’s reporting units.

Based on the Company’s assessment of its market capitalization, future forecasts and the amount of excess of fair value over the carrying value of the reporting

units in the 2019 annual impairment tests, the Company concluded that an impairment triggering event did not occur during the quarter ended March 31, 2020.

Based on the Company’s assessment of its market capitalization, future forecasts and the amount of excess of fair value over the carrying value of the reporting units in the 2019 annual impairment tests, the Company concluded that an impairment triggering event did not occur during the quarter ended June 30, 2020.

The Company will monitor events and changes in circumstances that could negatively impact the key assumptions used in determining the fair value, including the amount and timing of estimated future cash flows generated by the reporting units, long-term growth and discount rates, comparable company market valuations, and industry and economic trends.

It is possible that future changes in such circumstances, including a more prolonged and/or severe COVID-19 pandemic, or future changes in the assumptions and estimates used in assessing the fair value of the reporting unit, could require the Company to record a non-cash impairment charge.

At March 31, 2020 and December 31, 2019, the Company’s debt consisted of the following:

It is possible that future changes in such circumstances, including a more prolonged and/or severe COVID-19 pandemic,

or future changes in the assumptions and estimates used in assessing the fair value of the reporting unit, could require the Company to record a non-cash impairment charge.

As of June 30, 2020 and December 31, 2019, the Company’s debt consisted of the following:

(In millions)

11 unchanged sentences

5.27 %, payable through 2029

1.22 %, payable through 2043

1.35 %, payable through 2044

Revolving credit facility, maturity date of June 29, 2022

1 unchanged sentence

Total Long-term Debt

The following is a description of the Company’s debt:

Deferred loan fees

Total Long-term Debt, net of deferred loan fees

Except as described below, the Company’s debt is described in Note 6 to the Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020.

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.

Existing and 2020 Title XI Bonds:

In September 2003, MatNav issued $ 55.0 million in U.S.

Government guaranteed ship financing bonds (Title XI) to finance the delivery of Manukai (the “Existing Title XI Bonds”).

The 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 ship financing bonds (Title XI) to finance the delivery of Maunawili .

The 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.

On April 27, 2020, MatNav entered into (i) a consolidated agreement (the “Consolidated Agreement”) among MatNav, the United States of America, represented by the Maritime Administrator of the Maritime Administration (“MARAD”) and, with respect to certain provisions, the Company and (ii) a Note Purchase Agreement (the “Note Purchase Agreement”) among MatNav, MARAD, and the Federal Financing Bank (the “FFB”).

Pursuant to the Consolidated Agreement, the Note Purchase Agreement and certain related agreements (collectively, the “2020 Title XI Debt Agreements”), MatNav obtained Title XI financing in the amount of $ 185.9 million (the “2020 Title XI Bonds” and, collectively with the Existing Title XI Bonds, the “Title XI Bonds”).

On May 12, 2020, the Company redeemed private placement term loans totaling $ 169.5 million at par out of proceeds from the Company’s revolving credit facility.

2020 Title XI Debt:

On April 27, 2020, MatNav issued $ 185.9 million in U.S.

Government guaranteed vessel financing bonds (Title XI) to partially refinance debt incurred in connection with the construction of Daniel K.

Inouye (the “DKI Title XI Debt”).

A fee of approximately $ 8.7 million was paid to the United States Maritime Administration (“MARAD”) out of the proceeds at closing.

The net proceeds of approximately $ 177 million were used to reduce outstanding debt.

The secured bonds mature on October 15, 2043 and have a cash interest rate of 1.22 percent, payable semi-annually in arrears on April 15 and October 15, commencing on October 15, 2020, together with a principal payment of approximately $ 4.0 million.

On June 22, 2020, MatNav issued $ 139.6 million in U.S.

Government guaranteed vessel financing bonds (Title XI) to partially refinance debt incurred in connection with the construction of Kaimana Hila (together with the DKI Title XI Debt, the “2020 Title XI Debt”).

A fee of approximately $ 6.7 million was paid to MARAD out of the proceeds at closing.

The net proceeds of approximately $ 132.9 million were used to reduce outstanding debt.

The 2020 Title XI Bonds mature on October 15, 2043 and have a cash interest rate of 1.22 percent, payable semi-annually in arrears on April 15 and October 15, commencing on October 15, 2020, together with a principal payment of approximately $ 4.0 million.

MatNav may prepay any amounts outstanding under the Consolidated Agreement subject to a potential prepayment premium or other adjustment, in accordance with the 2020 Title XI Debt Agreements.

Once amounts under the 2020 Title XI Bonds are repaid, they may not be reborrowed.

Mandatory prepayments are required under certain limited circumstances, including specified casualty events with respect to the vessel Daniel K.

Inouye (the “Vessel”).

The secured bonds mature on March 15, 2044 and have a cash interest rate of 1.35 percent, payable semi-annually in arrears on March 15 and September 15, commencing on September 15, 2020, together with a principal payment of approximately $ 3.0 million.

Under the 2020 Title XI Debt agreements, MARAD has guaranteed the obligation of MatNav.

MatNav has agreed to reimburse MARAD for any payments it makes under the MARAD guarantees and MatNav’s obligations to MARAD are secured by mortgages on the vessels and certain other related assets.

The 2020 Title XI Debt is subject to the debt covenants as described in Note 6 to the Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020.

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.

On March 31, 2020 the Company entered into a First Amendment to Amended and Restated Credit Agreement (the “Credit Agreement Amendment”) to the Credit Agreement.

The Credit Agreement Amendment provides for amendments to certain covenants and other terms, including increasing the permitted consolidated leverage ratio from March 31, 2020 to December 30, 2021, amending the pricing grid to provide for pricing ranging from, at the Company’s election, LIBOR plus a margin between 1.75 percent and 3.50 percent or a base rate plus a margin between 0.75 percent and 2.50 percent depending on the Company’s consolidated net leverage ratio;

providing for additional limitations on stock redemptions and repurchases, sale leaseback transactions and asset sales during the period from March 31, 2020 through December 30, 2021;

and providing for additional limitations on incurrence of priority debt through December 21, 2027.

In addition, the Credit Agreement Amendment adds a “most favored lender” provision for the benefit of the lenders with respect to the Company’s Private Loan Facilities.

Pursuant to the Credit Agreement Amendment, commencing March 31, 2020, borrowings under the Credit Agreement bear interest at either LIBOR plus a margin of between 1.75 percent and 3.50 percent or the base rate plus a margin of between 0.75 percent and 2.50 percent .

Letters of credit are subject to fees based on the Company’s consolidated net leverage ratio at a rate of between 1.75 percent and 3.50 percent, and the Company also pays a commitment fee of between 0.25 percent and 0.55 percent depending on the Company’s consolidated net leverage ratio.

As of March 31, 2020, the Company had $ 163.6 million of remaining borrowing availability under the revolving credit facility.

The Company used $ 7.7 million of the sublimit for letters of credit outstanding as of March 31, 2020.

Based on the Company’s consolidated net leverage ratio, which stipulates borrowing margins, the interest rate applicable to revolving credit facility was approximately 3.50 percent at March 31, 2020.

Amendments to Existing Private Placement Term Loan Facilities and New Shelf Facilities (“Private Debt Agreements”):

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 Company’s Private Debt Agreements, 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.

On March 31, 2020, the Company and the holders of notes party thereto entered into amendments (collectively, the “2020 Amendments”) to each of the Company’s Private Loan Facilities.

The 2020 Amendments modify certain covenants and other terms, including increasing the permitted consolidated leverage ratio from March 31, 2020 to December 30, 2021;

providing for additional quarterly interest enhancement payments based on the Company’s consolidated leverage ratio from the quarter ended March 31, 2020 through the quarters ending December 31, 2021;

providing for an additional 25 basis points of interest on the Notes commencing on January 1, 2022 (subject to termination of such incremental interest upon the Company meeting a consolidated leverage ratio of less than 3:00 to 1:00 for two consecutive fiscal quarters);

providing for additional fee payments to be made for the quarters ending June 30, 2021 and September 30, 2021;

providing for prepayment at par at the option of the holders with proceeds of certain Title XI debt and dispositions of capital assets;

providing for additional limitations on stock redemptions and repurchases, sale leaseback transactions and asset sales during the period from March 31, 2020 through and including December 30, 2021;

and providing for additional limitations on incurrence of priority debt through December 21, 2027.

In addition, the 2020 Amendments add a “most favored lender” provision for the benefit of the noteholders with respect to the other Private Loan Facilities and the Credit Agreement.

Financing Costs:

The Company paid approximately $ 2.0 million and $ 0.8 million related to the Credit Agreement Amendment and the 2020 Amendments, respectively.

These amounts have been included in other assets in the Condensed Consolidated Balance Sheet as of March 31, 2020.

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.

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 Private Debt 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 the ratios specified in the Private Debt Agreements for the applicable quarter;

● No Priority Debt may be incurred other than:

(i) an aggregate of $ 331,000,000 principal amount of Title XI Priority Debt and (ii) Priority Debt incurred by Foreign Subsidiaries in an aggregate principal amount not to exceed $ 20,000,000 .

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 March 31, 2020.

Debt Covenants in Existing Title XI Bonds and 2020 Title XI Debt Agreements :

The Existing Title XI Bonds 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 Existing Title XI Bonds.

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 Existing Title XI Bonds.

Certain of the covenants in the Existing Title XI Bonds 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.

The 2020 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, limitations and financial tests all as negotiated between MatNav and MARAD.

As part of the 2020 Title XI Debt Agreements, certain covenants contained in the Existing Title XI Bonds were eliminated.

The covenants in the 2020 Title XI Debt Agreements include, among other things, limitations on certain other indebtedness, loans and investments, liens, mergers, asset sales, sale-leasebacks, and transactions with affiliates as defined within the 2020 Title XI Debt Agreements.

Certain of the covenants in the 2020 Title XI Debt Agreements are applicable only upon and during the continuance of either (i) an event of default or (ii) the failure of either the Company or MatNav to meet certain supplemental financial tests.

● The supplemental financial tests applicable to MatNav include maintenance of a working capital minimum of $ 1 , and maintenance of a long term debt to net worth ratio of greater than or equal to 2.0 to 1.0;

● The supplemental financial tests applicable to the Company include maintenance of a net worth greater than or equal to 90 % of the net worth of the Company as set forth in the most recent audited financial statements prior to closing of the issuance of the 2020 Title XI Bonds and compliance with the leverage ratio set forth in the Company’s Credit Agreement.

As of June 30, 2020, the Company had $ 433.2 million of remaining borrowing availability under the revolving credit facility.

The Company used $ 8.1 million of the sublimit for letters of credit outstanding as of June 30, 2020.

Based on the Company’s consolidated net leverage ratio, which stipulates borrowing margins, the interest rate applicable to revolving credit facility was approximately 3.25 percent at June 30, 2020.

Borrowings under the revolving credit facility are classified as long-term debt in the Condensed Consolidated Balance Sheets, as principal payments are not required until the maturity date of June 29, 2022.

Debt Security and Guarantees:

All of the debt of the Company and MatNav, including related guarantees, as of March 31, 2020 was unsecured, except for the Title XI debt.

Under the 2020 Title XI Debt Agreements, MARAD has guaranteed certain obligations of MatNav to the FFB.

MatNav has agreed to reimburse MARAD for any payments it makes under the MARAD guaranty, and MatNav’s obligations to MARAD with respect to the 2020 Title XI Bonds are secured by a mortgage on the Vessel and certain related assets (the “Collateral”), as well as the Existing Vessels (as defined below).

In addition, MatNav’s obligations to MARAD with respect to the 2020 Title XI Bonds are guaranteed by the Company under an Affiliate Guaranty (the “Guaranty”).

The 2020 Title XI Debt Agreements also provide that the two vessels securing MatNav’s Existing Title XI Bonds – Manukai and Maunawili (the “Existing Vessels”) – also secure the 2020 Title XI Bonds until the Existing Title XI Bonds are retired in 2028 and 2029, respectively, subject to certain exceptions.

All of the debt of the Company and MatNav, including related guarantees, as of June 30, 2020 was unsecured, except for the 2020 Title XI Debt and other Title XI debt.

Debt Maturities:

At March 31, 2020, debt maturities during the next five years and thereafter are as follows:

As of June 30, 2020, debt maturities during the next five years and thereafter are as follows:

Year (in millions)

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 Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2020 and 2019.

The Company did not have any finance leases during the three months ended March 31, 2020 and 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:

Real estate and terminal leases

Vessel charter leases

Operations equipment and other leases

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 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.

June 30, 2020

Remainder of 2020

Deferred Loan Fees:

Deferred loan fees are recorded as a reduction of Total Debt in the Condensed Consolidated Balance Sheets in accordance with Accounting Standards Codification (“ASC”) 835, Imputation of Interest (“ASC 835”) .

Activity relating to deferred loan fees for the six months ended June 30, 2020 are as follows:

Deferred Loan Fees (in millions)

Deferred financing costs related to Title XI bonds and private placement debt amendments

Deferred fees expensed related to the redemption of private placement debt

Amortization expense for the six months ended June 30, 2020

Balance at June 30, 2020

As of June 30, 2020, amortization expense relating to deferred loan fees during the next five years and thereafter are as follows:

Year (in millions)

Remainder of 2020

Total amortization expense of deferred loan fees

The Company’s leases are described in Note 9 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Components of Lease Cost:

Components of lease cost recorded in the Company’s Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2020 and 2019 consisted of the following:

Components of lease cost recorded in the Company’s Condensed Consolidated Statement of Income and Comprehensive Income for the three and six months ended June 30, 2020 and 2019 consisted of the following:

Three Months Ended

Six Months Ended

(In millions)

7 unchanged sentences

The Company subsequently leased back the equipment under a five-year operating lease agreement that includes purchase options exercisable at fair market value.

The Company has included the right of use asset and related lease liabilities in other lease information below.

There were no sale and leaseback transactions during the three months ended March 31, 2019.

Other Lease Information:

Other information related to the Company’s operating leases for the three months ended March 31, 2020 and 2019 consisted of the following:

Three Months Ended

(In millions)

Cash paid for amounts included in operating lease liabilities

Right of use assets obtained in the exchange for new operating lease liabilities

March 31, 2020

December 31, 2019

Weighted average remaining operating lease term

Weighted average incremental borrowing rate

Maturities of operating lease liabilities at March 31, 2020 are as follows:

Year (in millions)

March 31, 2020

Total lease payments

Present value of operating lease liabilities

Short-term portion

Long-term operating lease liabilities

Vessel Charter:

On November 26, 2018, a wholly-owned subsidiary of the Company entered into a Bareboat Charter Agreement (the “Charter”).

Charter lease payments are approximately $ 3.0 million per quarter and are included in the operating lease liabilities described above.

The base term of the Charter is five years with a two year end-of-term renewal option.

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 .

The residual value guarantee is excluded from operating lease liabilities described above as the Company determined that it is not probable that any portion of the residual value guarantee will be paid by the Company.

The Charter and residual value guarantee are described in Note 9 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

There were no sale and leaseback transactions during the three months ended June 30, 2020, and during the six months ended June 30, 2019.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2020 are as follows:

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the six months ended June 30, 2020 are as follows:

Comprehensive

7 unchanged sentences

Balance at March 31, 2020

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2019 consisted of the following:

Amortization of prior service cost

Amortization of net loss

Foreign currency exchange

Other adjustments

Balance at June 30, 2020

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the six months ended June 30, 2019 consisted of the following:

Comprehensive

5 unchanged sentences

Balance at March 31, 2019

Amortization of prior service cost

Amortization of net loss

Other adjustments

Balance at June 30, 2019

FAIR VALUE OF FINANCIAL INSTRUMENTS

7 unchanged sentences

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.

The carrying value and fair value of the Company’s financial instruments as of March 31, 2020 and December 31, 2019 are as follows:

The carrying value and fair value of the Company’s financial instruments as of June 30, 2020 and December 31, 2019 are as follows:

Quoted Prices in

4 unchanged sentences

(In millions)

March 31, 2020

Fair Value Measurements at March 31, 2020

June 30, 2020

Fair Value Measurements at June 30, 2020

Cash and cash equivalents

12 unchanged sentences

The calculation of diluted earnings per share includes the dilutive effect of unexercised non-qualified stock options and non-vested restricted stock units.

The computation of weighted average common shares outstanding excluded a nominal amount of anti-dilutive non-qualified stock options for each period ended March 31, 2020 and 2019.

The denominators used to compute basic and diluted earnings per share for the three months ended March 31, 2020 and 2019 are as follows:

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

The computation of weighted average common shares outstanding excluded a nominal amount of anti-dilutive non-qualified stock options for each period ended June 30, 2020 and 2019.

The denominators used to compute basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019 are as follows:

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

(In millions, except per share amounts)

Effect of Dilutive Securities

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

(In millions, except per share amounts)

Effect of Dilutive Securities

SHARE-BASED COMPENSATION

During the three months ended March 31, 2020, the Company granted approximately 316,200 in total of time-based restricted stock units and performance-based shares to certain of its employees at a weighted average grant date fair value of $ 39.43 .

Total share-based compensation cost recognized in the Condensed Consolidated Statements of Income and Comprehensive Income as a component of selling, general and administrative expenses was $ 3.1 million and $ 3.2 million for the three months ended March 31, 2020 and 2019, respectively.

Total unrecognized compensation cost related to unvested share-based compensation arrangements was $ 20.1 million at March 31, 2020, and is expected to be recognized over a weighted average period of approximately 2.2 years.

During the three and six months ended June 30, 2020, the Company granted approximately 22,000 and 338,200 in total of time-based restricted stock units and performance-based shares to certain of its employees at a weighted average grant date fair value of $ 27.30 and $ 38.64 , respectively.

Total share-based compensation cost recognized in the Condensed Consolidated Statements of Income and Comprehensive Income as a component of selling, general and administrative expenses was $ 3.0 million and $ 3.0 million for the three months ended June 30, 2020 and 2019, and $ 6.1 million and $ 6.2 million for the six months ended June 30, 2020 and 2019, respectively.

Total unrecognized compensation cost related to unvested share-based compensation arrangements was $ 17.5 million at June 30, 2020, and is expected to be recognized over a weighted average period of approximately 2.0 years.

Total unrecognized compensation cost may be adjusted for any unearned performance shares or forfeited shares.

1 unchanged sentence

The Company’s pension and post-retirement plans are described in Note 11 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 .

Components of net periodic benefit cost and other amounts recognized in Other Comprehensive Income (Loss) for the qualified pension plans and the post-retirement benefit plans for the three months ended March 31, 2020 and 2019 consisted of the following:

Components of net periodic benefit cost and other amounts recognized in Other Comprehensive Income (Loss) for the qualified pension plans and the post-retirement benefit plans for the three and six months ended June 30, 2020 and 2019 consisted of the following:

Pension Benefits

Post-retirement Benefits

Three Months Ended March 31,

Three Months Ended June 30,

(In millions)

5 unchanged sentences

Net periodic benefit cost (benefit)

Pension Benefits

Post-retirement Benefits

Six Months Ended June 30,

(In millions)

Components of net periodic benefit cost (benefit):

Interest cost

Expected return on plan assets

Amortization of net loss

Amortization of prior service credit

Net periodic benefit cost (benefit)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements