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What changed 10-Q

Item 1. Financial Statements

2022-05-04 compared with 2021-11-04 · 86 added, 158 removed, 357 unchanged (41% of the section changed)

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In millions, except per share amounts)

14 unchanged sentences

Amortization of prior service cost

Amortization of net loss

Amortization of net loss (gain)

Other adjustments

7 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(In millions)

1 unchanged sentence

Cash and cash equivalents

Accounts receivable, net of allowance for credit loss of $ 9.0 million and $ 6.3 million, respectively

Accounts receivable, net of allowance for credit losses of $ 11.4 million and $ 10.1 million, respectively

Prepaid expenses and other assets

21 unchanged sentences

Total long-term liabilities

Commitments and Contingencies

Commitments and Contingencies (see Note 13)

Shareholders’ Equity:

7 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

24 unchanged sentences

Cash Flows From Financing Activities:

Proceeds from issuance of debt

Repayments of debt

2 unchanged sentences

Payment of financing costs

Proceeds from issuance of capital stock

Dividends paid

24 unchanged sentences

Shares issued, net of shares withheld for employee taxes

Shares repurchased

Dividends ( $ 0.30 per share)

Balance at March 31, 2022

Other comprehensive income (loss), net of tax

Share-based compensation

Shares issued, net of shares withheld for employee taxes

Dividends ( $ 0.23 per share and $ 0.30 per share)

Balance at June 30, 2021

Other comprehensive income (loss), net of tax

Share-based compensation

Shares issued, net of shares withheld for employee taxes

Shares repurchased

Balance at September 30, 2021

Comprehensive

5 unchanged sentences

Shares issued, net of shares withheld for employee taxes

Equity interest in SSAT

Dividends ( $ 0.23 per share)

Balance at March 31, 2021

Other comprehensive income (loss), net of tax

Share-based compensation

Shares issued, net of shares withheld for employee taxes

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

Balance at June 30, 2020

Other comprehensive income (loss), net of tax

Share-based compensation

Shares issued, net of shares withheld for employee taxes

Balance at September 30, 2020

See Notes to Condensed Consolidated Financial Statements.

8 unchanged sentences

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 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.

2 unchanged sentences

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

Matson Logistics, established in 1987, extends the geographic reach of Matson’s transportation network throughout North America, and 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.

10 unchanged sentences

Fiscal Period:

The period end for Matson covered by this report is September 30, 2021.

The period end for MatNav and its subsidiaries covered by this report occurred on the last Friday in September, or September 24, 2021.

The period end for Matson covered by this report is March 31, 2022.

The period end for MatNav and its subsidiaries covered by this report occurred on April 1, 2022.

Significant Accounting Policies:

7 unchanged sentences

capitalized interest;

allowance for doubtful accounts;

allowance for doubtful accounts and note receivables;

legal contingencies;

4 unchanged sentences

operating lease assets and liabilities;

income from SSAT;

and income taxes.

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

September 30,

Ocean Transportation (in millions) (1)

12 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

September 30,

Logistics (in millions) (1)

Transportation Brokerage and Freight Forwarding services

Warehouse and distribution services

Warehousing and distribution services

Supply chain management and other services

(1) Logistics revenue transactions are primarily denominated in U.S.

dollars except for less than 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.

dollars except for approximately 6.5 percent of transportation brokerage and freight forwarding services revenue, and supply chain management and other services revenue categories which are denominated in foreign currencies.

◾ Transportation Brokerage and Freight Forwarding services revenue consists of amounts billed to customers for services provided.

13 unchanged sentences

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

These expenses are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income.

These expenses are included in selling, general and administration expenses in the Condensed Consolidated Statements of Income and Comprehensive Income.

Capital Construction Fund:

The Company’s Capital Construction Fund (“CCF”) is described in Note 7 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

As of September 30, 2021 and December 31, 2020, $ 1.8 million and $ 1.7 million of eligible accounts receivable was assigned to the CCF, respectively.

As of March 31, 2022 and December 31, 2021, $ 9.8 million of eligible accounts receivable was assigned to the CCF.

Due to the nature of the assignment of eligible accounts receivable into the CCF, such assigned amounts are classified as part of accounts receivable in the Condensed Consolidated Balance Sheets.

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

During the nine months ended September 30, 2021, the Company deposited $ 31.2 million into the CCF and made qualifying cash withdrawals of $ 31.2 million from the CCF.

The Company made no qualifying cash deposits or withdrawals during the three months ended September 30, 2021.

The balance of cash on deposit at September 30, 2021 and December 31, 2020 was nominal.

During the three months ended March 31, 2022, the Company deposited $ 10.7 million into the CCF and made qualifying cash withdrawals of $ 10.7 million from the CCF.

The balance of cash on deposit at March 31, 2022 and December 31, 2021 was nominal.

Investment in SSAT:

Condensed income statement information for SSAT for the three and nine months ended September 30, 2021 and 2020 consisted of the following:

Condensed income statement information for SSAT for the three months ended March 31, 2022 and 2021 consisted of the following:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In millions)

6 unchanged sentences

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

The Company’s investment in SSAT was $ 37.2 million and $ 48.7 million at September 30, 2021 and December 31, 2020, respectively.

Contingencies:

Environmental Matters:

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

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

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.

The Company’s third quarter 2021 cash dividend of $ 0.30 per share was paid on September 2, 2021.

On October 28, 2021, the Company’s Board of Directors declared a cash dividend of $ 0.30 per share payable on December 2, 2021.

The Company’s investment in SSAT was $ 92.7 million and $ 58.7 million at March 31, 2022 and December 31, 2021, respectively.

The Company’s first quarter 2022 cash dividend of $ 0.30 per share was paid on March 3, 2022.

On April 28, 2022, the Company’s Board of Directors declared a cash dividend of $ 0.30 per share payable on June 2, 2022 to shareholders of record on May 12, 2022.

Repurchase of Shares:

During the three months ended March 31, 2022, the Company repurchased approximately 0.7 million shares for a total cost of $ 68.6 million.

On January 27, 2022 the Company announced an increase of three million shares in its existing share repurchase program.

As of March 31, 2022, the maximum number of remaining shares that may be repurchased under the Company’s stock repurchase program was approximately 2.8 million shares.

REPORTABLE SEGMENTS

6 unchanged sentences

The Company’s Ocean Transportation segment provides ocean transportation services to the Logistics segment, and the Logistics segment provides logistics services to the Ocean Transportation segment in certain transactions.

Accordingly, inter-segment revenue of $ 57.8 million and $ 40.2 million for the three months ended September 30, 2021 and 2020, and $ 140.5 million and $ 83.8 million for the nine months ended September 30, 2021 and 2020, respectively, have been eliminated from operating revenues in the table below.

Reportable segment financial information for the three and nine months ended September 30, 2021 and 2020 are as follows:

Accordingly, inter-segment revenue of $ 73.2 million and $ 33.7 million for the three months ended March 31, 2022 and 2021, respectively, have been eliminated from operating revenues in the table below.

Reportable segment financial information for the three months ended March 31, 2022 and 2021 are as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In millions)

9 unchanged sentences

Income before Income Taxes

(1) Ocean Transportation operating revenue excludes inter-segment revenue of $ 21.8 million and $ 22.4 million for the three months ended September 30, 2021 and 2020, and $ 55.6 million and $ 43.7 million for the nine months ended September 30, 2021 and 2020, respectively.

(2) Logistics operating revenue excludes inter-segment revenue of $ 36.0 million and $ 17.8 million for the three months ended September 30, 2021 and 2020, and $ 84.9 million and $ 40.1 million for the nine months ended September 30, 2021 and 2020, respectively.

(3) Ocean Transportation segment information includes $ 13.0 million and $ 7.7 million of equity in income from the Company’s equity investment in SSAT for the three months ended September 30, 2021 and 2020, and $ 35.0 million and $ 15.4 million for the nine months ended September 30, 2021 and 2020, respectively.

(1) Ocean Transportation operating revenue excludes inter-segment revenue of $ 21.8 million and $ 15.1 million for the three months ended March 31, 2022 and 2021, respectively.

(2) Logistics operating revenue excludes inter-segment revenue of $ 51.4 million and $ 18.6 million for the three months ended March 31, 2022 and 2021, respectively.

(3) Ocean Transportation segment information includes $ 34.0 million and $ 9.2 million of equity in income from the Company’s equity investment in SSAT for the three months ended March 31, 2022 and 2021, respectively.

PROPERTY AND EQUIPMENT

Property and equipment as of September 30, 2021 and December 31, 2020 consisted of the following:

September 30,

Property and equipment as of March 31, 2022 and December 31, 2021 consisted of the following:

(In millions)

1 unchanged sentence

Terminal facilities and other property

Construction in progress

Vessel construction in progress

Other construction in progress

Total Property and Equipment

2 unchanged sentences

GOODWILL AND INTANGIBLES

Goodwill by segment as of September 30, 2021 and December 31, 2020 consisted of the following:

Goodwill by segment as of March 31, 2022 and December 31, 2021 consisted of the following:

(In millions)

Transportation

Intangible assets as of September 30, 2021 and December 31, 2020 consisted of the following:

September 30,

Intangible assets as of March 31, 2022 and December 31, 2021 consisted of the following:

(In millions)

7 unchanged sentences

The Company has reporting units within the Ocean Transportation and Logistics reportable segments.

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

Based on the Company’s assessment of its market capitalization, future forecasts and the amount of excess of fair value over the carrying value of the reporting units in the 2020 annual impairment tests, the Company concluded that an impairment triggering event did not occur during the quarter ended September 30, 2021.

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

Based on the Company’s assessment of its market capitalization, future forecasts and the amount of excess of fair value over the carrying value of the reporting units in the 2021 annual impairment tests, the Company concluded that an impairment triggering event did not occur during the three months ended March 31, 2022.

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

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

As of September 30, 2021 and December 31, 2020, the Company’s debt consisted of the following:

September 30,

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

As of March 31, 2022 and December 31, 2021, the Company’s debt consisted of the following:

(In millions)

10 unchanged sentences

1.35 %, payable through 2044

Revolving credit facility, maturity date of March 31, 2026

Current portion

2 unchanged sentences

Total Long-term Debt, net of deferred loan fees

Except as described below, the Company’s debt is described in Note 8 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and in Note 6 to the Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2021.

Except as described below, the Company’s debt is described in Note 8 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Revolving Credit Facility:

As of September 30, 2021, the Company had $ 641.9 million of remaining borrowing availability under the revolving credit facility.

The Company used $ 8.1 million of the sublimit for letters of credit outstanding as of September 30, 2021.

Although there were no outstanding borrowings under the facility at September 30, 2021, based on the Company’s consolidated net leverage ratio, which stipulates borrowing margins, the interest rate applicable to the revolving credit facility would have been approximately 1.10 percent at September 30, 2021.

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

The Company’s revolving credit facility has committed available borrowing of up to $ 650 million and matures on March 31, 2026.

As of March 31, 2022, the Company had $ 642.0 million of remaining borrowing availability under the revolving credit facility.

The Company used $ 8.0 million of the revolving credit facility for letters of credit outstanding as of March 31, 2022.

There were no outstanding borrowings under the revolving credit facility as of March 31, 2022 and December 31, 2021.

Debt Security and Guarantees:

All of the debt of the Company and MatNav, including related guarantees, as of September 30, 2021 was unsecured, except for the Title XI debt.

All of the debt of the Company and MatNav, including related guarantees, as of March 31, 2022 was unsecured, except for the Title XI debt.

Debt Maturities:

As of September 30, 2021, debt maturities during the next five years and thereafter are as follows:

As of March 31, 2022, debt maturities during the next five years and thereafter are as follows:

Year (in millions)

September 30, 2021

March 31, 2022

Remainder of 2022

1 unchanged sentence

Components of Lease Cost:

Components of lease cost recorded in the Company’s Condensed Consolidated Statement of Income and Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 consisted of the following:

Components of lease cost recorded in the Company’s Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2022 and 2021 consisted of the following:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In millions)

3 unchanged sentences

Total lease cost

Sale and Leaseback of Equipment:

There were no sale and leaseback transactions during the three and nine months ended September 30, 2021.

During the three months ended March 31, 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 Condensed Consolidated Financial Statements.

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

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

Termination of Vessel Charter:

On July 7, 2021, a wholly-owned subsidiary of the Company entered into an agreement to terminate a Bareboat Charter Agreement (the “Charter”) on the vessel, Maunalei, for $ 95.8 million thereby acquiring the vessel.

The Company paid the termination payment 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 obligations under a Guaranty related to the Charter.

Maturities of operating lease liabilities at March 31, 2022 are as follows:

Year (in millions)

March 31, 2022

Remainder of 2022

Total lease payments

Present value of operating lease liabilities

Short-term portion

Long-term operating lease liabilities

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the nine months ended September 30, 2021 consisted of the following:

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2022 consisted of the following:

Comprehensive

6 unchanged sentences

Balance at March 31, 2022

Amortization of prior service cost

Amortization of net loss

Foreign currency exchange

Other adjustments

Balance at June 30, 2021

Amortization of prior service cost

Amortization of net loss

Foreign currency exchange

Balance at September 30, 2021

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the nine months ended September 30, 2020 consisted of the following:

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2021 consisted of the following:

Comprehensive

5 unchanged sentences

Foreign currency exchange

Other adjustments

Balance at March 31, 2021

Amortization of prior service cost

Amortization of net loss

Foreign currency exchange

Other adjustments

Balance at June 30, 2020

Amortization of prior service cost

Amortization of net loss (gain)

Foreign currency exchange

Other adjustments

Balance at September 30, 2020

FAIR VALUE OF FINANCIAL INSTRUMENTS

7 unchanged sentences

The fair value of fixed rate debt is calculated based upon interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.

The carrying value and fair value of the Company’s financial instruments as of September 30, 2021 and December 31, 2020 are as follows:

The carrying value and fair value of the Company’s financial instruments as of March 31, 2022 and December 31, 2021 are as follows:

Quoted Prices in

4 unchanged sentences

(In millions)

September 30, 2021

Fair Value Measurements at September 30, 2021

March 31, 2022

Fair Value Measurements at March 31, 2022

Cash and cash equivalents

Restricted cash

Variable rate debt

Fixed rate debt

4 unchanged sentences

Restricted cash

Variable rate debt

Fixed rate debt

2 unchanged sentences

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

The computation of weighted average common shares outstanding excluded a nominal amount of anti-dilutive non-qualified stock options for each period ended September 30, 2021 and 2020.

The computations for basic and diluted earnings per share for the three and nine months ended September 30, 2021 and 2020 are as follows:

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

(In millions, except per share amounts)

Effect of Dilutive Securities

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

The computation of weighted average common shares outstanding excluded a nominal amount of anti-dilutive non-qualified stock options for each period ended March 31, 2022 and 2021.

The computations for basic and diluted earnings per share for the three months ended March 31, 2022 and 2021 are as follows:

Year Ended March 31, 2022

Year Ended March 31, 2021

(In millions, except per share amounts)

1 unchanged sentence

SHARE-BASED COMPENSATION

During the three and nine months ended September 30, 2021, the Company granted approximately 900 and 238,400 in total of time-based restricted stock units and performance-based shares to certain of its employees at a weighted average grant date fair value of $ 75.07 and $ 68.39 per share, respectively.

Total share-based compensation cost recognized in the Condensed Consolidated Statements of Income and Comprehensive Income as a component of selling, general and administrative expenses was $ 4.7 million and $ 5.9 million for the three months ended September 30, 2021 and 2020, and $ 14.2 million and $ 12.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Total unrecognized compensation cost related to unvested share-based compensation arrangements was $ 25.8 million at September 30, 2021, and is expected to be recognized over a weighted average period of approximately 1.7 years.

During the three months ended March 31, 2022, the Company granted approximately 168,100 in total of time-based restricted stock units and performance-based shares to certain of its employees at a weighted average grant date fair value of $ 101.38 per share.

Total share-based compensation cost recognized in the Condensed Consolidated Statements of Income and Comprehensive Income as a component of selling, general and administrative expenses was $ 4.7 million and $ 4.8 million for the three months ended March 31, 2022 and 2021, respectively.

Total unrecognized compensation cost related to unvested share-based compensation arrangements was $ 33.1 million at March 31, 2022, and is expected to be recognized over a weighted average period of approximately 2.3 years.

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

1 unchanged sentence

The Company’s pension and post-retirement plans are described in Note 11 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 .

Components of net periodic benefit cost and other amounts recognized in Other Comprehensive Income (Loss) for the qualified pension plans and the post-retirement benefit plans for the three and nine months ended September 30, 2021 and 2020 consisted of the following:

Pension Benefits

Post-retirement Benefits

Three Months Ended September 30,

Three Months Ended September 30,

(In millions)

Components of net periodic benefit cost (benefit):

Interest cost

Expected return on plan assets

Amortization of net loss

Amortization of prior service credit

Net periodic benefit cost (benefit)

Components of net periodic benefit cost and other amounts recognized in Other Comprehensive Income (Loss) for the qualified pension plans and the post-retirement benefit plans for the three months ended March 31, 2022 and 2021 consisted of the following:

Pension Benefits

Post-retirement Benefits

Nine Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Three Months Ended March 31,

(In millions)

5 unchanged sentences

Net periodic benefit cost (benefit)

COMMITMENTS AND CONTINGENCIES

Environmental Matters:

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

Except as described below, 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, 2021 and 2022 violations could, in the aggregate, reasonably be expected to exceed $1 million, they are not expected to be material to the Company’s financial condition, results of operations, or cash flows.

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.

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.