What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-02 · 136 added, 112 removed, 148 unchanged (63% of the section changed)

6 unchanged sentences

Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” “design,” “goal,” “plan,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.

The Company cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time, including, but not limited to, the risk factors that are described in Part I, Item 1A, “Risk Factors” of Matson’s Annual Report on Form 10-K for the year ended December 31, 2021.

Forward-looking statements speak only as of the date they are made, and the Company assumes no duty to and does not undertake any obligation to update forward-looking statements.

3 unchanged sentences

MD&A is provided as a supplement to the Condensed Consolidated Financial Statements and notes herein, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 , the Company’s reports on Forms 10-Q and 8-K, and other publicly available information.

SECOND QUARTER 2022 DISCUSSION AND UPDATE ON BUSINESS CONDITIONS

THIRD QUARTER 2022 DISCUSSION AND UPDATE ON BUSINESS CONDITIONS

Ocean Transportation:

The Company’s container volume in the Hawaii service in the second quarter 2022 was 1.5 percent lower year-over-year.

The decrease was primarily due to lower retail-related demand .

During the quarter, we saw continued improvement in the Hawaii economy supported by strong domestic tourist arrivals and a modest improvement in international tourist trends.

In the near-term, we expect continued economic recovery in Hawaii from the pandemic supported by an improving unemployment rate and increasing tourism traffic, but there are negative trends from a combination of economic effects that create uncertainty in the economic growth trajectory.

The negative trends include weakening economic conditions in the U.S.

and global economies and lower household discretionary income as a result of high inflation, higher interest rates and the end of the pandemic-era stimulus helping personal income.

In China, the Company’s container volume in the second quarter 2022 increased 11.7 percent year-over-year.

The increase was a result of four more eastbound voyages than the prior year.

Volume demand in the quarter was driven by e- commerce, garments and other goods.

Matson continued to realize a significant rate premium over the Shanghai Containerized Freight Index in the second quarter 2022 and achieved average freight rates that were considerably higher

than in the year ago period.

Currently in the Transpacific tradelane, we are seeing solid demand for our China service as China’s factory production continues to recover from the COVID-19-related supply chain challenges.

However, in recent weeks we have seen a gradual decline in the Transpacific freight rate environment off the highs experienced earlier this year.

This indicates that rates have likely peaked for now, and, at this time, we expect an orderly marketplace for the remainder of the year with our vessels continuing to operate at or near capacity and earning a significant rate premium to the market because of our differentiated, fast ocean services.

To this end, we continue to expect to operate the CCX service through the October peak season this year.

In Guam, the Company’s container volume in the second quarter 2022 decreased 7.0 percent year-over-year primarily due to lower retail-related demand.

In the near-term, we expect the Guam economy to continue to benefit from a recovery in tourism, but there are negative trends as a result of higher inflation, higher interest rates and the end of the pandemic-era stimulus helping personal income that creates uncertainty in the economic growth trajectory.

In Alaska, the Company’s container volume for the second quarter 2022 increased 12.2 percent year-over-year primarily due to (i) higher northbound volume primarily due to higher retail-related demand and an additional sailing and (ii) higher volume from Alaska-Asia Express (“AAX”).

In the near-term, we expect the Alaska economy to benefit from the resumption of summer tourism and increased energy-related exploration and production activity as a result of elevated oil prices, but there are negative trends as a result of higher inflation, higher interest rates and the end of the pandemic-era stimulus helping personal income that creates uncertainty in the economic growth trajectory.

The contribution in the second quarter 2022 from the Company’s SSAT joint venture investment was $24.7 million, or $11.9 million higher than the second quarter 2021.

The Company’s container volume in the Hawaii service in the third quarter 2022 was 7.1 percent lower year-over-year.

The decrease was primarily due to lower retail-related demand as compared to the pandemic spike in demand experienced in the year ago period.

During the quarter, the Company saw continued improvement in the Hawaii economy supported by a low unemployment rate and strong tourist arrivals, including an improvement in international tourist trends.

In the near-term, Matson expects continued economic growth in Hawaii supported by a relatively tight labor market and increasing tourism traffic, but there are also negative trends from a combination of economic effects that create uncertainty in the economic growth trajectory.

These negative trends include weakening economic conditions in the U.S.

and global economies and lower household discretionary income as a result of higher inflation, higher interest rates and the end of the pandemic-era stimulus helping personal income.

In China, the Company’s container volume in the third quarter 2022 decreased 15.1 percent year-over-year.

The decrease was primarily due to (i) lower demand for the CLX, CLX+ and CCX services and (ii) one less sailing.

Matson continued to realize a significant rate premium over the Shanghai Containerized Freight Index (“SCFI”) in the third

quarter 2022 and achieved average freight rates that were higher than in the year ago period, but below the pandemic high freight rates achieved earlier this year.

With less demand for expedited ocean services and easing port congestion in Southern California, the Company ended its temporary CCX service in early September, about six weeks earlier than expected.

Currently, the Company expects the next two quarters to be challenging in the Transpacific tradelane as retailers’ inventories adjust to current consumer demand levels and as ocean liners reduce vessel capacity to meet lower demand levels.

To this end, for the remainder of this year and into the first quarter of 2023, the Company expects to experience lower year-over-year freight demand and a lower rate environment for its CLX and CLX+ services, but Matson expects to continue to earn a significant rate premium to the SCFI due to its differentiated, reliable and fast ocean services.

In Guam, the Company’s container volume in the third quarter 2022 decreased 1.8 percent year-over-year primarily due to lower retail-related demand.

In the near-term, the Company expects the Guam economy to continue to benefit from a recovery in tourism, but there are negative trends as a result of higher inflation, higher interest rates and the end of the pandemic-era stimulus helping personal income that creates uncertainty in the economic growth trajectory.

In Alaska, the Company’s container volume for the third quarter 2022 increased 10.6 percent year-over-year primarily due to (i) higher export seafood volume from Alaska-Asia Express (“AAX”), (ii) higher northbound volume primarily due to higher retail-related demand and volume related to a competitor’s dry-docking and (iii) higher southbound volume primarily due to higher domestic seafood volume.

In the near-term, the Company expects the Alaska economy to benefit from increased energy-related exploration and production activity as a result of elevated oil prices, but there are negative trends as a result of higher inflation, higher interest rates and the end of the pandemic-era stimulus helping personal income that creates uncertainty in the economic growth trajectory.

The contribution in the third quarter 2022 from the Company’s SSAT joint venture investment was $23.4 million, or $10.4 million higher than the third quarter 2021.

The increase was primarily driven by higher other terminal revenue.

In the second quarter 2022, operating income for the Company’s Logistics segment was $23.1 million, or $10.2 million higher compared to the level achieved in the second quarter 2021.

The increase was due primarily to higher contributions from all services as we continued to see favorable supply and demand fundamentals in our core markets.

In the third quarter 2022, operating income for the Company’s Logistics segment was $20.1 million, or $4.1 million higher compared to the level achieved in the third quarter 2021.

The increase was due primarily to higher contributions from all services as the Company continued to see favorable supply and demand fundamentals in its core markets.

CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Results - Three months ended June 30, 2022 compared with 2021:

Three Months Ended June 30,

Consolidated Results – Three months ended September 30, 2022 compared with 2021:

Three Months Ended September 30,

(Dollars in millions, except per share amounts)

2 unchanged sentences

Operating income

Interest income

Interest expense

4 unchanged sentences

Changes in operating revenue, and operating costs and expenses are further described below in the Analysis of Operating Revenue and Income by Segment.

The decrease in interest expense for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, was due to lower outstanding debt during the period.

The increase in interest income for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was due to increased cash on deposit in interest bearing accounts during the period.

The decrease in interest expense for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was due to lower outstanding debt during the period.

Other income (expense) relates to the amortization of certain components of net periodic benefit costs or gains related to the Company’s pension and post-retirement plans.

Income tax expense was $109.7 million or 22.4 percent of income before taxes for the three months ended June 30, 2022, compared to $47.4 million or 22.6 percent of income before taxes for the three months ended June 30, 2021.

The effective tax rate for the three months ended June 30, 2022 benefited from a 1.6 percent deduction related to foreign-

derived intangible income (“FDII”) under Section 250 of the Internal Revenue Code that lowered the effective tax rate for the current period.

The effective tax rate for the three months ended June 30, 2021 benefited from a 1.8 percent discrete adjustment related to the valuation allowance against the Company’s foreign income tax net operating losses that lowered the effective tax rate for the prior year period.

Consolidated Results - Six months ended June 30, 2022 compared with 2021:

Six Months Ended June 30,

Income tax expense was $68.1 million or 20.4 percent of income before taxes for the three months ended September 30, 2022, compared to $91.4 million or 24.4 percent of income before taxes for the three months ended September 30, 2021.

The effective tax rate for the three months ended September 30, 2022 benefited from a 3.3 percent deduction related to foreign-derived intangible income (“FDII”) under Section 250 of the Internal Revenue Code that lowered the effective tax rate for the current period.

The effective tax rate for the three months ended September 30, 2021 was impacted by 0.5 percent related to foreign taxes and other discrete adjustments that increased the effective tax rate for the prior year period.

Consolidated Results – Nine months ended September 30, 2022 compared with 2021:

Nine Months Ended September 30,

(Dollars in millions, except per share amounts)

2 unchanged sentences

Operating income

Interest income

Interest expense

4 unchanged sentences

Changes in operating revenue, and operating costs and expenses are further described below in the Analysis of Operating Revenue and Income by Segment.

The decrease in interest expense for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, was due to lower outstanding debt during the period.

The increase in interest income for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was due to increased cash on deposit in interest bearing accounts during the period.

The decrease in interest expense for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was due to lower outstanding debt during the period.

Other income (expense) relates to the amortization of certain components of net periodic benefit costs or gains related to the Company’s pension and post-retirement plans.

Income tax expense was $200.3 million or 21.8 percent of income before taxes for the six months ended June 30, 2022, compared to $74.5 million or 23.0 percent of income before taxes for the six months ended June 30, 2021.

The effective tax rate for the six months ended June 30, 2022 benefited from a 2.3 percent deduction related to FDII under Section 250 of the Internal Revenue Code that lowered the effective tax rate for the current period.

The effective tax rate for the six months ended June 30, 2021 benefited from a 1.1 percent discrete adjustment related to the valuation allowance against the Company’s foreign income tax net operating losses that lowered the effective tax rate for the prior year period.

Income tax expense was $268.4 million or 21.4 percent of income before taxes for the nine months ended September 30, 2022, compared to $165.9 million or 23.7 percent of income before taxes for the nine months ended September 30, 2021.

The effective tax rate for the nine months ended September 30, 2022 benefited from a 2.8 percent deduction related to FDII under Section 250 of the Internal Revenue Code that lowered the effective tax rate for the current period.

The effective tax rate for the nine months ended September 30, 2021 benefited from a 0.5 percent discrete adjustment related to the valuation allowance against the Company’s foreign income tax net operating losses that lowered the effective tax rate for the prior year period.

ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT

Ocean Transportation Operating Results - Three months ended June 30, 2022 compared with 2021:

Three Months Ended June 30,

Ocean Transportation Operating Results – Three months ended September 30, 2022 compared with 2021:

Three Months Ended September 30,

(Dollars in millions)

12 unchanged sentences

(2) Includes containers from services in various islands in Micronesia and the South Pacific, and Okinawa, Japan.

Ocean Transportation revenue increased $366.3 million, or 53.6 percent, during the three months ended June 30, 2022, compared with the three months ended June 30, 2021.

The increase was primarily due to higher revenue in China and higher fuel-related surcharge revenue primarily due to higher energy prices.

The higher revenue in China was primarily due to considerably higher average freight rates and higher volume.

Ocean Transportation revenue increased $55.0 million, or 6.4 percent, during the three months ended September 30, 2022, compared with the three months ended September 30, 2021.

The increase was primarily due to higher fuel-related surcharge revenue, higher average freight rates in China and higher volume in Alaska, partially offset by lower volume in China and Hawaii.

On a year-over-year FEU basis, Hawaii container volume decreased 7.1 percent primarily due to lower retail-related volume;

Alaska volume increased 12.2 percent primarily due to (i) higher northbound volume primarily due to higher retail-related demand and an additional sailing and (ii) higher volume from AAX;

China volume was 11.7 percent higher as a result of four more eastbound voyages than the prior year;

Alaska volume increased 10.6 percent primarily due to (i) higher export seafood volume from AAX, (ii) higher northbound volume primarily due to higher retail-related demand and volume related to a competitor’s dry-docking and (iii) higher southbound volume primarily due to higher domestic seafood volume;

China volume was 15.1 percent lower primarily due to lower demand for the CLX, CLX+ and CCX services and one less sailing;

Guam volume was 1.8 percent lower primarily due to lower retail-related demand;

and Other containers volume increased 19.2 percent primarily due to the addition of China-Auckland Express volume in the South Pacific.

Ocean Transportation operating income increased $269.0 million during the three months ended June 30, 2022, compared with the three months ended June 30, 2021.

The increase was primarily due to considerably higher average freight rates and higher volume in China and a higher contribution from SSAT, partially offset by higher fuel-related expenses, net of fuel-related surcharge recovery, and higher operating costs and expenses primarily due to the CLX+ and CCX services.

The Company’s SSAT terminal joint venture investment contributed $24.7 million during the three months ended June 30, 2022, compared to a contribution of $12.8 million during the three months ended June 30, 2021.

and Other containers volume increased 11.1 percent.

Ocean Transportation operating income decreased $46.7 million during the three months ended September 30, 2022, compared with the three months ended September 30, 2021.

The decrease was primarily due to lower volume in China, higher operating costs and expenses primarily due to the CLX+ service, and higher fuel-related expenses, partially offset by higher average freight rates in China and a higher contribution from SSAT.

The Company’s SSAT terminal joint venture investment contributed $23.4 million during the three months ended September 30, 2022, compared to a contribution of $13.0 million during the three months ended September 30, 2021.

The increase was primarily driven by higher other terminal revenue.

Ocean Transportation Operating Results - Six months ended June 30, 2022 compared with 2021:

Six Months Ended June 30,

Ocean Transportation Operating Results – Nine months ended September 30, 2022 compared with 2021:

Nine Months Ended September 30,

(Dollars in millions)

12 unchanged sentences

(2) Includes containers from services in various islands in Micronesia and the South Pacific, and Okinawa, Japan.

Ocean Transportation revenue increased $749.7 million, or 60.3 percent, during the six months ended June 30, 2022, compared with the six months ended June 30, 2021.

The increase was primarily due to higher revenue in China, higher fuel-related surcharge revenue primarily due to higher energy prices, and higher revenue in Alaska.

Ocean Transportation revenue increased $804.7 million, or 38.2 percent, during the nine months ended September 30, 2022, compared with the nine months ended September 30, 2021.

The increase was primarily due to higher revenue in China, higher fuel-related surcharge revenue, and higher revenue in Alaska.

The higher revenue in China was primarily due to considerably higher average freight rates and higher volume.

1 unchanged sentence

On a year-over-year FEU basis, Hawaii container volume decreased 3.2 percent primarily due to lower retail-related demand;

Alaska volume increased 15.9 percent primarily due to (i) higher northbound volume primarily due to higher retail-related demand and volume related to a competitor’s dry-docking, (ii) higher volume from AAX and (iii) higher southbound volume primarily due to higher seafood volume;

China volume was 12.5 percent higher as a result of nine more eastbound voyages than the prior year;

Guam volume was 0.9 percent higher primarily due to higher retail-related demand;

Alaska volume increased 13.9 percent primarily due to (i) higher northbound volume primarily due to higher retail-related demand and volume related to a competitor’s dry-docking, (ii) higher export seafood volume from AAX and (iii) higher southbound volume primarily due to higher domestic seafood volume;

China volume was 2.7 percent higher as a result of seven more eastbound voyages than the prior year;

Guam volume was flat;

and Other containers volume increased 19.9 percent primarily due to the addition of China-Auckland Express volume in the South Pacific.

Ocean Transportation operating income increased $571.1 million during the six months ended June 30, 2022, compared with the six months ended June 30, 2021.

The Company’s SSAT terminal joint venture investment contributed $58.7 million during the six months ended June 30, 2022, compared to a contribution of $22.0 million during the six months ended June 30, 2021.

Ocean Transportation operating income increased $524.4 million during the nine months ended September 30, 2022, compared with the nine months ended September 30, 2021.

The increase was primarily due to considerably higher average freight rates and higher volume in China and a higher contribution from SSAT, partially offset by higher operating costs and expenses primarily due to the CLX+ and CCX services and higher fuel-related expenses.

The Company’s SSAT terminal joint venture investment contributed $82.1 million during the nine months ended September 30, 2022, compared to a contribution of $35.0 million during the nine months ended September 30, 2021.

The increase was primarily driven by higher other terminal revenue.

Logistics Operating Results:

Three months ended June 30, 2022 compared with 2021:

Three Months Ended June 30,

Three months ended September 30, 2022 compared with 2021:

Three Months Ended September 30,

(Dollars in millions)

3 unchanged sentences

Operating income margin

Logistics revenue increased $19.9 million, or 10.4 percent, during the three months ended June 30, 2022, compared with the three months ended June 30, 2021.

The increase was primarily due to higher supply chain management and transportation brokerage revenue.

Logistics operating income increased $10.2 million, or 79.1 percent, during the three months ended June 30, 2022, compared with the three months ended June 30, 2021.

Logistics revenue decreased $11.8 million, or 5.7 percent, during the three months ended September 30, 2022, compared with the three months ended September 30, 2021.

The decrease was primarily due to lower transportation brokerage revenue, partially offset by higher revenue in freight forwarding, warehousing and supply chain management.

Logistics operating income increased $4.1 million, or 25.6 percent, during the three months ended September 30, 2022, compared with the three months ended September 30, 2021.

The increase was primarily due to higher contributions from all services.

Logistics Operating Results:

Six months ended June 30, 2022 compared with 2021:

Six Months Ended June 30,

Nine months ended September 30, 2022 compared with 2021:

Nine Months Ended September 30,

(Dollars in millions)

3 unchanged sentences

Operating income margin

Logistics revenue increased $90.2 million, or 26.3 percent, during the six months ended June 30, 2022, compared with the six months ended June 30, 2021.

Logistics revenue increased $78.4 million, or 14.2 percent, during the nine months ended September 30, 2022, compared with the nine months ended September 30, 2021.

The increase was primarily due to higher transportation brokerage revenue.

Logistics operating income increased $20.5 million, or 107.9 percent, during the six months ended June 30, 2022, compared with the six months ended June 30, 2021.

Logistics operating income increased $24.6 million, or 70.3 percent, during the nine months ended September 30, 2022, compared with the nine months ended September 30, 2021.

The increase was primarily due to higher contributions from all services.

LIQUIDITY AND CAPITAL RESOURCES

Sources of liquidity available to the Company as of June 30, 2022, compared to December 31, 2021 were as follows:

Sources of liquidity available to the Company as of September 30, 2022, compared to December 31, 2021 were as follows:

Cash, Cash Equivalents, Restricted Cash and Accounts Receivable:

Cash and cash equivalents, restricted cash and accounts receivable as of June 30, 2022, compared to December 31, 2021 were as follows:

Cash and cash equivalents, restricted cash and accounts receivable as of September 30, 2022, compared to December 31, 2021 were as follows:

September 30,

(In millions)

2 unchanged sentences

Accounts receivable, net (1)

(1) As of June 30, 2022 and December 31, 2021, $9.8 million of eligible accounts receivable were assigned to the CCF.

Changes in the Company’s cash, cash equivalents and restricted cash for the six months ended June 30, 2022, compared to the six months ended June 30, 2021 were as follows:

Six Months Ended June 30,

(1) As of September 30, 2022 and December 31, 2021, $9.8 million of eligible accounts receivable were assigned to the CCF.

Changes in the Company’s cash, cash equivalents and restricted cash for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 were as follows:

Nine Months Ended September 30,

(In millions)

2 unchanged sentences

Net cash used in by financing activities (3)

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 period

1 unchanged sentence

(1) Changes in net cash provided by operating activities:

Changes in net cash provided by operating activities for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, were due to the following:

Changes in net cash provided by operating activities for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, were due to the following:

(In millions)

Non-cash depreciation and amortization

Non-cash deferred income taxes

Deferred income taxes

Other non-cash related changes, net

8 unchanged sentences

Other long-term liabilities

Net income was $719.9 million for the six months ended June 30, 2022, compared to $249.7 million for the six months ended June 30, 2021, as described above.

Income from SSAT was $58.7 million for the six months ended June 30, 2022, compared to $22.0 million for the six months ended June 30, 2021.

The increase in income from SSAT was due to higher operating profits generated by SSAT during the six months ended June 30, 2022 as compared to the same prior year period.

Cash distributions received from SSAT were $26.3 million during the six months ended June 30, 2022, compared to $21.0 million for the six months ended June 30, 2021.

Net income was $985.9 million for the nine months ended September 30, 2022, compared to $532.9 million for the nine months ended September 30, 2021, as described above.

Income from SSAT was $82.1 million for the nine months ended September 30, 2022, compared to $35.0 million for the nine months ended September 30, 2021.

The increase in income from SSAT was due to higher operating profits generated by SSAT during the nine months ended September 30, 2022 as compared to the same prior year period.

Cash distributions received from SSAT were $40.3 million during the nine months ended September 30, 2022, compared to $46.9 million for the nine months ended September 30, 2021.

Cash distributions from SSAT are dependent on the level of cash available for distribution after operational and future capital needs of SSAT, and the timing of when such dividends are declared and paid.

Changes in accounts receivable were primarily due to increased levels of revenues, and the timing of collections associated with those receivables.

Changes in prepaid expenses and other assets were primarily due to increased prepaid fuel and other operating related costs, and the timing and amount of prepaid income taxes for the six months ended June 30, 2022 as compared to the same prior year period.

Changes in prepaid expenses and other assets were primarily due to increased prepaid income taxes, and increased prepaid fuel and other operating expenses for the nine months ended September 30, 2022 as compared to the same prior year period.

Changes in accounts payable, accruals and other liabilities were due to the timing of payments associated with those liabilities.

Changes in operating lease liabilities were primarily due to new operating lease additions and renewals, partially offset by operating lease terminations during the six months ended June 30, 2022, compared to the same prior year period.

Deferred dry-docking payments for the six months ended June 30, 2022 were $14.7 million, compared to $17.4 million for the six months ended June 30, 2021.

The decrease in deferred dry-docking payments was due to less dry-dock related activity during the six months ended June 30, 2022 as compared to the same prior year period.

Changes in operating lease liabilities were primarily due to new operating lease additions and renewals, partially offset by operating lease terminations during the nine months ended September 30, 2022, compared to the same prior year period.

Deferred dry-docking payments for the nine months ended September 30, 2022 were $16.7 million, compared to $25.8 million for the nine months ended September 30, 2021.

The decrease in deferred dry-docking payments was due to less dry-dock related activity during the nine months ended September 30, 2022 as compared to the same prior year period.

(2) Changes in net cash used in investing activities:

Changes in net cash used in investing activities for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, were due to the following:

Changes in net cash used in investing activities for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, were due to the following:

(In millions)

3 unchanged sentences

Other capital expenditures

Proceeds from disposal of property and equipment, net

Capitalized vessel construction expenditures (including capitalized interest) were $11.4 million for the six months ended June 30, 2022 and related to the construction of a new flat-deck barge.

There were no capitalized vessel construction expenditures during the six months ended June 30, 2021.

Other capital expenditures payments were $68.4 million for the six months ended June 30, 2022, compared to $101.3 million for the six months ended June 30, 2021.

The Company deposited $579.7 million into the CCF and withdrew $14.7 million from the CCF during the nine months ended September 30, 2022, compared to $31.2 million deposited into the CCF and $31.2 million withdrawn from the CCF during the nine months ended September 30, 2021.

Deposits into the CCF are intended to fund long-term investment in the construction of new vessels.

Capitalized vessel construction expenditures (including capitalized interest) were $11.9 million for the nine months ended September 30, 2022 and related to the construction of a new flat-deck barge.

There were no capitalized vessel construction expenditures during the nine months ended September 30, 2021.

Other capital expenditures payments were $113.4 million for the nine months ended September 30, 2022, compared to $244.7 million for the nine months ended September 30, 2021.

Other capital expenditures primarily relates to the acquisition of containers, chassis and other equipment;

1 unchanged sentence

and expenditures on other capital related projects.

The Company purchased fewer containers, chassis and other equipment during the six months ended June 30, 2022 as compared to the same prior year period.

The Company purchased fewer containers, chassis and other equipment during the nine months ended September 30, 2022 as compared to the same prior year period.

(3) Changes in net cash used in financing activities:

Changes in net cash used in financing activities for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, were due to the following:

Changes in net cash used in financing activities for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, were due to the following:

(In millions)

5 unchanged sentences

Dividends paid

During the six months ended June 30, 2022, the Company paid $208.5 million for the repurchase of Matson common stock.

There was no stock repurchase activity during the same prior year period.

During the six months ended June 30, 2022, the Company paid $32.5 million in scheduled fixed debt payments, compared to $26.8 million in scheduled fixed debt payments during the six months ended June 30, 2021.

During the six months ended June 30, 2021, the Company decreased net borrowings under the revolving credit facility by $71.8 million.

There were no borrowings under the revolving credit facility during the six months ended June 30, 2022.

During the six months ended June 30, 2021, the Company paid $3.0 million in financing costs.

No financing costs were paid during the six months ended June 30, 2022.

During the six months ended June 30, 2022, the Company paid $19.5 million in payroll taxes related to vested restricted stock units, compared to $14.4 million for the six months ended June 30, 2021.

During the nine months ended September 30, 2022, the Company paid $296.9 million to repurchase Matson common stock, compared to $115.7 million during the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, the Company prepaid $50.4 million of debt and paid $46.8 million in scheduled fixed debt payments, compared to $41.1 million in scheduled fixed debt payments during the nine months ended September 30, 2021.

During the nine months ended September 30, 2021, the Company decreased net borrowings under the revolving credit facility by $71.8 million.

There were no borrowings under the revolving credit facility during the nine months ended September 30, 2022.

An increase in cash generated by operating activities was used to repurchase Matson common stock, prepay debt and reduce the revolving credit facility during the nine months ended September 30, 2022.

The Company paid $3.0 million in financing costs during the nine months ended September 30, 2021.

No financing costs were paid during the nine months ended September 30, 2022.

During the nine months ended September 30, 2022, the Company paid $19.6 million in payroll taxes related to vested restricted stock units, compared to $14.4 million for the nine months ended September 30, 2021.

The increase in withholding tax was primarily due to the increase of the Company’s stock price as of the vesting date of the restricted stock units.

During the six months ended June 30, 2022, the Company paid $25.0 million in dividends, compared to $20.2 million during the six months ended June 30, 2021.

During the nine months ended September 30, 2022, the Company paid $36.9 million in dividends, compared to $33.3 million during the nine months ended September 30, 2021.

The increase in dividend payments resulted from an increase in dividends declared per share of common stock by the Company.

Total Debt as of June 30, 2022 and December 31, 2021 is as follows:

Capital Construction Fund:

Cash on deposit in the capital construction fund as of September 30, 2022 and December 31, 2021 is as follows:

September 30,

(In millions)

Capital Construction Fund:

Cash on deposit

Assigned accounts receivables

During the nine months ended September 30, 2022, the Company deposited $579.7 million into the CCF, and withdrew $14.7 million out of the CCF.

Cash on deposit in the CCF is held in short term U.S.

Treasury Obligation Funds 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.

Assigned accounts receivable in the CCF are classified as part of accounts receivable in the Condensed Consolidated Balance sheet due to the nature of the assignment.

Total Debt as of September 30, 2022 and December 31, 2021 is as follows:

September 30,

(In millions)

Fixed interest debt

Total Debt decreased by $32.4 million during the six months ended June 30, 2022.

The decrease in fixed interest debt was due to the scheduled repayments of private placement term loans and Title XI debt during the six months ended June 30, 2022.

As of June 30, 2022, the Company had $642.0 million of remaining borrowing availability under the revolving credit facility, with a maturity date of March 31, 2026.

Total Debt decreased by $97.2 million during the nine months ended September 30, 2022.

The decrease in fixed interest debt was due to prepayment of $50.4 million of outstanding principal of certain private placement term loans, and scheduled repayments of private placement term loans and Title XI debt during the nine months ended September 30, 2022.

As of September 30, 2022, the Company had $642.2 million of remaining borrowing availability under the revolving credit facility, with a maturity date of March 31, 2026.

The Company’s debt is described in Note 6 of Part I, Item 1 above.

Working Capital:

The Company had a working capital surplus of $480.6 million and $92.1 million at June 30, 2022 and December 31, 2021, respectively.

The Company had a working capital surplus of $274.6 million and $92.1 million at September 30, 2022 and December 31, 2021, respectively.

Working capital is primarily impacted by the amount of net cash provided by operating activities, the amount of capital expenditures, the timing of collections associated with accounts receivable, prepaid expenses and other assets, and by the amount and timing of payments associated with accounts payable, accruals, income taxes and other liabilities.

The increase in working capital surplus at June 30, 2022 is primarily due to the increase in cash generated from operating activities during the six months ended June 30, 2022.

The increase in working capital surplus at September 30, 2022 is primarily due to the increase in cash generated from operating activities during the nine months ended September 30, 2022, and an increase in federal income tax receivables at September 30, 2022.

Capital Expenditures:

There were no material changes during the quarter ended June 30, 2022 to the Company’s expected capital expenditures for the years ending December 31, 2022 and 2023 that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 .

Except as described below, there were no material changes during the quarter ended September 30, 2022 to the Company’s expected capital expenditures for the years ending December 31, 2022 and 2023 that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 .

On November 1, 2022, MatNav signed vessel construction agreements with Philly Shipyard, Inc.

for three new LNG-ready Aloha Class containerships.

Each of the new 3,600 TEU vessels is expected to provide 500 containers of additional capacity per voyage in the CLX service.

The contract cost of this new Jones Act vessel program is expected to be approximately $1 billion and delivery of the first vessel is currently anticipated to be in the fourth quarter of 2026 with subsequent deliveries in the second and fourth quarters of 2027.

Upon signing the agreements, the Company made its first milestone payment of $50 million from the CCF.

The Company expects to finance the remaining construction-related payments with cash currently on deposit in the CCF, cash and cash equivalents on the balance sheet and through cash flows from operations, borrowings available under the Company’s unsecured revolving credit facility and additional debt financings.

The following represents the estimated timing of future milestone payments under the vessel construction agreements:

Milestone Payments By Period

(in millions)

Three Aloha Class Containerships

Repurchase of Shares:

During the six months ended June 30, 2022, the Company repurchased approximately 2.3 million shares for a total cost of $206.7 million.

The maximum number of remaining shares that may be purchased under the Company’s stock repurchase program was approximately 1.2 million shares at June 30, 2022.

During the nine months ended September 30, 2022, the Company repurchased approximately 3.5 million shares for a total cost of $294.7 million.

The maximum number of remaining shares that may be purchased under the Company’s share repurchase program was approximately 3.0 million shares at September 30, 2022.

Other Material Cash Requirements:

Except as described above, there were no other material changes during the quarter ended June 30, 2022 to the Company’s other cash requirements that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 .

Except as described above, there were no other material changes during the quarter ended September 30, 2022 to the Company’s other cash requirements that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 .

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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OTHER MATTERS

The Company’s second quarter 2022 cash dividend of $0.30 per share was paid on June 2, 2022.

On June 22, 2022, the Company’s Board of Directors declared a cash dividend of $0.31 per share payable on September 1, 2022 to shareholders of record on August 4, 2022.

The Company’s third quarter 2022 cash dividend of $0.31 per share was paid on September 1, 2022.

On October 27, 2022, the Company’s Board of Directors declared a cash dividend of $0.31 per share payable on December 1, 2022 to shareholders of record on November 10, 2022.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the Company’s market risk position from the information provided under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2021 .

There have been no material changes to the Company’s market risk position from the information provided under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of its Annual Report on Form 10-K for the year ended December 31, 2021 .

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What changed 10-Q

Item 2. Management’s Discussion and Analysis