What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-25 · 149 added, 140 removed, 1094 unchanged (21% of the section changed)

68 unchanged sentences

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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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.

Changes in assumptions and estimates, including, but not limited to, changes driven by external factors, such as industry and economic trends, and those driven by internal factors, such as changes in the Company’s business strategy and its internal forecasts, could have a material effect on either the fair value, the amount of any goodwill impairment charge, or both.

The discounted cash flow approach requires the Company to make several business assumptions, including, but not limited to, the discount rate.

Changes in assumptions and estimates could have a material effect on either the fair value, the amount of any goodwill impairment charge, or both.

The goodwill balance was $327.8 million as of December 31, 2022, of which $78.6 million is allocated to a reporting unit in the Logistics reportable segment, resulting from the acquisition of Span Intermediate, LLC (“Span Alaska”) in fiscal year 2016.

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We identified goodwill related to Span Alaska as a critical audit matter because of the significant estimates and assumptions management made to estimate the fair value of Span Alaska.

Specifically, due to the sensitivity of Span Alaska’s operations to changes in the Alaskan economy, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenues and selection of the discount rate, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

Specifically, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future revenue, specifically as they relate to Span Alaska, and the selection of the discount rate for Span Alaska included the following, among others:

● We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the forecasts of future revenue and the selection of the discount rate.

● We evaluated management’s ability to accurately forecast future revenue by comparing actual results to management’s historical forecasts.

● We evaluated the reasonableness of management’s revenue forecast by comparing the forecasts to (1) historical revenues and operating margins, (2) internal communications to management and the Board of Directors, (3) external communications made by management to analysts and investors, (4) trends in the logistics industry and (5) trends in the Alaskan economy.

Our audit procedures related to the selection of the discount rate for Span Alaska included the following, among others:

● We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the selection of the discount rate.

● With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate, including testing the source information underlying the determination of the discount rate, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ Deloitte & Touche LLP

San Francisco, California

Honolulu, Hawaii

February 24, 2023

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Operating Income

Interest income

Interest expense

Other income (expense), net

Income before Income Taxes

Income before Taxes

Other Comprehensive Income (Loss), Net of Income Taxes:

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Cash and cash equivalents

Accounts receivable, net of allowance for credit loss of $ 10.1 million and $ 6.3 million, respectively

Accounts receivable, net of allowance for credit losses of $ 13.0 million and $ 10.1 million, respectively

Prepaid expenses and other assets

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Intangible assets, net

Capital Construction Fund

Deferred dry-docking costs, net

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Other capital expenditures

Proceeds from disposal of property and equipment

Cash deposits into Capital Construction Fund

Proceeds from disposal of property and equipment, and other

Cash and interest deposits into Capital Construction Fund

Withdrawals from Capital Construction Fund

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Tax withholding related to net share settlements of restricted stock units

Net cash (used in) provided by financing activities

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

Net cash used in financing activities

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

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

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Balance at December 31, 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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Share repurchase

Equity interest in SSAT

Dividends ($ 1.22 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 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.

MatNav also operates premium, expedited services from China to Long Beach, California, 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 on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai, and for MatNav and other ocean carriers in Alaska.

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.

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

Matson records its share of income from SSAT in costs and expenses in the Consolidated Statements of Income and Comprehensive Income, and within the Ocean Transportation segment due to the nature of SSAT’s operations.

Matson’s Logistics business is conducted through Matson Logistics, Inc.

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capitalized interest;

allowance for doubtful accounts and note receivables;

allowance for doubtful accounts and other receivables;

legal contingencies;

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operating lease assets and liabilities;

income from SSAT;

and income taxes.

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

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.

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.

Restricted cash was $ 3.9 million and $ 5.3 million at December 31, 2022 and 2021, respectively, and are included in prepaid expenses and other assets in the Consolidated Balance Sheets.

Accounts Receivable, net:

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Restricted cash - vessel construction obligations

Income tax receivables include a federal income tax refund related to the Company’s 2021 federal tax return, overpayments of federal and state taxes paid during the year ended December 31, 2022, and other income tax receivables.

Deferred Loan Fees:

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Vessel and equipment spare parts

Pension plan assets

Insurance related receivables

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During the years ended December 31, 2022, 2021 and 2020, the Company capitalized $ 0.7 million, $ 0.2 million and $ 7.4 million of interest related to the construction of new vessels, respectively.

The Company adopted Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) on January 1, 2019.

ASC 842 requires lessees to record leases on their balance sheets but recognize the expenses in their income statements in a manner similar to pre-adoption practice.

Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) requires lessees to record leases on their balance sheets but recognize the expenses in their income statements.

ASC 842 states that a lessee would recognize a lease liability for the obligation to make lease payments, and a right-of-use asset for the underlying leased asset for the period of the lease term.

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

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.

dollars except for less than 3 percent of transportation brokerage and freight forwarding services revenue, and supply chain management and other services revenue categories which are denominated in foreign currencies.

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

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The Company generally invoices its customers at the commencement of the voyage or the transportation service being provided, or as other services are being performed.

Revenue is deferred when services are invoiced in advance to the customer.

Revenue is deferred when services are invoiced in advance to the

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

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

Repurchase of Shares:

During the years ended December 31, 2022 and 2021, the Company repurchased approximately 5.0 million and 2.5 million shares for a total cost of $ 397.0 million and $ 200.1 million, respectively.

The Company did not repurchase any shares during the year ended December 31, 2019.

As of December 31, 2022, the maximum number of remaining shares that may be repurchased under the Company’s share repurchase program was approximately 1.5 million shares.

Share-Based Compensation:

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Accordingly, inter-segment revenue of $ 270.9 million, $ 213.8 million and $ 115.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, have been eliminated from operating revenues in the table below.

Reportable segment financial information for the years ended December 31, 2021, 2020 and 2019, and identifiable asset segment information at December 31, 2021 and 2020, are as follows:

Reportable segment financial information for the years ended December 31, 2022, 2021 and 2020, are as follows:

Years Ended December 31,

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Total Operating Income

Interest expense, net

Interest income

Interest expense

Other income (expense), net

Income before Income Taxes

Income before Taxes

Capital Expenditures:

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The Company’s investment in SSAT was $ 81.2 million and $ 58.7 million at December 31, 2022 and 2021, respectively.

On September 16, 2022, SSAT completed the purchase of a 20 percent equity interest in SSAT Terminals (Oakland), LLC (“SSAT Oakland”) from a third-party company.

After completion of this transaction, SSAT Oakland became a wholly owned subsidiary of SSAT.

The operating results of SSAT Oakland consolidate into the operating results of SSAT.

As a result of this transaction, the Company recorded a decrease of $ 15.5 million in its investment in SSAT, an increase in deferred tax assets of $ 3.9 million, and a corresponding decrease in retained earnings of $ 11.6 million during the year ended

December 31, 2022.

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

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Accounts payable and accrued liabilities in the Consolidated Balance Sheets include $ 43.6 million and $ 38.8 million for terminal services payable to SSAT at December 31, 2022 and 2021, respectively.

A summary of the condensed balance sheets of SSAT at December 31, 2021 and 2020 is as follows:

A summary of the condensed balance sheets of SSAT at December 31, 2022 and 2021 are as follows:

As of December 31,

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PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2021 and 2020, and depreciation expense for the years ended December 31, 2021, 2020 and 2019 is as follows:

Property and equipment at December 31, 2022 and 2021, and depreciation expense for the years ended December 31, 2022, 2021 and 2020 are as follows:

As of December 31, 2022

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Other construction in progress

Vessel construction in progress at December 31, 2022 includes milestone progress payments and capitalized interest related to the construction of three new Jones Act vessels.

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.

Years Ended December 31,

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GOODWILL AND INTANGIBLE ASSETS

Goodwill by segment as of December 31, 2021 and 2020 consists of the following:

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

(In millions)

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Logistics goodwill of $ 105.2 million includes $ 78.6 million acquired as part of the acquisition of Span Intermediate, LLC (“Span Alaska”) in August 2016 that was allocated to the Span Alaska reporting unit, and $ 26.6 million relates to other Logistics acquisitions that were allocated to the Logistics reporting unit.

Intangible assets by segment as of December 31, 2021 and 2020 consist of the following:

Intangible assets by segment consist of the following as of December 31, 2022 and 2021:

As of December 31, 2022

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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:

The remaining Logistics customer relationships of $ 16.0 million are being amortized over a period of 3 to 13 years .

Intangible assets related amortization expense for 2022, 2021 and 2020, are as follows:

Years Ended December 31,

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Amortization expense

As of December 31, 2021, estimated amortization expense related to customer relationship intangible assets during the next five years and thereafter is as follows:

As of December 31, 2022, estimated amortization expense related to customer relationship intangible assets during the next five years and thereafter are as follows:

Year (in millions)

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The Company is party to an agreement with the U.S.

Department of Transportation, Maritime Administration (“MARAD”) that established a Capital Construction Fund (“CCF”) program under provisions of the Merchant Marine Act of 1936, as amended (the “Merchant Marine Act”).

Department of Transportation, Maritime Administration (“MARAD”) that established a Capital Construction Fund (“CCF”) program under provisions of the Merchant Marine

Act of 1936, as amended (the “Merchant Marine Act”).

The CCF program was created to assist owners and operators of U.S.

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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.

citizenship requirements.

Deposits into the CCF are limited by certain applicable earnings and other conditions.

Such deposits, once made, are available as tax deductions in the Company’s income tax provision.

Cash deposits into the CCF are limited by certain applicable earnings and other conditions.

Such cash deposits, once made, are available as tax deductions in the Company’s income tax provision.

Qualified withdrawals from the CCF do not give rise to a current income tax liability, but reduce the depreciable basis of the vessels or certain related equipment for income tax purposes.

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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.

At December 31, 2021 and 2020, the amounts on deposit in the CCF invested in a money market fund, which is classified as other long-term assets in the Company’s Consolidated Balance Sheets, were nominal.

At December 31, 2021 and 2020, the Company’s debt consisted of the following:

At December 31, 2022, the Company had $ 518.2 million on deposit in the CCF invested in U.S.

Treasury Obligation Funds, which are classified as long-term assets in the Company’s Consolidated Balance Sheets.

Amount on deposit in the CCF as of December 31, 2021 was nominal.

During the year ended December 31, 2022, the Company earned $ 4.9 million of interest from deposits in the CCF.

No interest was earned during the year ended December 31, 2021.

On February 17, 2023, the Company pledged an additional $ 200.0 million of eligible accounts receivables to the CCF, and deposited an additional $ 100.0 million of cash into the CCF.

The Company’s debt consists of the following as of December 31, 2022 and 2021:

As of December 31,

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1.35 %, payable through 2044

Revolving credit facility, maturity date of March 31, 2026

Current portion

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

On September 15, 2022, the Company prepaid $ 26.2 million of outstanding principal on the 4.16 percent tranche due in 2027, and $ 24.2 million of outstanding principal on the 4.31 percent tranche due in 2032, representing all of the remaining outstanding principal for both tranches.

In September 2016, the Company issued $ 200.0 million of 15 -year senior unsecured notes (the “Series D Notes”) at an interest rate of 3.14 percent, payable semi-annually.

The Series D Notes began to amortize in 2019, with semi-annual

principal payments of $ 6.0 million.

During the years 2020 through 2023, semi-annual principal payments will be $ 9.2 million.

Starting in 2024, and in each year thereafter through maturity in 2031, the semi-annual principal payments will be $ 7.15 million.

In December 2016, the Company issued $ 75 million of 11 -year senior unsecured notes at an interest rate of 3.37 percent, payable semi-annually (the “Series A Notes”).

The Series A Notes will begin to amortize in 2021, with principal payments of $ 5.8 million in 2021 and $ 11.5 million per year, paid semi-annually, from 2022 through 2027.

Existing and 2020 Title XI Bonds:

Title XI Bonds:

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

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

On January 27, 2023, the Company prepaid $ 14.3 million of outstanding principal on the Maunawili Title XI Bonds representing all of the remaining outstanding principal for this bond.

The Company is also expecting to prepay the outstanding principal of approximately $ 12.1 million on the Manukai Title XI Bonds in March 2023, representing all of the estimated outstanding principal for this bond.

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

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Inouye (the “DKI Title XI Debt”).

A fee of approximately $ 8.7 million was paid to MARAD out of the proceeds at closing.

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

The secured DKI Title XI Debt matures on October 15, 2043 and has a cash interest rate of 1.22 percent, payable semi-annually in arrears.

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

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

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

The secured KMH Title XI Debt matures on March 15, 2044 and has a cash interest rate of 1.35 percent, payable semi-annually in arrears on March 15 and September 15, commencing on September 15, 2020, together with a principal payment of approximately $ 3.0 million.

The secured KMH Title XI Debt matures on March 15, 2044 and has a cash interest rate of 1.35 percent, payable semi-annually in arrears.

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

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

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

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

Inouye and Kaimana Hila (the “Vessels”).

Revolving Credit Facility:

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.

On March 31, 2021, the Company entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”), which extended the maturity date to March 31, 2026, and retained the committed aggregate borrowings of up to $ 650 million.

The Credit Agreement amended certain covenants and other terms 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;

and (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.

The Company may prepay any amounts outstanding under the Credit Agreement without premium or penalty.

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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.

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 Company’s Consolidated Balance Sheets.

On February 9, 2023, the Company further amended the Credit Agreement to replace LIBOR with a new benchmark interest rate, the Secured Overnight Financing Rate (“SOFR”).

There were no other significant changes to the Credit Agreement as a result of this amendment.

As of December 31, 2022, the Company had $ 642.1 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 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.

The Company used $ 7.9 million of the revolving credit facility for letters of credit outstanding as of December 31, 2022.

Borrowings under the revolving credit facility are classified as long-term debt in the Company’s Consolidated Balance Sheets, 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”):

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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.

The 2021 Note Amendments amended certain covenants and other terms, including the reduction of 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.

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 Company’s Consolidated Balance Sheets.

Debt Maturities:

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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;

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

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

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

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 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 Debt until the Existing Title XI Bonds 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.

The Company’s leases do not contain any other residual value guarantees.

The Company’s leases do not contain any 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, 2022 and 2021.

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Real estate and terminal leases

Vessel charter leases

Vessel and barge charter leases

Operations equipment and other leases

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Components of Lease Cost:

Components of lease cost recorded in the Company’s Consolidated Statement of Income and Comprehensive Income for the years ended December 31, 2021 and 2020 consisted of the following:

Components of lease cost recorded in the Company’s Consolidated Statement of Income and Comprehensive Income consists of the following for the years ended December 31, 2022 and 2021:

(In millions)

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Other Lease Information:

Other information related to the Company’s operating leases for the years ended December 31, 2021 and 2020 are as follows:

Other information related to the Company’s operating leases consists of the following for the years ended December 31, 2022 and 2021:

(In millions)

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Weighted average incremental borrowing rate

Maturities of operating lease liabilities at December 31, 2021 are as follows:

Maturities of operating lease liabilities consist of the following at December 31, 2022:

Year (in millions)

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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 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.

On July 7, 2021, MatNav entered into an agreement to acquire Maunalei which was previously operated under a vessel charter lease agreement for $ 95.8 million, thereby acquiring the vessel.

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, during the year ended December 31, 2021.

Income Taxes:

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

Income taxes consist of the following for the years ended December 31, 2022, 2021 and 2020:

Years Ended December 31,

(In millions)

Discrete adjustments related to the Tax Act (1)

Deferred tax expense

Total income taxes

(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, 2022, 2021 and 2020 differ from amounts computed by applying the statutory federal rate to income before income taxes for the following reasons:

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Foreign taxes

Remeasurement and discrete adjustments related to the Tax Act (1)

Share-based payments

Effective income tax rate

(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, 2022 and 2021, were as follows:

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Multi-employer withdrawal liabilities

Pension and post-retirement plans

Deferred compensation

Insurance reserves

State net operating losses

State alternative minimum tax credits

Pension and post-retirement plans

Total deferred tax assets

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Basis differences for property and equipment

Capital Construction Fund

Operating lease right of use assets

Investment in SSAT

Capital Construction Fund

Lease financing

Total deferred tax liabilities

1 unchanged sentence

Valuation Allowance:

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.

Valuation allowances are recorded against the Company’s foreign income tax net operating losses (“NOLs”), unusable state income tax NOLs and alternative minimum tax credits, and were $ 7.4 million and $ 5.3 million as of December 31, 2022 and 2021, 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:

The Company’s NOLs and tax credit carryforwards at December 31, 2021 and 2020 were as follows:

The Company’s NOLs and tax credit carryforwards consist of the following at December 31, 2022 and 2021:

(In millions)

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Total unrecognized benefits represent the amount that, if recognized, would favorably affect the Company’s incomes taxes and effective tax rate in future periods.

The Company does not expect a material change in gross unrecognized benefits in the next twelve months.

The Company does not expect a material

change in gross unrecognized benefits in the next twelve months.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

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To the extent interest and penalties are not ultimately assessed with respect to the settlement of uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the Company’s income taxes.

Interest accrued related to the balance of unrecognized tax benefits totaled $ 0.1 million as of December 31, 2021 and 2020.

Interest accrued related to the balance of unrecognized tax benefits were nominal as of December 31, 2022 and 2021.

The Company is no longer subject to U.S.

1 unchanged sentence

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

Tax Legislation:

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law in the United States.

The new provisions impose a one percent excise tax on the fair market value of share repurchases after December 31, 2022.

The Company does not expect the one percent excise tax to have a material impact on the Company’s financial statements in future periods.

Because the excise tax is not an income tax, any amount paid by the Company will be recorded as a component of shareholders’ equity.

The provisions of the IRA also include a 15 percent alternative minimum tax rate that generally applies to U.S.

corporations with three-year average adjusted financial statement income in excess of $1 billion, and is effective in taxable years beginning after December 31, 2022.

The Company continues to review the provisions of the IRA and monitor the issuance of any guidance related to these provisions.

However, based upon its preliminary assessment, the Company does not expect these provisions to have a material impact on the Company’s tax provision in future periods.

PENSION AND POST-RETIREMENT PLANS

Non-bargaining Plans:

The Company has two funded qualified single-employer defined benefit pension plans that cover certain non- bargaining unit employees and bargaining unit employees.

The Company had two funded qualified single-employer defined benefit pension plans that cover certain non- bargaining unit employees and bargaining unit employees.

Effective December 31, 2022, the plans were merged into a single pension plan.

In addition, the Company has plans that provide certain retiree health care and life insurance benefits to substantially all salaried, non-bargaining employees hired before 2008 and to certain bargaining unit employees.

3 unchanged sentences

Plan Administration, Investments and Asset Allocations:

The Company has a Benefits Investment Committee that meets regularly with investment advisors to establish investment policies, direct investments and select investment options for the qualified plans.

The Benefits Investment Committee is also responsible for appointing investment managers and monitoring their performance.

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Long-term average return (since plan inception in 1989)

The Company’s pension plan assets are held in a master trust and are stated at estimated fair values of the underlying investments.

The Company’s pension plan assets are held in a trust and are stated at estimated fair values of the underlying investments.

Purchases and sales of securities are recorded on a trade-date basis.

Interest income is recorded on the accrual basis.

Interest income is recorded on an accrual basis.

Dividends are recorded on the ex-dividend date.

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Corporate bonds and U.S.

government treasury and agency securities are valued based upon the closing price reported in the market in which the security is traded.

government treasury and agency securities are valued based on the closing price reported in the market in which the security is traded.

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.

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Fixed income securities:

Municipal bonds

Investment grade U.S.

corporate bonds

High-yield U.S.

corporate bonds / Non-U.S.

Convertible Bonds

International Fixed Income

Investment measured at NAV (1)

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corporate bonds

High-yield U.S.

corporate bonds / Non-U.S.

Investment measured at NAV (1)

1 unchanged sentence

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

Contributions to 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 so that it meets at least the minimum contribution requirements, with an allowance for discretionary contributions.

In 2022, 2021 and 2020, the Company contributed $ 9.0 million, $ 9.0 million and $ 9.0 million, respectively, in pension contributions to 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.

5 unchanged sentences

The measurement date for the Company’s benefit plan disclosures is December 31 of each year.

The status of the funded qualified defined benefit pension plans and the unfunded post-retirement benefit plans at December 31, 2021 and 2020 are shown below:

The status of the funded qualified defined benefit pension plan and the unfunded post-retirement benefit plan at December 31, 2022 and 2021 are shown below:

Post-retirement

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Funded Status and Recognized Liability

Qualified pension and post-retirement benefits plans liabilities recognized in the Consolidated Balance Sheets and expenses recognized in accumulated other comprehensive income (loss) at December 31, 2021 and 2020 were as follows:

Qualified pension and post-retirement benefit plans liabilities recognized in the Consolidated Balance Sheets and expenses recognized in accumulated other comprehensive income (loss) at December 31, 2022 and 2021 were as follows:

Post-retirement

3 unchanged sentences

Current liabilities

Non-current liabilities, net

Net loss, net of taxes

Non-current liabilities

Net (loss) gain, net of taxes

Prior service credit, net of taxes

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Amortization of prior service credit

Total recognized in other comprehensive loss (income)

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

Total recognized in other comprehensive (income) loss

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

The weighted average assumptions used to determine benefit information during 2022, 2021 and 2020 were as follows:

4 unchanged sentences

Rate of compensation increase

4.00 % - 3.50

Cash balance interest credit rate

1 unchanged sentence

1.50 % - 3.25

0.75 % - 3.25

Immediate health care cost trend rate:

12 unchanged sentences

Current liabilities

Non-current liabilities, net

Non-current liabilities

Net loss, net of taxes

Prior service credit, net of taxes

Discount rates of 5.5 percent and 2.4 percent were used in determining the 2022 and 2021 non-qualified pension plan obligations, respectively.

Estimated Benefit Payments:

The estimated future benefit payments for the next ten years as of December 31, 2021 were as follows:

The estimated future benefit payments for the next ten years consist of the following as of December 31, 2022:

Non-qualified

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

Certain collective bargaining agreements have expired and are currently being renegotiated.

(3) The Company does not make contributions directly to the Seafarers Pension Plan.

1 unchanged sentence

The Company also contributes to multi-employer plans that provide post-retirement health and other benefits other than pensions under the terms of collective-bargaining agreements.

Benefits provided to active and retired employees and their eligible dependents under these plans include medical, dental, vision and prescription drug.

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

defined benefit pension plans.

Benefits provided to active and retired employees and their eligible dependents under these plans include medical, dental, vision and prescription drugs.

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 $ 37.7 million, $ 34.7 million and $ 32.5 million in 2022, 2021 and 2020, 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 within other current liabilities in the Consolidated Balance Sheets as of December 31, 2020.

The Company paid off this liability during 2021.

The Company paid off this partial withdrawal liability of $ 6.5 million during 2021.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows:

Changes in accumulated other comprehensive income (loss) by component, net of tax, consist of the following for the years ended December 31, 2022 and 2021:

Comprehensive

34 unchanged sentences

Discretionary Grant Program — Under the Discretionary Grant Program, stock options may be granted with an exercise price no less than 100 percent of the fair market value (defined as the closing market price) of the Company’s common stock on the date of the grant.

Options generally become exercisable ratably over three years and have a maximum contractual term of 10 years .

No stock options have been granted under the 2016 Plan.

Stock Issuance Program — Under the Stock Issuance Program, shares of common stock, restricted stock units or performance shares may be granted.

11 unchanged sentences

Fair value of stock vested

As of December 31, 2021, there was no unrecognized compensation cost related to non-vested stock options.

As of December 31, 2022, unrecognized compensation cost related to non-vested restricted stock units and performance-based equity awards was $ 18.4 million.

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, 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, 2022 (in thousands, except weighted average grant-date fair value amounts):

11 unchanged sentences

If the technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy, the lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

The Company uses Level 1 inputs for the fair values of its cash, cash equivalents and restricted cash, and Level 2 inputs for its variable and fixed rate debt.

The fair values of cash, cash equivalents and restricted cash, and variable rate debt approximate their carrying values due to the nature of the instruments.

The Company uses Level 1 inputs for the fair values of its cash, cash equivalents, restricted cash and Capital Construction Fund, and Level 2 inputs for its variable and fixed rate debt.

The fair values of cash, cash equivalents and restricted cash, Capital Construction Fund and variable rate debt approximate their carrying values due to the nature of the instruments.

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 December 31, 2021 and 2020 are as follows:

The carrying value and fair value of the Company’s financial instruments consists of the following as of December 31, 2022 and 2021:

Quoted Prices in

8 unchanged sentences

Restricted cash

Variable rate debt

Capital Construction Fund

Fixed rate debt

4 unchanged sentences

Restricted cash

Variable rate debt

Fixed rate debt

3 unchanged sentences

Standby letters of credit (1)

Vessel construction obligations (3)

Vendor and other obligations (4)

2 unchanged sentences

Customs and other related matters.

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

(4) Vendor and other obligations include:

3 unchanged sentences

Amounts are considered obligations if a contract has been agreed to specifying significant terms of the contract, and the amounts are not reflected in the Consolidated Balance Sheets.

These amounts are not recorded on the Company’s Consolidated Balance Sheets and it is not expected that the Company or its subsidiaries will be called upon to advance funds under these commitments.

These amounts are not recorded on the Company’s Consolidated Balance Sheet and it is not expected that the Company or its subsidiaries will be called upon to advance funds under these commitments.

Contingencies:

7 unchanged sentences

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.

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

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:

2 unchanged sentences

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