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Item 8. Financial Statements and Supplementary Data

2022-02-25 compared with 2021-02-26 · 124 added, 210 removed, 1110 unchanged (23% of the section changed)

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Management’s Annual Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Statements of Income and Comprehensive Income

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Commitments and Contingencies

Quarterly Information (Unaudited)

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Matson, Inc.

To the Board of Directors and the shareholders of Matson, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

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The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

In estimating the fair value of a reporting unit, the Company uses a combination of a discounted cash flow model and fair value based on market multiples of EBITDA.

In estimating the fair value of a reporting unit, the Company uses a combination of a discounted cash flow model and fair value based on market multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”).

The discounted cash flow approach requires the Company to make several business assumptions related to discount rates and forecasts of future revenues.

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Amortization of prior service cost

Amortization of net loss

Amortization of net loss (gain)

Other adjustments

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Deferred income taxes

Loss (Gain) on disposal of property and equipment

(Gain) Loss on disposal of property and equipment

Share-based compensation expense

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Cash Flows From Investing Activities:

Capitalized vessel construction expenditure

Capitalized vessel construction expenditures

Other capital expenditures

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Withdrawals from Capital Construction Fund

Proceeds from sale of other investments

Net cash used in investing activities

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

Net cash (used in) provided by financing activities

Net Increase (Decrease) 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

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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

Other comprehensive income (loss), net of tax

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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

Balance at December 31, 2020

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Shares issued, net of shares withheld for employee taxes

Equity interest in SSAT

Share repurchase

Dividends ($ 1.06 per share)

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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 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.

MatNav also operates premium, expedited services primarily 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, Alaska 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 currently provides terminal and stevedoring services to various carriers at seven terminal facilities on the U.S.

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

West Coast, including three facilities dedicated for MatNav’s use.

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(“Matson Logistics”), a wholly-owned subsidiary of MatNav.

Established in 1987, Matson Logistics is an asset-light business that provides a variety of logistics services to its customers including:

Established in 1987, Matson Logistics extends the geographic reach of Matson’s transportation network throughout North America and Asia, and is an asset-light business that provides a variety of logistics services to its customers including:

(i) multimodal transportation brokerage of domestic and international rail intermodal services, long-haul and regional highway trucking services, specialized hauling, flat-bed and project services, less-than-truckload services, and expedited freight services (collectively, “Transportation Brokerage” services);

(ii) less-than-container load (“LCL”) consolidation and freight forwarding services (collectively, “Freight Forwarding” services);

(iii) warehousing and distribution services;

(iii) warehousing, trans-loading, value-added packaging and distribution services (collectively, “Warehousing” services);

and (iv) supply chain management, non-vessel operating common carrier (“NVOCC”) freight forwarding and other services.

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The year end for Matson is December 31.

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

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.

The period end for MatNav occurred on the last Friday in December, except for certain Company subsidiaries whose period closed on December 31.

Included in these Consolidated Financial Statements are 53 weeks in the 2021 and 52 weeks in the 2020 and 2019 fiscal years for MatNav.

Foreign Currency Transactions:

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capitalized interest;

allowance for doubtful accounts;

allowance for doubtful accounts and note receivables;

legal contingencies;

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The Company carries these investments at cost, which approximates fair value.

Outstanding checks in excess of funds on deposit totaled $ 19.9 million and $ 13.8 million at December 31, 2020 and 2019, respectively, and are included in current liabilities in the Consolidated Balance Sheets.

There were no outstanding checks in excess of funds on deposit as of December 31, 2021.

Outstanding checks in excess of funds on deposit totaled $ 19.9 million as of December 31, 2020, and are included in current liabilities in the Consolidated Balance Sheets.

Restricted cash relates to amounts that are subject to contractual restrictions and are not readily available.

At December 31, 2020 and 2019, restricted cash was $ 5.3 million and $ 7.2 million, respectively, and are included in prepaid expenses and other assets in the Consolidated Balance Sheets.

Restricted cash was $ 5.3 million at December 31, 2021 and 2020, and is included in prepaid expenses and other assets in the Consolidated Balance Sheets.

Accounts Receivable, net:

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Prepaid Expenses and Other Assets (in millions)

Income tax receivables

Prepaid insurance and insurance related receivables

Prepaid operating expenses

Restricted cash - vessel construction obligations

Income tax receivables

Deferred Loan Fees:

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Insurance related receivables

Deferred loan fees

Cloud computing software costs

Income tax receivables

Property and Equipment:

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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.

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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Payroll and vacation

Employee incentives and other

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

Income tax liabilities

Employee incentives and other benefits

Insurance reserves and other related liabilities - short term

Deferred revenues

Interest on debt

Pension and post-retirement liabilities - short term (see Note 11)

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

Income tax and other tax related liabilities

Other short-term liabilities

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Other Long-Term Liabilities (in millions)

Pension and post-retirement liabilities (see Note 11)

Multi-employer withdrawal liability (see Note 12)

Pension and post-retirement liabilities (see Note 11)

Insurance reserves and other related liabilities

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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, or for other risks where insurance is not commercially available.

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.

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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:

Year Ended December 31,

Years Ended December 31,

Ocean Transportation (in millions) (1)

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Related costs are recognized as incurred.

Year Ended December 31,

Years Ended December 31,

Logistics (in millions) (1)

Transportation Brokerage and Freight Forwarding services

Warehouse and distribution services

Warehousing and distribution services

Supply chain management and other services

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dollars except for approximately 5 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.

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The Ocean Transportation segment serves customers in numerous industries and carries a wide variety of cargo, mitigating its dependence upon any single customer or single type of cargo.

In 2020, 2019 and 2018, the 10 largest Ocean Transportation customers accounted for approximately 22 percent, 23 percent and 24 percent of Ocean Transportation revenue, respectively.

None of these customers individually account for more than 10 percent of Ocean Transportation operating revenues.

In 2021, the Company’s 10 largest Ocean Transportation customers accounted for approximately 15 percent of the Company’s Ocean Transportation operating revenue.

The Logistics segment serves customers in numerous industries and geographical locations.

In 2020, 2019 and 2018, the 10 largest Logistics customers accounted for approximately 19 percent, 21 percent and 23 percent of Logistics revenue, respectively.

None of these customers individually account for more than 10 percent of Logistics operating revenues.

In 2021, the Company’s 10 largest Logistics customers accounted for approximately 25 percent of the Company’s Logistics operating revenue.

The Company recognizes dividends as a liability when approved by the Board of Directors.

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Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may be slightly different.

New Accounting Pronouncements :

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

In June 2016, the 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 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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(“Horizon”) on May 29, 2015, and are being amortized over 21 years .

Logistics intangible assets include $ 79.3 million of customer relationships which are being amortized over 20 years , and

$ 27.3 million of an indefinite life trade name, both acquired as part of the Span Alaska acquisition.

The remaining Logistics customer relationships of $ 10.8 million are being amortized over a period of up to 13 years .

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 approximately 13 years .

Intangible assets related amortization expense for 2021, 2020 and 2019, is as follows:

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and used between covered U.S.

ports as described by the Merchant Marine Act, and for other qualifying expenditures (see Item 1 of Part 1 for additional information on Maritime Laws and the Jones Act).

ports as described by the Merchant Marine Act, and for other qualifying expenditures (see

Item 1 of Part 1 for additional information on Maritime Laws and the Jones Act).

Participants of the CCF must also meet certain U.S.

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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, 2020 and 2019, $ 1.7 million of eligible accounts receivable were assigned to the CCF.

As of December 31, 2021 and 2020, $ 9.8 million and $ 1.7 million of eligible accounts receivable were assigned to the CCF, respectively.

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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4.31 %, payable through 2032

4.35 %, payable through 2044

3.92 %, payable through 2045

Title XI Debt:

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1.35 %, payable through 2044

Revolving credit facility, maturity date of June 29, 2022

Revolving credit facility, maturity date of March 31, 2026

Current portion

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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.

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”).

During 2012, the Company issued $ 170.0 million of unsecured notes, which were 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.

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.

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 from mid-year 2023 through mid-year 2027, and $ 1.2 million thereafter.

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.

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.

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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.

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.

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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.

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.

On March 31, 2021, the Company entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated that certain Amended and Restated Credit Agreement dated as of June 29, 2017.

The Credit Agreement extended the maturity date to March 31, 2026, and retained the existing committed aggregate borrowings of up to $ 650 million.

The Credit Agreement amended certain covenants and other terms set forth in the prior credit agreement, including (i) amending the pricing grid to provide for pricing ranging from, at the Company’s election, LIBOR plus a margin between 1.00 percent and 1.75 percent depending on the Company’s consolidated net leverage ratio, or base rate plus a margin between 0.00 percent and 0.75 percent depending on the Company’s consolidated net leverage ratio;

(ii) reducing the maximum permitted consolidated leverage ratio to 3.50 to 1.0, with an option for a one-time increase to 4.0 to 1.0 in connection with a material acquisition;

and (iii) removing certain additional limitations on stock redemptions and repurchases, sale and leaseback transactions and asset sales during the period from March 31, 2020 through and including December 30, 2021 that were added in March 2020, and (iv) removing certain additional limitations on incurrence of priority debt through December 21, 2027 that were added in March 2020.

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 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.

The Credit Agreement contains 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.

The Credit Agreement also contains customary events of default.

The Company paid fees of approximately $ 2.2 million in connection with the closing of the Credit Agreement which is included in other long-term assets in the Consolidated Balance Sheet as of December 31, 2021.

As of December 31, 2021, the Company had $ 642.0 million of remaining borrowing availability under the revolving credit facility.

The Company had $ 8.0 million of letters of credit outstanding as of December 31, 2021.

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.

Based on the Company’s consolidated net leverage ratio, which stipulates borrowing margins, the interest rate applicable to the revolving credit facility was approximately 1.10 percent at December 31, 2021.

Borrowings under the revolving credit facility are classified as long-term debt in the Consolidated Balance Sheet, as principal payments are not required until the maturity date.

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 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.

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.

On March 31, 2021, the Company and the holders of the notes party thereto entered into amendments (collectively, the “2021 Note Amendments”) to each of (i) the Third Amended and Restated Note Purchase Agreement and Private Shelf Agreement dated as of September 14, 2016, among the Company and the holders of the notes issued thereunder, as amended;

and (ii) the Note Purchase Agreement dated December 21, 2016 among the Company and the holders of the notes issued thereunder, in each case as amended prior to such date.

The 2021 Note Amendments amended certain covenants and other terms, including (i) eliminating the Leverage Relief Period and associated quarterly interest enhancement payments that were added in March 2020;

(ii) removing certain other fees and increases to interest rate through December 31, 2021 and thereafter that were added in March 2020;

(iii) reducing the maximum permitted consolidated leverage ratio to 3.50 to 1.0, with an option for a one-time increase to 4.0 to 1.0 in connection with a material acquisition, with potential interest enhancement payments if leverage is over 3.25 to 1.0;

and (iv) removing certain additional limitations on stock redemptions and repurchases, sale and leaseback transactions and asset sales during the period from March 31, 2020 through and including December 30, 2021 that were added in March 2020, and (v) removing certain additional limitations on the incurrence of priority debt through December 21, 2027 that were added in March 2020.

The Company paid fees of approximately $ 0.8 million related to the 2021 Note Amendments which is included in deferred loan fees in debt in the Consolidated Balance Sheet as of December 31, 2021.

Debt Maturities:

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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 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 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 Existing Title XI Bonds and 2020 Title XI Debt Agreements:

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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.

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 and 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:

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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.

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.

The 2020 Title XI Debt agreements also provide that the two vessels securing the 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.

Description of Operating Leases:

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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 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 years ended December 31, 2021 and 2020.

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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

Vessel Charter:

On November 26, 2018, a wholly-owned subsidiary of the Company entered into agreements whereby a vessel, Maunalei , owned by the subsidiary, was sold for $ 106.0 million and subsequently leased back from the buyer-lessor under a Bareboat Charter Agreement (the “Charter”).

There were no sale and leaseback transactions during 2021 and 2019.

Termination of Vessel Charter:

On November 26, 2018, MatNav entered into agreements whereby the MatNav owned vessel Maunalei was sold for $ 106.0 million and subsequently leased back from the buyer-lessor under a Bareboat Charter Agreement (the “Charter”).

The transaction qualified for sale and leaseback treatment under ASC 840, Leases , with the Charter treated as an operating lease for accounting purposes.

Lease payments are approximately $ 3.0 million per quarter, and the base term of the Charter is five years with a two year end-of-term renewal option .

Total future minimum lease payments were $ 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:

(i) purchase the vessel at the option price;

(ii) exercise the option to renew the Charter for an additional two years;

or (iii) remarket the vessel to sell to a third-party on behalf of the buyer-lessor.

The purchase option price is $ 68.9 million after the base term and $ 58.3 million after the extended term.

The Charter also includes a maximum residual value guarantee amount of $ 50.9 million after five years, or $ 47.7 million after the extended term.

Proceeds from the sale of the vessel reduces the subsidiary’s residual value guarantee.

Buyer-Lessor Guaranty:

provided the buyer-lessor with a guaranty of all obligations of the wholly-owned subsidiary related to the Charter as defined in the guaranty agreement.

Lease payments were approximately $ 3.0 million per quarter, and the base term of the Charter was five years with a two year end-of-term renewal option .

On July 7, 2021, MatNav entered into an agreement to terminate the Charter for $ 95.8 million, thereby acquiring the vessel.

The Company paid for the termination with a combination of cash on hand and borrowing on the revolving credit facility.

The Company derecognized the related right-of-use (“ROU”) asset of $ 27.4 million and ROU liability of $ 28.5 million, and increased property and equipment by $ 94.7 million, net.

Concurrent with the termination of the Charter, the Company was released from certain obligations under a guaranty related to the Charter.

Income Taxes:

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.

Income taxes for the years ended December 31, 2021, 2020 and 2019 consisted of the following:

4 unchanged sentences

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.

(1) Current income taxes for the year ended December 31, 2019 include a non-cash income tax benefit of $ 2.9 million, which relates to discrete adjustments as a result of applying the provisions of the 2017 Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

Income taxes for the years ended December 31, 2021, 2020 and 2019 differ from amounts computed by applying the statutory federal rate to income before income taxes for the following reasons:

2 unchanged sentences

State income tax

Foreign-derived intangible income (FDII)

Valuation allowance

3 unchanged sentences

Effective income tax rate

(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.

(1) Effective income tax rate for the year ended December 31, 2019 includes the impact of a non-cash income tax benefit of $ 2.9 million, or 2.7 percent, 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, 2021 and 2020, were as follows:

3 unchanged sentences

Operating lease liabilities

Pension and post-retirement plans

Multi-employer withdrawal liabilities

Federal net operating losses

State net operating losses

State alternative minimum tax credits

Insurance reserves

Pension and post-retirement plans

Deferred compensation

Insurance reserves

State net operating losses

Total deferred tax assets

4 unchanged sentences

Operating lease right of use assets

Lease financing

Capital Construction Fund

Investment in SSAT

Capital Construction Fund

Lease financing

Total deferred tax liabilities

2 unchanged sentences

Valuation allowances recorded against the Company’s foreign income tax net operating losses (“NOLs”) and a portion of the state income tax NOLs were $ 5.3 million and $ 10.0 million as of December 31, 2021 and 2020, respectively.

The Company believes that it is more likely than not that the benefit from these amounts will not be realized.

The Company recorded a decrease (increase) to its valuation allowance of $ 0.6 million, $ 0.9 million and ($ 1.1 ) million during the years ended December 31, 2020, 2019 and 2018, respectively.

The Company believes that it is more likely than not that the benefit from these deferred assets will not be realized.

The Company recorded a decrease to its valuation allowance of $ 4.7 million, $ 0.6 million and $ 0.9 million during the years ended December 31, 2021, 2020 and 2019, respectively.

Net Operating Losses and Tax Credit Carryforwards:

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No expiration date

(1) The Company does not expect to benefit from $ 157.9 million and $ 157.9 million of U.S.

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

State income tax NOLs are presented on a gross tax basis.

The Company does not expect to benefit from $ 157.9 million of U.S.

State income tax NOLs as of December 31, 2021 and 2020.

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

4 unchanged sentences

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:

59 unchanged sentences

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 Funds:

The fair value of real estate funds is determined by the issuer based on their net asset value (“NAV”).

Real Estate and Private Equity Funds:

The fair value of real estate and private equity 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.

13 unchanged sentences

corporate bonds

High-yield U.S.

corporate bonds / Non-U.S.

Investment measured at NAV (1)

12 unchanged sentences

corporate bonds

High-yield U.S.

corporate bonds

Investment measured at NAV (1)

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.

(1) Real estate and private equity funds for which fair value is measured using the NAV per share as a practical expedient are not leveled within the fair value hierarchy and are included as a reconciling item to total plan assets.

Contributions to each of the qualified single-employer defined benefit pension plans are determined annually by the Company’s pension administrative committee, based upon the actuarially determined minimum required contribution under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, the Pension Protection Act of 2006, and the maximum deductible contribution allowed for tax purposes.

The Company’s funding policy is to contribute cash to its pension plans so that it meets at least the minimum contribution requirements.

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

There were no contributions to the plans in 2018.

In 2021, 2020 and 2019, the Company contributed $ 9.0 million, $ 9.0 million and $ 10 million, respectively, in pension contributions in these plans.

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.

12 unchanged sentences

Interest cost

Plan participants’ contributions

Actuarial loss

Participant contributions

Actuarial (gain) loss

Benefits paid, net of subsidies received

4 unchanged sentences

Actual return on plan assets

Plan participants’ contributions

Participant contributions

Employer contributions

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Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income, net of tax:

Net loss (gain)

Net (gain) loss

Amortization of net (loss) gain

9 unchanged sentences

Cash balance interest credit rate

Initial health care cost trend rate:

0.75 % - 3.25

1.75 % - 3.75

Immediate health care cost trend rate:

Post-65 group

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Year (in millions)

(1) Net of plan participants’ contributions and Medicare Part D subsidies.

(1) Net of participant contributions and Medicare Part D subsidies.

Defined Contribution Plans:

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13-6161999-001

Hawaii Longshore Pension Plan

99-0314293-001

Hawaii Terminals Multiemployer Pension Plan

26 unchanged sentences

13-6100329-001

(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.

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

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

3 unchanged sentences

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.

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 $ 34.7 million, $ 32.5 million and $ 32.8 million in 2021, 2020 and 2019, respectively.

16 unchanged sentences

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 $ 6.5 million and $ 6.7 million within other current liabilities in the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively.

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

The Company paid off this liability during 2021.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

6 unchanged sentences

Amortization of net loss (gain)

Foreign currency exchange

Other adjustments

19 unchanged sentences

2016 Incentive Compensation Plan:

The 2016 Incentive Compensation Plan (the “2016 Plan”) serves as a successor to the 2007 Incentive Compensation Plan and all other predecessor plans.

The Amended and Restated Matson, Inc.

2016 Incentive Compensation Plan (the “2016 Plan”) serves as a successor to the 2007 Incentive Compensation Plan and all other predecessor plans.

No further grants will be made under the predecessor stock option plans.

Under the 2016 Plan, 4.35 million shares of common stock were reserved for issuance.

Shareholders approved the 2016 Plan at the 2016 Annual Meeting of Shareholders.

The 2016 Plan consists of four separate incentive compensation programs:

19 unchanged sentences

Unrecognized compensation cost is expected to be recognized over a weighted average period of approximately 1.7 years.

Stock option activity for the year ended December 31, 2020 was as follows (in thousands, except weighted average exercise price and weighted average contractual life):

Outstanding at December 31, 2019

Outstanding at December 31, 2020

Exercisable at December 31, 2020

Stock option activity for the year ended December 31, 2021 was nominal and there were no stock options outstanding and exercisable as of December 31, 2021.

The following table summarizes non-vested restricted stock unit activity through December 31, 2021 (in thousands, except weighted average grant-date fair value amounts):

2 unchanged sentences

Outstanding at December 31, 2020

Settlement of Performance Shares (1)

Added by performance factor (1)

Outstanding at December 31, 2021

47 unchanged sentences

The Company’s Ocean Transportation segment has certain risks that could result in expenditures for environmental remediation.

The Company believes that based on all information available to it, the Company is currently in compliance, in all material respects, with applicable environmental laws and regulations.

On November 10, 2021, the California Air Resources Board (“CARB”) issued a Notice of Violation (the “NOV”) to Matson for alleged violations of the Airborne Toxic Control Measure for Auxiliary Diesel Engines Operated on Ocean-Going Vessels At-Berth in a California Port pursuant to California Code of Regulations, title 17, section 93118.3.

CARB regulations require that a company’s fleet plug into shore power for at least 80 percent of visits at California ports and reduce auxiliary engine power generation by at least 80 percent.

The NOV alleges that Matson’s fleet did not meet the 80 percent thresholds during visits to the Port of Long Beach in 2020.

The violations were alleged to have been incurred by chartered vessels in the CLX+ service.

These chartered vessels were not outfitted with alternative maritime power (“AMP”) capability which would have allowed them to plug into the shore power grid and shut down the vessel diesel generators when at dock.

The Company has presented mitigating factors for consideration in settlement discussions with CARB, as well as plans to achieve compliance in 2022.

Although potential penalties for 2020 and 2021 violations could, in the aggregate, reasonably be expected to exceed $1 million, they are not expected to be material to the Company’s business or financial condition.

Other Matters:

The Company and its subsidiaries are parties to, or may be contingently liable in connection with, other legal actions arising in the normal course of their businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on the Company’s financial condition, results of operations, or cash flows.

QUARTERLY INFORMATION (Unaudited)

Segment results by quarter for 2020 and 2019 are as follows:

Quarters in the Year Ended December 31, 2020

(In millions, except per share amounts)

Operating Revenue:

Ocean Transportation

Total Operating Revenue

Operating Income:

Ocean Transportation

Total Operating Income

Interest expense, net

Other income (expense), net

Income before Income Taxes

Basic Earnings Per Share:

Diluted Earnings Per Share:

Quarters in the Year Ended December 31, 2019

(In millions, except per share amounts)

Operating Revenue:

Ocean Transportation

Total Operating Revenue

Operating Income:

Ocean Transportation

Total Operating Income

Interest expense, net

Other income (expense), net

Income before Income Taxes

Basic Earnings Per Share:

Diluted Earnings Per Share:

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

(In millions)

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 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