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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 132 added, 109 removed, 228 unchanged (51% of the section changed)

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FORWARD-LOOKING STATEMENTS AND RISK FACTORS

The Company, from time to time, may make or may have made certain forward-looking statements, whether orally or in writing, such as forecasts and projections of the Company’s future performance or statements of management’s plans and objectives.

These statements are “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements may be contained in, among other things, SEC filings such as Forms 10-K, 10-Q and 8-K, the Annual Report to Shareholders, press releases made by the Company, the Company’s Internet websites (including websites of its subsidiaries), and oral statements made by the officers of the Company.

Except for historical information contained in these written or oral communications, such communications contain forward-looking statements.

These include, for example, all references to 2023 or future years.

New risk factors emerge from time to time and it is not possible for the Company to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including but not limited to the factors that are described in Part I, Item 1A under the caption of “Risk Factors” of this Form 10-K, which section is incorporated herein by reference.

The Company is not required, and undertakes no obligation, to revise or update forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, or circumstances occurring after the date of this report.

The Company, from time to time, may make or may have made certain forward-looking statements, whether orally or in writing, such as, among others, forecasts or projections of the Company’s future performance or statements of management’s plans and objectives.

These statements are considered “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements may be contained in, among other things, SEC filings such as Forms 10-K, 10-Q and 8-K, the Company’s Annual Report to Shareholders, the Company’s Sustainability Report, press releases made by the Company, the Company’s Internet websites (including websites of its subsidiaries), and oral statements made by officers of the Company.

Except for historical information contained in these written or oral communications, all other statements are forward-looking statements.

These include, for example, all references to 2024 or future years, including such references included under “Fourth Quarter 2023 Discussion and Update on Business Conditions,” as well as statements generally identified through the inclusion of words such as “anticipate,” “believe,” “can,” “commit,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “target,” “should,” “seek,” and “will,” or similar statements or variations of such terms and other similar expressions.

New risks or uncertainties may emerge from time to time, risks that the Company currently does not consider to be material could become material, and it is not possible for the Company to predict all such risks, nor can it assess the impact of all such risks on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results or outcomes, or the timing of results or outcomes, to differ materially from those contained in any forward-looking statements.

Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results or outcomes and involve a number of risks and uncertainties that could cause actual results or outcomes to differ materially from those projected in the statements, including but not limited to the factors that are described in Part I, Item 1A under the caption “Risk Factors” of this Annual Report on Form 10-K, which section is incorporated herein by reference, and elsewhere in this report.

Except as required by law, the Company undertakes no obligation to revise or update publicly forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, circumstances occurring after the date of this report, or otherwise.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a discussion of the Company’s financial condition, results of operations, liquidity and certain other factors that may affect its future results from the perspective of management.

The discussion that follows is intended to provide information that will assist in understanding the changes in the Company’s Consolidated Financial Statements from year to year, the primary factors that accounted for those changes, and how certain accounting principles, policies and estimates affect the Company’s Consolidated Financial Statements.

MD&A is provided as a supplement to the Consolidated Financial Statements and the accompanying notes to the Consolidated Financial Statements in Item 8 of Part II below, and should be read in conjunction with the Company’s Annual Reports on Form 10-K and other reports on Forms 10-Q and 8-K, and other publicly available information.

Discussion and analysis of the financial condition and results of operations of Matson for the years ended December 31, 2021 and 2020 can be found in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 , filed with the SEC on February 25, 2022.

MD&A is presented in the following sections:

The discussion that follows is intended to provide information that assists in understanding the changes in the Company’s Consolidated Financial Statements from year to year, the primary factors that accounted for those changes, and how certain accounting principles, policies and estimates affected the Company’s Consolidated Financial Statements.

The MD&A is provided as a supplement to the Consolidated Financial Statements and the accompanying notes to the Consolidated Financial Statements in Item 8 of Part II below, and should be read in conjunction with the entirety of the Company’s Annual Report on Form 10-K and other reports on Forms 10-Q and 8-K, and other publicly available information.

Discussion and analysis of the financial condition and results of operations of Matson for the year ended December 31, 2022 compared with the year ended December 31, 2021 can be found in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 , filed with the SEC on February 24, 2023.

The MD&A is presented in the following sections:

◾ Historical Financial Information

◾ Fourth Quarter 2022 Discussion and Update on Business Conditions

◾ Fourth Quarter 2023 Discussion and Outlook for 2024

◾ Consolidated Results of Operations

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◾ Critical Accounting Estimates

◾ Other Matters

HISTORICAL FINANCIAL INFORMATION

The comparative selected financial information of the Company is presented for each of the five years in the period ended December 31, 2022.

The comparative selected financial information of the Company is presented for each of the past five years ended December 31, 2023.

The information should be read in conjunction with Item 8, “Financial Statements and Supplementary Data.” All fiscal years include 52 weeks, except for the year ended December 31, 2021 which includes 53 weeks (a description of the Company’s fiscal year is included in Note 2 to the Consolidated Financial Statements in Item 8 of Part II below):

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Cash and cash equivalents

Capital Construction Fund (3)

Capital Construction Fund (“CCF”) (3)

Total Debt (before deferred loan fees deduction) (4)

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(1) The Ocean Transportation segment includes $2.2 million, $83.1 million, $56.3 million, $26.3 million and $20.8 million of equity in income from the Company’s investment in SSAT for 2023, 2022, 2021, 2020 and 2019, respectively.

(2) Income taxes for the years ended December 31, 2019 and 2018 include a non-cash income tax (expense)/benefit of $2.9 million and $(2.9) million, respectively, related to the remeasurement of the Company’s deferred assets and liabilities and other discrete adjustments as a result of applying the Tax Cut and Jobs Act of 2017.

(2) Income tax for the year ended December 31, 2019 includes a non-cash income tax benefit of $2.9 million related to the remeasurement of the Company’s deferred assets and liabilities and other discrete adjustments as a result of applying the Tax Cut and Jobs Act of 2017.

(3) The Company’s Capital Construction Fund is described in Note 7 to the Consolidated Financial Statements in Item 8 of Part II.

(4) The Company’s debt is described in Note 8 to the Consolidated Financial Statements in Item 8 of Part II.

FOURTH QUARTER 2022 DISCUSSION AND UPDATE ON BUSINESS CONDITIONS

FOURTH QUARTER 2023 DISCUSSION AND OUTLOOK FOR 2024

Ocean Transportation:

The Company’s container volume in the Hawaii service in the fourth quarter 2023 was 1.9 percent lower year-over-year.

The decrease was primarily due to (i) lower retail- and hospitality-related demand compared to elevated pandemic levels in the year ago period and (ii) one less week .

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 economic growth in Hawaii supported by continued strength in tourism and a low unemployment rate, 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 China, the Company’s container volume in the fourth quarter 2022 decreased 47.2 percent year-over-year.

The decrease was primarily due to (i) lower demand for the CLX and CLX+ services, (ii) the discontinuation of the CCX service in the third quarter 2022 and (iii) one less week.

Matson continued to realize a significant rate premium over the Shanghai Containerized Freight Index (“SCFI”) in the fourth quarter 2022 but achieved average freight rates that were lower than in the year ago period.

Currently in the Transpacific marketplace, business conditions remain challenging as retailers continue to right-size inventories amid weakening consumer demand, increasing interest rates and economic uncertainty.

As such, the Company expects its CLX and CLX+ services in the first quarter and first half of the year to reflect freight demand levels below normalized conditions with lower year-over-year volumes and a lower rate environment.

Absent an economic “hard landing” in the U.S., Matson expects 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, Matson operates the two fastest and most reliable ocean services and, as a result, the Company expects to continue to earn a significant rate premium to the SCFI .

In Guam, the Company’s container volume in the fourth quarter 2022 decreased 14.0 percent year-over-year primarily due to lower retail-related demand.

In the near-term, the Company expects continued improvement in the Guam economy with increasing tourism and a low unemployment rate, 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 fourth quarter 2022 decreased 7.7 percent year-over-year due to (i) lower northbound volume primarily due to one less sailing and one less week and (ii) lower southbound volume primarily due to lower domestic seafood volume and one less week, partially offset by higher export seafood volume from Alaska-Asia Express (“AAX”).

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, 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 fourth quarter 2022 from the Company’s SSAT joint venture investment was $1.0 million, or $20.3 million lower than the fourth quarter 2021.

The decrease was primarily driven by lower other terminal revenue, lower lift volume and higher operating costs.

The decrease was primarily due to lower general demand.

According to UHERO’s most recent forecast report, the Hawaii economy is projected to grow modestly despite challenged growth in visitor arrivals primarily due to reduced tourism to Maui as a result of the wildfires last year and sluggish recovery of international tourism.

The Company expects volume in 2024 to be comparable to the level in 2023, reflecting modest economic growth in Hawaii and stable market share.

In China, the Company’s container volume in the fourth quarter 2023 increased 23.3 percent year-over-year.

The increase was primarily due to higher demand for the China service resulting in higher volumes for both CLX and CLX+.

The Company achieved lower freight rates in the fourth quarter 2023 as compared to the prior year period.

Currently in the Transpacific marketplace, the Company continues to see steady U.S.

consumer demand, which the Company expects to lead to similar demand for Matson’s CLX and CLX+ services in 2024 as in 2023 .

The Company also expects average freight rates in 2024 to be modestly higher than the levels achieved in 2023.

In Guam, the Company’s container volume in the fourth quarter 2023 increased 2.0 percent year-over-year primarily due to higher general demand.

In the near-term, the Company expects continued improvement in the Guam economy with a low unemployment rate and a modest increase in tourism.

For 2024, the Company expects volume to approximate the level achieved last year.

In Alaska, the Company’s container volume for the fourth quarter 2023 decreased 0.6 percent year-over-year due to lower export seafood volume from the Alaska-Asia Express service (“AAX”), partially offset by higher northbound volume due to an additional sailing and higher southbound volume due to higher domestic seafood volume.

In the near-term, the Company expects continued economic growth in Alaska supported by a low unemployment rate, jobs growth and lower levels of inflation.

For 2024, the Company expects volume to approximate the level achieved last year.

The contribution in the fourth quarter 2023 from the Company’s SSAT joint venture investment was $4.1 million, or $3.1 million higher than the fourth quarter 2022.

For 2024, the Company expects the contribution from SSAT to be higher than the levels achieved in 2023 due to an expected increase in lift volumes.

Absent a significant change in trajectory of the U.S.

economy, the Company expects trade dynamics across all its tradelanes in 2024 to be comparable to 2023 as consumer- related spending activity is expected to remain stable and, as noted above, the Company also expects increased operating income contributions from SSAT.

As such, the Company expects full year 2024 Ocean Transportation operating income to be higher than the $294.8 million achieved in 2023.

In the first quarter 2024, the Company expects Ocean Transportation operating income to be lower than the $27.8 million achieved in the first quarter 2023.

In the fourth quarter 2023, operating income for the Company’s Logistics segment was $8.9 million, or $3.9 million lower compared to the level achieved in the fourth quarter 2022.

The decrease was primarily due to a lower contribution from supply chain management consistent with lower demand in the Transpacific tradelane.

The decrease was primarily due to a lower contribution from transportation brokerage.

For 2024, the Company expects challenging business conditions for transportation brokerage at least through the first half of the year, which the Company expects to lead to operating income being lower in 2024 than the level achieved in 2023.

For the first quarter 2024, the Company expects Logistics operating income to be lower than the $10.9 million achieved in the first quarter 2023.

Consolidated Operating Income:

For full year 2024, the Company expects consolidated operating income to approximate the $342.8 million achieved in 2023 and expects comparable seasonality to the prior year.

For the first quarter 2024, the Company expects consolidated operating income to be lower than the $38.7 million achieved in the first quarter 2023.

Depreciation and Amortization:

For the full year 2024, the Company expects depreciation and amortization expense to be approximately $180 million, inclusive of dry-docking amortization of approximately $27 million.

Interest Income:

The Company expects interest income for the full year 2024 to be approximately $35 million.

Interest Expense:

The Company expects interest expense for the full year 2024 to be approximately $8 million.

Other Income (Expense):

The Company expects full year 2024 other income (expense) to be approximately $7 million in income, which is attributable to other component costs related to the Company’s pension and post-retirement plans.

Income Taxes:

In the fourth quarter 2023, the Company’s effective tax rate was 26.0 percent.

For the full year 2024, the Company expects its effective tax rate to be approximately 22.0 percent.

Capital and Vessel Dry-docking Expenditures:

For the full year 2023, the Company made capital expenditure payments excluding new builds of $195.5 million, capitalized vessel construction expenditures of $52.9 million, and dry-docking payments of $24.1 million.

For the full year 2024, the Company expects to make other capital expenditure payments, including maintenance capital expenditures, of approximately $180 to $200 million, new vessel construction expenditures (including capitalized interest and owner’s items) of approximately $75 million, and dry-docking payments of approximately $35 million.

CONSOLIDATED RESULTS OF OPERATIONS

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Diluted earnings per share

Fiscal years ended December 31, 2022 and 2021 include 52 and 53 weeks, respectively.

Consolidated Operating Revenue for the year ended December 31, 2022 increased $417.7 million, or 10.6 percent, compared to the prior year.

The increase was due to an increase in Ocean Transportation revenue of $411.8 million and an increase in Logistics revenue of $5.9 million.

Operating Costs and Expenses for the year ended December 31, 2022 increased $251.6 million, or 9.2 percent, compared to the prior year.

The increase was due to an increase in Ocean Transportation operating costs and expenses of $268.3 million, partially offset by a decrease in Logistics operating costs and expenses of $16.7 million.

Operating Income for the year ended December 31, 2022 increased $166.1 million, or 14.0 percent, compared to the prior year.

The increase was due to an increase in Ocean Transportation operating income of $143.5 million and an increase in Logistics operating income of $22.6 million.

Fiscal years ended December 31, 2023 and 2022 include 52 weeks.

Consolidated Operating Revenue for the year ended December 31, 2023 decreased $1,248.4 million, or 28.7 percent, compared to the prior year.

The decrease was due to decrease in Ocean Transportation revenue of $1,067.6 million and a decrease in Logistics revenue of $180.8 million.

Operating Costs and Expenses for the year ended December 31, 2023 decreased $237.6 million, or 7.9 percent, compared to the prior year.

The decrease was due to a decrease in Ocean Transportation operating costs and expenses of $81.2 million and a decrease in Logistics operating costs and expenses of $156.4 million.

Operating Income for the year ended December 31, 2023 decreased $1,010.8 million, or 74.7 percent, compared to the prior year.

The decrease was due to a decrease in Ocean Transportation operating income of $986.4 million and a decrease in Logistics operating income of $24.4 million.

The reasons for changes in operating revenue, operating costs and expenses, and operating income are described below, by business segment, in “Analysis of Operating Revenue and Income by Segment.”

Interest Income was $8.2 million for the year ended December 31, 2022 and was due to amounts on deposit in cash and cash equivalent accounts, and cash on deposit within the Capital Construction Fund that were invested in interest bearing accounts during the year ended December 31, 2022.

Interest income for the year ended December 31, 2021 was nominal.

Interest Income was $36.0 million for the year ended December 31, 2023, compared to $8.2 million in the prior year.

The increase in interest income was due to amounts on deposit in cash and cash equivalent accounts, and cash on deposit within the Capital Construction Fund that were invested in interest bearing accounts during the year ended December 31, 2023.

Interest Expense was $12.2 million for the year ended December 31, 2023, compared to $18.0 million in the prior year.

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Other Income (Expense), net was $6.4 million for the year ended December 31, 2023, compared to $8.5 million in the prior year, and relates to the amortization of certain components of net periodic benefit costs or gains related to the Company’s pension and post-retirement plans.

The increase in Other income (expense) was due to favorable adjustments reflected in the Company’s pension and post-retirement plan liabilities during the year ended December 31, 2021.

The decrease in Other income (expense) was due to unfavorable adjustments reflected in the Company’s pension and post-retirement plan liabilities during the year ended December 31, 2023.

Income Taxes for the year ended December 31, 2023 were $75.9 million, or 20.3 percent of income before income taxes, compared to $288.4 million, or 21.3 percent of income before income taxes in the prior year.

The 2021 income tax rate benefited from certain discrete tax adjustments that lowered the effective tax rate in the prior year.

Net Income during the year ended December 31, 2022 increased $136.5 million, or 14.7 percent, to $1,063.9 million for the year ended December 31, 2022, compared to the prior year.

The 2023 income tax rate benefited from certain discrete tax adjustments that lowered the effective tax rate in the current year.

Net Income during the year ended December 31, 2023 decreased $766.8 million, or 72.1 percent, to $297.1 million for the year ended December 31, 2023, compared to the prior year.

ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT

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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 $411.8 million, or 13.1 percent, during the year ended December 31, 2022, compared with the year ended December 31, 2021.

The increase was primarily due to higher average freight rates in China, higher fuel-related surcharge revenue 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 5.8 percent primarily due to lower retail-related demand and one less week;

Alaska volume increased 8.6 percent 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, partially offset by one less week and (iii) higher southbound volume primarily due to higher domestic seafood volume;

China volume was 11.7 percent lower primarily due to (a) lower demand for the CLX and CLX+ services and (b) one less week, partially offset by incremental volume on the CCX service;

Guam volume decreased 3.7 percent primarily due to lower retail-related volume;

and Other containers volume increased 11.4 percent.

Ocean Transportation operating income increased $143.5 million during the year ended December 31, 2022, compared with the year ended December 31, 2021.

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

Ocean Transportation revenue decreased $1,067.6 million, or 30.1 percent, during the year ended December 31, 2023, compared with the year ended December 31, 2022.

The decrease was primarily due to lower average freight rates and volume in China.

On a year-over-year FEU basis, Hawaii container volume decreased 3.0 percent primarily due to lower general westbound demand and lower eastbound volume;

Alaska volume decreased 5.8 percent due to lower export seafood volume from the AAX;

China volume was 13.7 percent lower primarily due to CCX volume in the first nine months of 2022 (the CCX service was discontinued in the third quarter 2022);

Guam volume was 4.7 percent lower primarily due to lower general demand;

and Other containers volume decreased 22.2 percent.

Ocean Transportation operating income decreased $986.4 million during the year ended December 31, 2023, compared with the year ended December 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 and lower fuel costs and the timing of fuel-related surcharge collections.

The Company’s SSAT terminal joint venture investment contributed $2.2 million during the year ended December 31, 2023, compared to a contribution of $83.1 million during the year ended December 31, 2022.

The increase was primarily driven by higher other terminal revenue.

The decrease was primarily driven by lower demurrage revenue.

2023 compared with 2022:

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Operating income margin

Logistics revenue increased $5.9 million, or 0.7 percent, during the year ended December 31, 2022, compared with the year ended December 31, 2021.

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

Logistics operating income increased $22.6 million, or 45.4 percent, during the year ended December 31, 2022, compared with the year ended December 31, 2021.

The increase was primarily due to higher contributions from transportation brokerage and freight forwarding.

Logistics revenue decreased $180.8 million, or 22.6 percent, during the year ended December 31, 2023, compared with the year ended December 31, 2022.

The decrease was primarily due to lower revenue in transportation brokerage.

Logistics operating income decreased $24.4 million, or 33.7 percent, during the year ended December 31, 2023, compared with the year ended December 31, 2022.

The decrease was primarily due to lower contributions from transportation brokerage and supply chain management.

LIQUIDITY AND CAPITAL RESOURCES

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Other non-cash related changes, net

Income and distributions from SSAT, net

Income and distribution from SSAT, net

Accounts receivable, net

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Income from SSAT was $2.2 million for the year ended December 31, 2023, compared to $83.1 million in the prior year.

The increase in income from SSAT was primarily due to higher operating profits generated by SSAT during the year ended December 31, 2022, compared to the prior year.

Cash distributions from SSAT were $47.3 million for the

year ended December 31, 2022, compared to $46.9 million in the prior year.

The decrease in income from SSAT was primarily due to lower operating profits generated by SSAT during the year ended December 31, 2023, compared to the prior year.

No cash distributions were received from SSAT during the year ended December 31, 2023, compared to $47.3 million of dividends received in the prior year.

Cash distributions from SSAT are dependent on the level of cash available for distribution after SSAT’s operational and capital needs.

Changes in accounts receivable were primarily due to lower accounts receivables outstanding at the end of December 31, 2022, due to lower revenue at the end of the year as compared to prior year, and the timing of collections associated with those receivables.

Changes in prepaid expenses and other assets were primarily due to increased prepaid fuel, insurance and other operating related costs, primarily due to an increase in the cost for such expenses, and prepaid income taxes primarily due to the use of the CCF fund during the year ended December 31, 2022, compared to the prior year.

Changes in accounts payable, accruals and other liabilities were primarily due to a decrease in operating activity resulting in a reduction of operating costs and the timing of payments associated with those liabilities.

Changes in operating lease liabilities were primarily due to new operating lease additions partially offset by operating leases that expired during the year ended December 31, 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 a decrease in prepaid income taxes at the end of December 31, 2023 as compared to the prior year.

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

Changes in operating lease liabilities were primarily due to operating leases that expired during the year ended December 31, 2023, partially offset by new operating leases entered into during the year ended December 31, 2023.

Deferred dry-docking payments were $24.1 million for the year ended December 31, 2023, compared to $25.7 million in the prior year.

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(In millions)

Cash deposits into CCF

Cash deposits and interest into the CCF

Withdrawals from CCF

Capitalized vessel construction expenditures

Other capital expenditures

Capital expenditures (excluding vessel construction expenditures)

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

Capitalized vessel construction expenditures was $62.4 million for the year ended December 31, 2022, compared to $14.9 million in the prior year.

The increase in capitalized vessel construction expenditures (including cash and interest deposited into the CCF less cash withdrawals from the CCF which are used for vessel construction related payments) was due to the commencement of the Company’s new fleet renewal program in 2022.

Capitalized vessel construction expenditures incurred in 2022 related to milestone payments on the construction of three new vessels and the construction of a new flat-deck barge.

Other capital expenditures (excluding capitalized vessel construction expenditures) was $146.9 million for the year ended December 31, 2022, compared to $310.4 million for the prior year.

Other capital expenditures during the year ended December 31, 2021 included the purchase of additional containers, chassis and other terminal equipment to support the increase in the Company’s operational activities, and the repurchase of Maunalei vessel for $95.8 million.

During the year ended December 31, 2023, cash deposits and interest earned in the CCF were $100.0 million and $28.5 million, respectively, compared to $579.7 million and $3.1 million in the prior year, respectively.

Cash withdrawals from the CCF were $49.9 million during the year ended December 31, 2023, compared to $64.6 million in the prior year, and were related to vessel construction milestone payments.

Capitalized vessel construction expenditures were $52.9 million for the year ended December 31, 2023, compared to $62.4 million in the prior year.

The decrease in capitalized vessel construction expenditures was due to the timing of milestone payments related to the Company’s new fleet renewal program.

Capital expenditures (excluding vessel construction expenditures) were $195.5 million for the year ended December 31, 2023, compared to $146.9 million for the prior year.

Capital expenditures (excluding vessel construction expenditures) during the year ended December 31, 2023 included costs associated with LNG installations and the reengining of an existing vessel, and the purchase of additional containers, chassis and other terminal equipment to support the Company’s operational activities.

(3) Changes in Net Cash Used in Financing Activities:

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Repurchase of Matson common stock

Proceeds received from issuance of fixed interest debt

Repayments of fixed interest debt

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Withholding tax related to net share settlements of restricted stock units

Payment of financing costs

Dividends paid

Change in other payments, net

Payment of financing costs

The Company paid $155.2 million to repurchase common stock during the year ended December 31, 2023, compared to $397.0 million in the prior year.

The Company did not issue any new fixed interest debt during the years ended December 31, 2023 and 2022.

The Company paid $111.5 million of prepaid and scheduled fixed interest debt principal payments, compared to $59.3 million of scheduled principal payments paid during the prior year.

The Company paid $76.9 million of prepaid and scheduled fixed interest debt principal payments, compared to $111.5 million of prepaid scheduled principal payments during the prior year.

During the year ended December 31, 2021, the Company paid $71.8 million, net, to fully repay the Company’s revolving credit facility.

There were no borrowings under the revolving credit facility during the year ended December 31, 2022.

There were no borrowings under the revolving credit facility during the years ended December 31, 2023 and 2022.

Capital Construction Fund:

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The Company’s CCF is described in Note 7 to the Consolidated Financial Statements.

Cash on deposit in the CCF and assigned accounts receivable as of December 31, 2022 and 2021 is as follows:

Cash on deposit in the CCF and assigned accounts receivable as of December 31, 2023 and 2022 were as follows:

As of December 31,

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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 Consolidated Balance Sheets, as the Company intends to use qualified cash withdrawals from the CCF to fund long-term investments in the construction of new vessels.

Treasury Obligation Funds and is classified as a long-term asset in the Company’s Consolidated Balance Sheets, as the Company intends to use qualified cash withdrawals from the CCF to fund long-term investments in the construction of new vessels.

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

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.

In February 2024, the Company purchased approximately $450 million of fixed-rate U.S.

Treasuries with CCF cash deposits.

The fixed-rate investments have various maturity dates up to 3 years.

The Company utilizes a mix of fixed and variable debt for liquidity and to fund the Company’s operations.

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Total debt decreased by $76.9 million during the year ended December 31, 2023 compared to the prior year.

The decrease in fixed interest debt was due to the prepayment of $50.4 million of outstanding principal of private placement term loans and scheduled debt repayments of private placement term loans and Title XI debt made during the year ended December 31, 2022.

The decrease in fixed interest debt was due to the $26.4 million prepayments of Title XI debt, and scheduled debt repayments of private placement term loans and Title XI debt made during the year ended December 31, 2023.

As of December 31, 2023, the Company had $644.2 million of unused capacity under the revolving credit facility, with a maturity date of March 31, 2026.

The Company’s debt is described in Note 8 to the Consolidated Financial Statements in Item 8 of Part II.

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 Manukai Title XI Bonds in March 2023, representing all of the estimated outstanding principal for this bond.

The Company’s Title XI Bonds are described in Note 8 to the Consolidated Financial Statements in Item 8 of Part II below.

Working Capital:

The Company had a working capital surplus of $40.0 million at December 31, 2023, compared to a working capital surplus of $178.0 million at December 31, 2022.

Working capital is primarily impacted by the amount of net cash provided by operating activities, the amount of capital expenditures, the amount and 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, debt and other liabilities.

The increase in the Company’s working capital surplus during the year ended December 31, 2022 was due to the increase in cash provided by operating activities.

Working capital is primarily impacted by the amount

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

The decrease in the Company’s working capital surplus during the year ended December 31, 2023 was due to the decrease in cash provided by operating activities and higher capital expenditures during the year.

Capital Expenditures:

The Company expects to make the following capital expenditures during the years ending December 31, 2024, 2025 and 2026:

Expected Capital Expenditures (in millions)

(In millions)

New vessel construction milestone payments and related costs

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LNG installations on existing vessels includes capital expenditures for the installation of tanks, piping and cryogenic equipment on existing Aloha Class vessels so that they can operate on LNG and conventional fuels.

The LNG installation project on Daniel K.

Inouye has begun and work on Kaimana Hila is currently scheduled to begin during the second quarter of 2024.

Each installation is expected to cost approximately $35 million.

Additionally, the Company plans to begin reengining Manukai to operate on LNG and conventional fuels during the second quarter of 2023 at a total cost of approximately $60 million.

Maintenance and other capital expenditures include amounts that the Company expects to spend on various capital projects including capital expenditures related to the second and third phase of its program to modernize and renovate its terminal facility at Sand Island, Honolulu, Hawaii, repurchases of leased equipment, vessel maintenance and annual equipment purchases to support the Company’s operations.

The LNG installation project on Kaimana Hila is currently scheduled to begin during the second quarter of 2024 at a cost of approximately $47 million.

Additionally, the reengining of Manukai to operate on LNG and conventional fuels is in progress with an expected remaining cost of approximately $72 million.

Maintenance and other capital expenditures include amounts that the Company expects to spend on various capital projects, including capital expenditures related to the second and third phase of its program to modernize and renovate its terminal facility at Sand Island, Honolulu, Hawaii, repurchases of leased equipment, vessel capital maintenance and annual equipment purchases to support the Company’s operations.

The Company expects to fund these capital expenditures (including the LNG installations) with cash and cash equivalents on the Consolidated Balance Sheets and through cash flows generated from future operating activities.

Repurchase of Shares:

During the year ended December 31, 2023, the Company repurchased approximately 2.1 million shares for a total cost of $158.2 million.

The maximum remaining number of shares that may be repurchased under the Company’s stock repurchase program was 1,533,371 shares at December 31, 2022.

The remaining number of shares that may be repurchased under the Company’s stock repurchase program was 2,462,188 shares at December 31, 2023.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

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Off-balance Sheet Arrangements:

The Company is not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, results of operations or cash flows.

The Company is not currently party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, results of operations or cash flows.

CRITICAL ACCOUNTING ESTIMATES

The Company’s significant accounting policies are described in Note 2 to the Consolidated Financial Statements in Item 8 of Part II below.

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, upon which the Company’s Management Discussion and Analysis of Financial Condition and Results of Operations is based, requires that management exercise judgment when making accounting estimates about future events that may affect the amounts reported in the Consolidated Financial Statements and accompanying notes.

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, upon which the Company’s Management Discussion and Analysis of Financial Condition and Results of Operations is based, requires that management exercise judgment in making accounting estimates about future events that may affect the amounts reported in the Consolidated Financial Statements and accompanying notes.

Future events and their effects cannot be determined with certainty and actual results will, inevitably, differ from those accounting estimates.

These differences could be material.

The Company considers an accounting estimate to be critical if (i)(a) the accounting estimate requires the Company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made, (b) changes in the estimate are reasonably likely to occur in periods after the period in which the estimate was made, or (c) use of different estimates by the Company could have been used;

and (ii) changes in those accounting estimates would have had a material impact on the financial condition or results of operations of the

The critical accounting policies and estimates inherent in the preparation of the Company’s Consolidated Financial Statements are described below.

and (ii) changes in those accounting estimates would have had a material impact on the financial condition or results of operations of the Company.

The critical accounting policies and estimates considered in the preparation of the Company’s Consolidated Financial Statements are described below.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.

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Indefinite-life Intangible Assets and Goodwill:

The Company’s intangible assets include goodwill, customer relationships and a trade name, and are grouped at the lowest level reporting unit for which identifiable cash flows are available.

The Company’s intangible assets include goodwill and a trade name, and are grouped at the lowest level reporting unit for which identifiable cash flows are available.

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, income taxes, depreciation and amortization (“EBITDA”).

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Insurance Related Liabilities:

The Company is uninsured for certain risks but when feasible, many of these risks are mitigated by insurance.

The Company purchases insurance with deductibles or self-insured retentions.

The Company purchases insurance with deductibles or self-insured retentions to mitigate significant risks that it is exposed to.

Such insurance includes, but is not limited to, employee health, workers’ compensation, marine liability, cybersecurity, auto liability and physical damage to property and equipment.

For certain risks, the Company elects to not purchase insurance because of the excessive cost of such insurance or the perceived remoteness of the risk.

In addition, the Company retains all risk of loss that exceeds the limits of the Company’s insurance policies, or for other risks where insurance is not commercially available.

risks, the Company elects to not purchase insurance because of the excessive cost of such insurance, the perceived remoteness of the risk or insurance coverage is not commercially available.

The Company retains the risk of loss for insurance deductibles and self-insured retentions, for amounts that exceed the limits of the Company’s insurance policies, and for other risks not covered by insurance.

When estimating its reserves for retained risks and related liabilities, the Company considers a number of factors, including historical claims experience, demographic factors, current trends, and analyses provided by independent third parties.

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Insurance related liabilities were $41.3 million and $45.4 million at December 31, 2023 and 2022, respectively.

The Company’s estimate of insurance related liabilities could change if management uses different assumptions or if

different conditions occur in future periods, however the Company does not expect any such change would have a material impact on the Company’s financial condition and results of operations.

The Company’s estimate of insurance related liabilities could change if management uses different assumptions or if different conditions occur in future periods, however the Company does not expect any such change would have a material impact on the Company’s financial condition and results of operations.

Pension and Post-Retirement Plans:

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The Company’s income tax expense requires the Company to make various estimates and judgments.

These estimates and judgments are applied in the calculation of taxable income, tax credits, tax benefits and deductions, and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue, costs and expenses for tax purposes.

These estimates and judgments are applied in the calculation of taxable income, tax credits, tax benefits, CCF and other tax deductions, and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue, costs and expenses for tax purposes.

The calculation of deferred tax assets and liabilities may be impacted by various factors including but not limited to changes in tax rates;

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Additional information about the Company’s income taxes is included in Note 10 to the Consolidated Financial Statements in Item 8 of Part II below.

OTHER MATTERS

New Accounting Pronouncements:

See Note 2 to the Consolidated Financial Statements in Item 8 of Part II below for additional information on new accounting pronouncements.

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 7. Management’s Discussion and Analysis