What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-03 · 108 added, 176 removed, 108 unchanged (72% 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 II, Item 1A, “Risk Factors” below.

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, 2022 , the Company’s reports on Forms 10-Q and 8-K, and other publicly available information.

THIRD QUARTER 2022 DISCUSSION AND UPDATE ON BUSINESS CONDITIONS

FIRST QUARTER 2023 DISCUSSION AND UPDATE ON BUSINESS CONDITIONS

Ocean Transportation:

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 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.

The Company’s container volume in the Hawaii service in the first quarter 2023 was 0.8 percent lower year-over-year.

The decrease was primarily due to lower eastbound volume .

During the quarter, the Company saw retail customers continue to manage inventories to weaker consumer demand levels despite continued improvement in the Hawaii economy supported by a low unemployment rate and relatively strong tourist arrivals, including a modest improvement in international tourist trends.

In the near-term, Matson expects muted freight demand in Hawaii despite continued improvement in the Hawaii economy supported by strength in tourism and a low unemployment rate.

There are also negative trends as a result of higher inflation and higher interest rates that create uncertainty in the economic growth trajectory.

In China, the Company’s container volume in the first quarter 2023 decreased 35.4 percent year-over-year.

The decrease was primarily due to (i) CCX volume in the first quarter 2022 (CCX service was discontinued in the third quarter 2022) and (ii) lower demand for the CLX and CLX+ services.

Matson continued to realize a significant rate premium over the Shanghai Containerized Freight Index (“SCFI”) in the first quarter 2023 but achieved average freight rates that were

lower than in the year ago period.

Currently in the Transpacific marketplace, business conditions are mixed with general improvement in tradelane capacity and retailer inventories, but we continue to see retail customers conservatively manage inventories in light of continued economic uncertainty.

As such, the Company expects its CLX and CLX+ services in the second quarter to reflect freight demand levels below normalized conditions with lower year-over-year volumes and rates.

Absent an economic “hard landing” in the U.S., the Company continues to expect improved trade dynamics in the second half of 2023 as the Transpacific marketplace transitions to a more normalized level of demand.

Regardless of the economic environment, the Company expects to continue to earn a significant rate premium to the SCFI reflecting our fast and reliable ocean services and unmatched destination services.

In Guam, the Company’s container volume in the first quarter 2023 decreased 10.9 percent year-over-year primarily due to lower retail-related demand.

In the near-term, the Company expects muted freight demand despite continued improvement in the Guam economy with increasing tourism and a low unemployment rate.

There are also negative trends as a result of higher inflation and higher interest rates that create uncertainty in the economic growth trajectory.

In Alaska, the Company’s container volume for the first quarter 2023 decreased 4.8 percent year-over-year due to (i) lower export seafood volume from the Alaska-Asia Express service (“AAX”) primarily due to three less sailings and (ii) lower southbound volume primarily due to lower domestic seafood and household goods volume, partially offset by higher northbound volume primarily due to two additional sailings.

In the near-term, the Company expects the Alaska economy to benefit from low unemployment 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 and higher interest rates that create uncertainty in the economic growth trajectory.

The contribution in the first quarter 2023 from the Company’s SSAT joint venture investment was $(1.8) million, or $35.8 million lower than the first quarter 2022.

The decrease was primarily driven by lower other terminal revenue and lower lift volume.

In the first quarter 2023, operating income for the Company’s Logistics segment was $10.9 million, or $5.5 million lower compared to the level achieved in the first quarter 2022.

The decrease was primarily due to lower contributions from supply chain management, consistent with lower demand in the Transpacific tradelane, and transportation brokerage.

CONSOLIDATED RESULTS OF OPERATIONS

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

Three Months Ended September 30,

(Dollars in millions, except per share amounts)

Operating revenue

Operating costs and expenses

Operating income

Interest income

Interest expense

Other income (expense), net

Income before taxes

Basic earnings per share

Diluted earnings per share

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

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 $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,

Consolidated Results – Three months ended March 31, 2023 compared with 2022:

Three Months Ended March 31,

(Dollars in millions, except per share amounts)

9 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 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.

The increase in interest income for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was due to increased cash on deposit in interest bearing accounts including the CCF, and higher interest rates during the period.

The decrease in interest expense for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, 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 $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.

Income tax expense was $10.2 million or 23.1 percent of income before taxes for the three months ended March 31, 2023, compared to $90.6 million or 21.1 percent of income before taxes for the three months ended March 31, 2022.

The effective tax rate for the three months ended March 31, 2023 benefited from a 0.8 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, compared to a 2.6 percent deduction related to FDII for the three months ended March 31, 2022.

The reduction in the FDII for the three months ended March 31, 2023 was primarily due to lower income generated from the Company’s China service.

ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT

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

Three Months Ended September 30,

Ocean Transportation Operating Results – Three months ended March 31, 2023 compared with 2022:

Three Months Ended March 31,

(Dollars in millions)

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

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 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;

Ocean Transportation revenue decreased $392.9 million, or 41.6 percent, during the three months ended March 31, 2023, compared with the three months ended March 31, 2022.

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

On a year-over-year FEU basis, Hawaii container volume decreased 0.8 percent primarily due to lower eastbound volume;

Alaska volume decreased 4.8 percent due to (i) lower export seafood volume from the AAX primarily due to three less sailings and (ii) lower southbound volume primarily due to lower domestic seafood and household goods volume, partially offset by higher northbound volume primarily due to two additional sailings;

China volume was 35.4 percent lower primarily due to (a) CCX volume in the first quarter 2022 (CCX service was discontinued in the third quarter 2022) and (b) lower demand for the CLX and CLX+ services;

Guam volume was 10.9 percent lower primarily due to lower retail-related demand;

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

Nine Months Ended September 30,

(Dollars in millions)

Ocean Transportation revenue

Operating costs and expenses

Operating income

Operating income margin

Volume (Forty-foot equivalent units (FEU), except for automobiles) (1)

Hawaii containers

Hawaii automobiles

Alaska containers

China containers

Guam containers

Other containers (2)

(1) Approximate volumes included for the period are based on the voyage departure date, but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages in transit at the end of each reporting period.

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

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.

The higher revenue in Alaska was primarily the result of higher volume.

On a year-over-year FEU basis, Hawaii container volume decreased 3.2 percent primarily due to lower 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 $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 September 30, 2022 compared with 2021:

Three Months Ended September 30,

(Dollars in millions)

Logistics revenue

Operating costs and expenses

Operating income

Operating income margin

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.

and Other containers volume decreased 22.6 percent.

Ocean Transportation operating income decreased $388.4 million during the three months ended March 31, 2023, compared with the three months ended March 31, 2022.

The decrease was primarily due to lower freight rates and volume in China and a lower contribution from SSAT, partially offset by lower operating costs and expenses (including fuel-related expenses) primarily related to the discontinuation of the CCX service.

The Company’s SSAT terminal joint venture investment contributed $(1.8) million during the three months ended March 31, 2023, compared to a contribution of $34.0 million during the three months ended March 31, 2022.

The decrease was primarily driven by lower other terminal revenue and lower lift volume.

Logistics Operating Results:

Nine months ended September 30, 2022 compared with 2021:

Nine Months Ended September 30,

Three months ended March 31, 2023 compared with 2022:

Three Months Ended March 31,

(Dollars in millions)

3 unchanged sentences

Operating income margin

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 $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.

Logistics revenue decreased $67.8 million, or 30.6 percent, during the three months ended March 31, 2023, compared with the three months ended March 31, 2022.

The decrease was primarily due to lower revenue in transportation brokerage and supply chain management.

Logistics operating income decreased $5.5 million, or 33.5 percent, during the three months ended March 31, 2023, compared with the three months ended March 31, 2022.

The decrease was primarily due to lower contributions from supply chain management, consistent with lower demand in the Transpacific tradelane, and transportation brokerage.

LIQUIDITY AND CAPITAL RESOURCES

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

Sources of liquidity available to the Company as of March 31, 2023, compared to December 31, 2022 were as follows:

Cash, Cash Equivalents, Restricted Cash and Accounts Receivable:

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

September 30,

Cash and cash equivalents, restricted cash and accounts receivable as of March 31, 2023, compared to December 31, 2022 were as follows:

(In millions)

2 unchanged sentences

Accounts receivable, net (1)

(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,

(1) As of March 31, 2023 and December 31, 2022, $209.9 million and $9.9 million of eligible accounts receivable were assigned to the CCF, respectively.

Changes in the Company’s cash, cash equivalents and restricted cash for the three months ended March 31, 2023, compared to the three months ended March 31, 2022 were as follows:

Three Months Ended March 31,

(In millions)

1 unchanged sentence

Net cash used in investing activities (2)

Net cash used in by financing activities (3)

Net cash used in financing activities (3)

Net (decrease) increase in cash, cash equivalents and restricted cash

2 unchanged sentences

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

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:

Changes in net cash provided by operating activities for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, were due to the following:

(In millions)

1 unchanged sentence

Deferred income taxes

Other non-cash related changes, net

Income and distributions from SSAT, net

7 unchanged sentences

Other long-term liabilities

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 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.

Net income was $34.0 million for the three months ended March 31, 2023, compared to $339.2 million for the three months ended March 31, 2022, as described above.

Loss from SSAT was $(1.8) million for the three months ended March 31, 2023, compared to $34.0 million for the three months ended March 31, 2022.

The decrease in contribution from SSAT was due to lower other terminal revenue and lower lift volume during the three months ended March 31, 2023 as compared to the same prior year period.

There were no distributions from SSAT during the three months ended March 31, 2023 and 2022.

Changes in accounts receivable were primarily due to the timing of collections associated with those receivables.

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 three months ended March 31, 2023 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 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.

Changes in operating lease liabilities were primarily due to new operating lease additions and renewals, partially offset by operating lease terminations during the three months ended March 31, 2023, compared to the same prior year period.

Deferred dry-docking payments for the three months ended March 31, 2023 were $2.4 million, compared to $8.6 million for the three months ended March 31, 2022.

The decrease in deferred dry-docking payments was due to less dry-dock related activity during the three months ended March 31, 2023 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 nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, were due to the following:

Changes in net cash used in investing activities for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, were due to the following:

(In millions)

Cash deposits into CCF

Cash deposits and interest into the CCF

Withdrawals from CCF

Payment for asset acquisition

Capitalized vessel construction expenditures

Other capital expenditures

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.

Proceeds from disposal of property and equipment, net, and other

The Company deposited $100.0 million of cash and accumulated $5.5 million of interest in the CCF and made no withdrawals from the CCF during the three months ended March 31, 2023, compared to $10.7 million of cash deposited into the CCF and $10.7 million withdrawn from the CCF during the three months ended March 31, 2022.

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

During the three months ended March 31, 2023, the Company paid $12.4 million related to an asset acquisition.

No asset acquisitions were made during the three months ended March 31, 2022.

Capitalized vessel construction expenditures (including capitalized interest) were $0.4 million for the three months ended March 31, 2023, compared to $9.4 million for the three months ended March 31, 2022.

Other capital expenditures payments were $35.5 million for the three months ended

March 31, 2023, compared to $37.4 million for the three months ended March 31, 2022.

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 nine months ended September 30, 2022 as compared to the same prior year period.

The Company purchased fewer containers, chassis and other equipment during the three months ended March 31, 2023 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 nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, were due to the following:

Changes in net cash used in financing activities for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, were due to the following:

(In millions)

1 unchanged sentence

Repayments of fixed interest debt

Repayments and borrowings under revolving credit facility, net

Withholding tax related to net share settlements of restricted stock units

Payment of financing costs

Dividends paid

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 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.

During the three months ended March 31, 2023, the Company paid $40.0 million to repurchase Matson common stock, compared to $70.4 million during the three months ended March 31, 2022.

During the three months ended March 31, 2023, the Company prepaid $26.4 million of Title XI debt and paid $14.4 million in scheduled fixed debt payments, compared to $14.4 million in scheduled fixed debt payments during the three months ended March 31, 2022.

During the three months ended March 31, 2023, the Company paid $12.4 million in payroll taxes related to vested restricted stock units, compared to $19.4 million for the three months ended March 31, 2022.

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

During the three months ended March 31, 2023, the Company paid $11.3 million in dividends, compared to $12.9 million during the three months ended March 31, 2022.

The decrease in dividend payments was due to the reduction in common stock outstanding, offset by an increase in dividends declared per share of common stock by the Company.

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,

Cash on deposit in the capital construction fund as of March 31, 2023 and December 31, 2022 was as follows:

(In millions)

2 unchanged sentences

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,

During the three months ended March 31, 2023, the Company deposited $100.0 million of cash and accumulated $5.5 million of interest into the CCF.

Cash on deposit in the CCF is currently held in a U.S.

Treasury obligations fund with daily liquidity.

At March 31, 2023, securities held within the fund had a weighted average life of 35 days.

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

During the three months ended March 31, 2023, the Company pledged $200.0 million of accounts receivable into the CCF.

Assigned accounts receivable in the CCF are classified as part of accounts receivable on the Company’s Condensed Consolidated Balance sheets due to the nature of the assignment.

Total Debt as of March 31, 2023 and December 31, 2022 is as follows:

(In millions)

Fixed interest debt

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.

Total Debt decreased by $40.8 million during the three months ended March 31, 2023.

The decrease in fixed interest debt was due to prepayments of $26.4 million of outstanding principal of Title XI debt, and scheduled repayments of private placement term loans and Title XI debt during the three months ended March 31, 2023.

As of March 31, 2023, the Company had $642.1 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 $274.6 million and $92.1 million at September 30, 2022 and December 31, 2021, respectively.

The Company had a working capital surplus of $30.9 million and $178.0 million at March 31, 2023 and December 31, 2022, 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 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.

The decrease in working capital surplus at March 31, 2023 is primarily due to the decrease in cash generated from operating activities, and cash deposited into the CCF during the three months ended March 31, 2023.

Capital Expenditures:

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

There were no material changes during the quarter ended March 31, 2023 to the Company’s expected capital expenditures for the years ending December 31, 2023 and 2024 that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 .

The following represents the estimated timing of future milestone payments under the vessel construction agreements as of March 31, 2023, as described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 :

Future Milestone Payments By Period

(in millions)

Remainder of 2023

Three Aloha Class Containerships

Repurchase of Shares:

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.

During the three months ended March 31, 2023, the Company repurchased approximately 0.7 million shares for a total cost of $42.1 million.

The maximum number of remaining shares that may be purchased under the Company’s share repurchase program was approximately 0.9 million shares at March 31, 2023.

On April 27, 2023, the Company’s Board of Directors approved an additional 3.0 million shares to the Company’s existing share repurchase program and extended the program to December 31, 2025.

Other Material Cash Requirements:

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 .

There were no other material changes during the quarter ended March 31, 2023 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, 2022 .

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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OTHER MATTERS

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.

The Company’s first quarter 2023 cash dividend of $0.31 per share was paid on March 2, 2023.

On April 27, 2023, the Company’s Board of Directors declared a cash dividend of $0.31 per share payable on June 1, 2023 to shareholders of record on May 11, 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis