What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-28 · 202 added, 193 removed, 1118 unchanged (26% of the section changed)

37 unchanged sentences

Chairman and Chief Executive Officer

Senior Vice President and Chief Financial Officer

Executive Vice President and Chief Financial Officer

February 26, 2021

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Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, 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

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Other Comprehensive Income (Loss):

Net gain in prior service cost

Amortization of prior service cost

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Other adjustments

Total Other Comprehensive (Loss) Income

Total Other Comprehensive Income (Loss)

Comprehensive Income

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Cash and cash equivalents

Accounts receivable, net

Accounts receivable, net of allowance for credit loss of $ 6.3 million and $ 4.3 million, respectively

Prepaid expenses and other assets

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Long-term Liabilities:

Long-term debt

Long-term debt, net of deferred loan fees

Long-term operating lease liabilities

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Total long-term liabilities

Commitments and Contingencies

Commitments and Contingencies (see Note 17)

Shareholders’ Equity:

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Other capital expenditures

Proceeds from (payments for) disposal of property and equipment

Proceeds from disposal of property and equipment

Cash deposits into Capital Construction Fund

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Cash Flows From Financing Activities:

Proceeds from issuance of debt

Repayments of debt

Repayment of capital leases

Proceeds from revolving credit facility

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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

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

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

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Balance at December 31, 2018

Adoption of new lease accounting standard

Other comprehensive income (loss), net of tax

1 unchanged sentence

Shares issued, net of shares withheld for employee taxes

Shares repurchased

Dividends ($ 0.86 per share)

SSAT’s adoption of new lease accounting standard

Balance at December 31, 2019

Adoption of new lease accounting standard (see Note 9)

Other comprehensive income (loss), net of tax

1 unchanged sentence

Shares issued, net of shares withheld for employee taxes

Equity interest in SSAT

Dividends ($ 0.90 per share)

SSAT’s adoption of new lease accounting standard (see Note 4)

Balance at December 31, 2020

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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.

MatNav also operates two premium, expedited services from China to Long Beach, California, and provides services to Okinawa, Japan and various islands in the South Pacific, and operates an international export service from Dutch Harbor to Asia.

In addition, subsidiaries of MatNav provide 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 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.

SSAT currently provides terminal and stevedoring services to various carriers at seven terminal facilities on the U.S.

West Coast, including three 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.

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The period end for MatNav occurred on the last Friday in December, except for Matson Logistics Warehousing, Inc.

whose period closed on December 31.

and Matson South Pacific Holdco Limited whose period closed on December 31.

Included in these Consolidated Financial Statements are 52 weeks in the 2020, 2019 and 2018 fiscal years for MatNav.

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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.

Gains and losses

resulting from foreign currency transactions are included in Costs and Expenses in the Consolidated Statements of Income and Comprehensive Income.

Use of Estimates:

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legal contingencies;

uninsured risks and related liabilities;

insurance reserves and other related liabilities;

accrual estimates;

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Prepaid insurance and insurance related receivables

Income tax receivables

Restricted cash - vessel construction obligations

Prepaid operating expenses

Restricted cash - vessel construction obligations

Income tax receivables

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 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 8).

Deferred loan fees related to the Company’s revolving credit facility are recorded in other long-term assets in the Company’s Consolidated Balance Sheets, and are amortized using the straight-line method as the difference between that and the use of the effective interest method is not material.

Other Long-Term Assets:

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Vessel and equipment spare parts

Income tax receivables

Insurance related receivables

Deferred charges and other

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.

Deferred loan fees

Cloud computing software costs

Income tax receivables

Property and Equipment:

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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.

Refer to Note 9 for additional information on the Company’s lease related disclosures.

Deferred Dry-docking Costs:

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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.

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 .

flagged 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.

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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 :

Impairment Evaluation 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.

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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.

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No impairment charges of indefinite-life intangible assets and goodwill were recorded for the years ended December 31, 2020, 2019 and 2018.

Impairment Evaluation of SSAT:

The Company’s investment in SSAT, a related party, is evaluated for impairment whenever there is evidence of impairment during the reporting period.

If any impairment is identified, the Company evaluates if the decrease in the fair value of the investment below its carrying value is other-than-temporary.

No impairment was identified during the years ended December 31, 2020, 2019 and 2018.

Other Liabilities:

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Employee incentives and other

Uninsured risks and related liabilities - short term

Multi-employer withdrawal liabilities - short term (see Note 12)

Income tax liabilities

Insurance reserves and other related liabilities - short term

Deferred revenues

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Multi-employer withdrawal liability (see Note 12)

Uninsured risks and related liabilities

Insurance reserves and other related liabilities

Other long-term liabilities

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Additional information about the Company’s pension and post-retirement plans is included in Note 11.

Uninsured Risks and Related Liabilities:

Insurance Related Liabilities:

The Company is uninsured for certain risks but when feasible, many of these risks are mitigated by insurance.

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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.

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.

In addition, the Company retains all risk of loss that exceeds the limits of the Company’s insurance policies, or for other risks where insurance is not commercially available.

When estimating its reserves for retained 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 retained risks and other related liabilities.

Recognition of Revenues and Expenses:

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◾ 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.

Vessel operating costs and other ocean transportation operating costs, such as terminal operating overhead and selling, general and administrative expenses, are charged to operating costs as incurred.

◾ Terminal and other related services revenue is recognized as the services are performed.

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(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.

dollars except for approximately 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 $ 15.8 million and $ 16.6 million from transportation brokerage and freight forwarding services to warehouse and distribution services, and supply chain management and other services for the years ended December 31, 2019 and 2018 , respectively, to be consistent with its current period presentation.

There was no change in total Logistics revenue for the years ended December 31, 2019 and 2018.

◾ 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.

The primary costs include third-party purchased transportation services, agent commissions, 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.

Labor, agent commissions, 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.

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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

The Company’s receivables are classified as short-term as collection terms are for periods of less than one year.

The Company expenses sales commissions and contract acquisition costs as incurred because the amounts are generally immaterial.

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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.

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.

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.

The new standard was effective for interim and annual periods beginning on or after December 15, 2019.

The Company adopted ASU 2016- 13 effective January 1, 2020 using the modified retrospective approach.

Upon adoption, the Company included an evaluation of expected future credit losses as part of its estimate for determining the allowance for doubtful accounts.

The impact of this change was not material to the Company’s allowance for doubtful accounts receivable in the Consolidated Financial Statements.

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 year ended December 31, 2020, the Company capitalized costs of $ 2.4 million related to cloud computing arrangements and which were included in other long-term assets on the Company’s Consolidated Balance Sheets as of December 31, 2020.

REPORTABLE SEGMENTS

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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

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 SSAT segment has been aggregated into the Company’s 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.

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The Company’s investment in SSAT was $ 48.7 million and $ 76.2 million at December 31, 2020 and 2019, respectively.

During the year ended December 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 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, 2020, 2019 and 2018 are as follows:

3 unchanged sentences

Distributions received

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 $ 251.6 million, $ 218.7 million and $ 213.4 million for the years ended December 31, 2020, 2019 and 2018, respectively, for terminal services provided by SSAT.

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Total Liabilities and Equity

(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, 2020, 2019 and 2018 are as follows:

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Depreciation expense

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.

GOODWILL AND INTANGIBLE ASSETS

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(“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.

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 .

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Amortization expense

As of December 31, 2019, estimated amortization expense related to customer relationships intangible assets during the next five years and thereafter is as follows:

As of December 31, 2020, estimated amortization expense related to customer relationship intangible assets during the next five years and thereafter is as follows:

Year (in millions)

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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.

flagged vessels in raising capital necessary for the modernization and expansion of the U.S.

merchant marine fleet.

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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.

As of December 31, 2020 and 2019, $ 1.7 million 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.

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5.27 %, payable through 2029

1.22 %, payable through 2043

1.35 %, payable through 2044

Revolving credit facility, maturity date of June 29, 2022

Capital leases

Current portion

Total Long-term Debt

Deferred loan fees

Total Long-term Debt, net of deferred loan fees

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

1 unchanged sentence

The 5.79 percent notes payable through 2020 are amortized by semi-annual principal payments of $ 3.5 million plus interest.

These notes were fully paid off during the year ended December 31, 2020.

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”).

1 unchanged sentence

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 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.

These notes were fully paid off during the year ended December 31, 2020.

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.

These notes were fully paid off during the year ended December 31, 2020.

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.

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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").

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.

Title XI Debt:

Existing and 2020 Title XI Bonds:

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.

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

The Manukai Title XI Bonds have a final maturity in September 2028 with a coupon rate of 5.34 percent.

The Manukai Title XI 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.

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

The Maunawili Title XI Bonds have a final maturity in July 2029 with a coupon rate of 5.27 percent.

The Maunawili Title XI Bonds are amortized by semi-annual payments of $ 1.1 million plus interest.

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

Government guaranteed vessel financing bonds 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 MARAD out of the proceeds at closing.

The secured DKI Title XI Debt matures on October 15, 2043 and has 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 to partially refinance debt incurred in connection with the construction of Kaimana Hila (the “KMH Title XI Debt”, and 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 secured KMH Title XI Debt matures on March 15, 2044 and has 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.

MatNav may prepay any amounts outstanding under the 2020 Title XI Debt agreements 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 Debt are repaid, they may not be reborrowed.

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

Inouye and Kaimana Hila (the “Vessels”).

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”).

On June 29, 2017, 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.

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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.

All obligations of the Company under the Credit Agreement are guaranteed by MatNav and certain other subsidiaries.

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

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 the 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 Debt Agreements (as defined below).

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 December 31, 2020, the Company had $ 570.1 million of remaining borrowing availability under the revolving credit facility.

The Company had $ 8.1 million of letters of credit outstanding as of December 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 2.50 percent at December 31, 2020.

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.

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 Loan Facilities.

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.

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 2020 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 Debt Agreements.

Debt Maturities:

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

Year (in millions)

December 31, 2020

Deferred Loan Fees:

Activity relating to deferred loan fees for the year ended December 31, 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 year ended December 31, 2020

Balance at December 31, 2020

As of December 31, 2020, amortization expense relating to deferred loan fees during the next five years and thereafter are as follows:

Year (in millions)

Total amortization expense of deferred loan fees

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):

The Credit Agreement and Private term 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

The Private Debt Agreements also contain customary events of default, including cross defaults to other material indebtedness, including the Existing Title XI Bonds and the 2020 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 3.25 to 1.0, subject to the Company’s election of Special Relief Periods in which the Maximum Consolidated Leverage Ratio is

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.

◾ 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 permitted amounts, as defined within the Private Debt Agreements.

The Company was in compliance with these covenants as of December 31, 2020.

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 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.

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.

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)

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;

◾ 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.

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.

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

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

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 Debt are secured by a mortgage on the Vessels and certain other 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 Debt 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 Debt are retired in 2028 and 2029, respectively, subject to certain exceptions.

The Company adopted the lease accounting standard ASC 842 on 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.

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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.

The Company’s sub-lease income was nominal to the Company’s Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2020 and 2019.

The Company did not have any finance leases during the years ended December 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.

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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:

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

(In millions)

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Other Lease Information:

Other information related to the Company’s operating leases for the year ended December 31, 2019 is as follows:

Other information related to the Company’s operating leases for the years ended December 31, 2020 and 2019 are as follows:

(In millions)

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

December 31, 2019

As of December 31,

Weighted average remaining operating lease term

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Long-term operating lease liabilities

Future minimum payments under operating lease agreements at December 31, 2018 are as follows:

Year (in millions)

Total minimum lease payments

Sale and Leaseback of Equipment:

On March 25, 2020, the Company entered into an agreement for the sale and leaseback of multiple tranches of chassis and container equipment.

The net proceeds from the sales were $ 14.3 million, and the gain on the disposal of the equipment was not material to the Company’s Consolidated Financial Statements.

The Company subsequently leased back the equipment under a five-year operating lease agreement, and the obligations under the lease are included in the maturities of operating lease liabilities table above.

Vessel Charter and Buyer-Lessor Guaranty

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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.

Total future minimum lease payments were $ 36.0 million at December 31, 2020, and the obligations under the lease are included in the maturities of operating lease liabilities table above.

Prior to the expiration of the base term of the Charter, the subsidiary may, at its option, elect to:

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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.

On December 22, 2017, the Tax Cuts and Jobs Act (“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

$ 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, 2020, 2019 and 2018 consisted of the following:

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Deferred tax expense

Remeasurement and discrete adjustments related to the Tax Act (2)

Total income taxes

(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, 2020, 2019 and 2018 differ from amounts computed by applying the statutory federal rate to income before income taxes for the following reasons:

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Effective income tax rate

(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.

(1) Effective income tax rate for the years ended December 31, 2019 and 2018 includes the impact of a non-cash income tax benefit of $ 2.9 million, or 2.7 percent, and a non-cash income tax expense of $ 2.9 million, or 2.0 percent, respectively, which related to certain discrete adjustments as a result of applying the provisions of the Tax Act.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019, were as follows:

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Deferred compensation

Foreign losses

Total deferred tax assets

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State income tax NOLs as of December 31, 2020 and 2019, 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.

federal and state income tax NOLs in the Company’s filed income tax returns include unrecognized tax benefits.

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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.

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:

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Reductions for lapse of statute of limitations

Revaluation of unrecognized tax benefits due to the Tax Act (1)

Balance at December 31, 2018

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Balance at December 31, 2020

(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, 2020 are potential benefits of $ 18.3 million that, if recognized, would affect the Company’s income taxes and effective tax rate.

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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.

Interest accrued related to the balance of unrecognized tax benefits totaled $ 0.1 million as of December 31, 2020 and 2019.

The Company is no longer subject to U.S.

federal income tax audits for years before 2015.

The Company is routinely involved in state, local income and excise tax audits, and foreign tax audits.

The Company is routinely involved in federal, state, local income and excise tax audits, and foreign tax audits.

PENSION AND POST-RETIREMENT PLANS

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Debt securities include investment-grade and high-yield corporate bonds from diversified industries, mortgage-backed securities, and U.S.

Other types of investments include funds that invest in commercial real estate assets, and to a lesser extent, private equity investments in technology companies.

Other types of investments include funds that invest in commercial real estate assets.

All assets within specific funds are allocated to the target asset allocation of the fund.

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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”).

Real Estate Funds:

The fair value of real estate funds is 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.

The fair values of the Company’s pension plan assets at December 31, 2020 and 2019 by asset category were as follows:

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corporate bonds

High-yield U.S.

corporate bonds

Investment measured at NAV (1)

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Fixed income securities:

Municipal bonds

Investment grade U.S.

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Total plan assets

(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.

(1) Real estate 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.

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In 2020 and 2019, the Company contributed $ 9.0 million and $ 10.0 million, respectively, in pension contributions in these plans.

There was no pension contribution to these plans in 2018.

There were no contributions to the 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.

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Plan participants’ contributions

Actuarial (gain) loss

Actuarial loss

Benefits paid, net of subsidies received

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Prior service credit, net of taxes

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:

The information for qualified defined benefit pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2020 and 2019 are shown below:

(In millions)

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Fair value of plan assets

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.

Unrecognized gains and losses of the post-retirement benefit plans are amortized over five years .

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Expected return on plan assets

Amortization of net loss

Amortization of net loss (gain)

Amortization of prior service credit

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Amortization of prior service credit

Total recognized in other comprehensive (income) loss

Total recognized in net periodic benefit cost and other comprehensive (income) loss

Total recognized in other comprehensive loss (income)

Total recognized in net periodic benefit cost and other comprehensive loss (income)

The weighted average assumptions used to determine benefit information during 2020, 2019 and 2018 were as follows:

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Rate of compensation increase

Cash balance interest credit rate

Initial health care cost trend rate:

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(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:

Post-retirement Benefits

One Percentage Point

(In millions)

Effect on total of service cost and interest cost components

Effect on post-retirement benefit obligation

Non-qualified Pension Plans:

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Discount rates of 1.8 percent and 2.8 percent were used in determining the 2020 and 2019 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:

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The Company contributes to multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover its bargaining unit employees.

Contributions are generally based on amounts paid for union labor

or cargo volume.

The risks of participating in multi-employer plans are different from single-employer plans because assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.

Contributions are generally based on amounts paid for union labor or cargo volume.

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.

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51-6029896-001

OCU Trust Pension Plan

OCU Pension Trust Plan

26-1574440-001

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13-2864289-001

Seafarers Pension Trust

Seafarers Pension Plan

13-6100329-001

(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.

(1) The Hawaii Terminals Multiemployer Pension Plan merged into the Hawaii Stevedoring Multiemployer Retirement Plan effective January 1, 2021 and formally known as the Hawaii Longshore Pension Plan.

(2) Represents the expiration date of the collective bargaining agreement.

(3) 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

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.

These plans are not subject to the PBGC plan termination and withdrawal liability provisions of ERISA applicable to multi-employer defined benefit pension plans.

Contributions for these multi-employer postretirement health and other benefits were $ 32.5 million, $ 32.8 million and $ 30.0 million in 2020, 2019 and 2018, respectively.

Multi-employer Defined Contribution Plans:

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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.

The Company included the partial withdrawal liability of $ 6.5 million and $ 6.7 million within other current liabilities in the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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Balance at December 31, 2018

Reclassification adjustment related to the Tax Act (1)

Amortization of prior service cost

Amortization of net loss (gain)

Other adjustments

Balance at December 31, 2019

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Amortization of net loss (gain)

Foreign currency exchange

Other adjustments

Balance at December 31, 2020

(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.

Other comprehensive income (loss) in the Consolidated Statements of Income and Comprehensive Income is shown net of tax benefit (expense) of $ 4.2 million, $( 0.3 ) million and $ 0.2 million for the years ended December 2020, 2019 and 2018, respectively.

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Outstanding at December 31, 2020

(1) Represents 2016 Performance Shares paid out below target.

(1) Represents shares paid out above target.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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Standby letters of credit (1)

Vessel construction obligations (3)

Vendor and other obligations (3)

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Customs and other related matters.

(3) Vessel construction obligations represent remaining contractual obligations entered into for the construction of new vessels.

(3) Vendor and other obligations include:

(i) non-cancellable contractual capital project obligations (excluding vessel construction obligations);

(i) non-cancellable contractual capital project obligations;

(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.

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.

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Diluted Earnings Per Share:

The following infrequent transactions impacted the Company’s quarterly segment results during the years ended December 31, 2019 and 2018:

Quarters in the Year Ended December 31, 2019

(In millions)

Income taxes - Discrete adjustments related to the Tax Act (1)

The following infrequent transactions impacted the Company’s quarterly segment results during the year ended December 31, 2019.

There were no infrequent transactions recorded during the year ended December 31, 2020.

Quarters in the Year Ended December 31, 2019

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Income taxes - Discrete adjustments related to the Tax Act (1)

(1) Amounts relate to discrete adjustments as a result of applying the Tax Act during the years ended December 31, 2019 and 2018.

(1) Amounts relate to discrete adjustments as a result of applying the Tax Act during the year ended December 31, 2019.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data