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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-23 · 118 added, 109 removed, 251 unchanged (47% of the section changed)

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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.

These include, for example, all references to 2025 or future years, including such references included under “Fourth Quarter 2024 Discussion and Outlook for 2025,” as well as statements generally identified through the inclusion of words such as “anticipate,” “believe,” “can,” “commit,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “seek,” “should,” “target,” 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.

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Income before Taxes

Income taxes (2)

Capital Expenditures (2):

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Shares outstanding

(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 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.

(1) The Ocean Transportation segment includes $(1.0) million, $2.2 million, $83.1 million, $56.3 million and $26.3 million of equity in (loss)/income from the Company’s investment in SSAT for 2024, 2023, 2022, 2021 and 2020, respectively.

(2) Capital expenditures represent amounts included in cash flows from investing activities in the Company’s Consolidated Statements of Cash Flows for the years presented.

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

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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 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.

Hawaii’s economy is expected to continue to grow slowly supported by modest gains in tourism, a low unemployment rate, and increased construction activity, but partially restrained by continued challenges in population growth and lower discretionary income as a result of high inflation and interest rates.

The Company expects volume in 2025 to be comparable to the level achieved in 2024, reflecting modest economic growth in Hawaii and stable market share.

In China, the Company achieved significantly higher freight rates in the fourth quarter 2024 compared to the year ago period.

The Company’s container volume in the fourth quarter 2024 also increased 7.2 percent year-over-year due to seasonally stronger freight demand.

The elevated freight rates in the fourth quarter 2024 were supported by a resilient U.S.

economy and a stable consumer demand environment coupled with tighter supply chain conditions.

The Company expects elevated freight rates to continue into the first quarter 2025.

Beyond the first quarter, the Company expects freight rates will largely be driven by the timing of trade flow normalization in the Red Sea, other geopolitical factors, supply chain activity and the trajectory of the U.S.

With respect to the Red Sea, assuming trade conditions normalize by the middle of the year, the Company expects freight rates to moderate in the second half of the year.

However, if the Red Sea remains disrupted through year end, the Company expects freight rates to remain elevated throughout the year.

In Guam, the Company’s container volume in the fourth quarter 2024 decreased 10.0 percent year-over-year.

The decrease was primarily due to lower demand from retail and food and beverage segments.

In the near term, the Company expects Guam’s economy to grow modestly supported by a low unemployment rate and an increase in construction activity.

For the full year 2025, the Company expects volume to be modestly higher than the level achieved last year.

In Alaska, the Company’s container volume for the fourth quarter 2024 increased 1.1 percent year-over-year.

The increase was primarily due to higher northbound volume, partially offset by an additional sailing in the year ago period.

In the near term, the Company expects continued economic growth in Alaska supported by a low unemployment rate, jobs growth and continued oil and gas exploration and production activity.

For the full year 2025, the Company expects volume to approximate the level achieved last year.

The loss in the fourth quarter 2024 from the Company’s SSAT joint venture investment was $9.5 million, or $13.6 million lower than the income of $4.1 million in fourth quarter 2023.

The decrease was due to a $18.4 million impairment charge related to the write-down of a terminal operating lease asset, partially offset by higher year-over-year lift volume.

On an after-tax basis, the impairment charge impacted fourth quarter 2024 net income and diluted EPS by $14.0 million and $0.42 per share, respectively.

For 2025, the Company expects the contribution from SSAT to approximate the level achieved in 2024, without taking into account the $18.4 million impairment charge in the fourth quarter 2024.

Based on the outlook trends noted above, the Company expects Ocean Transportation operating income for the first quarter 2025 to be meaningfully higher than the $27.6 million achieved in the first quarter 2024.

For full year 2025, the Company expects Ocean Transportation operating income to be largely driven by the timing of trade flow normalization in the Red Sea, other geopolitical factors, supply chain activity and the trajectory of the U.S.

Assuming trade conditions in the Red Sea normalize by the middle of the year and there are no significant changes from today in the other factors referenced above, the Company expects full year 2025 Ocean Transportation operating income to be moderately lower than the $500.9 million achieved in 2024.

However, if trade conditions in the Red Sea remain disrupted through year end and there are no significant changes from today in the other factors noted above, the Company expects full year 2025 Ocean Transportation operating income to approach the level achieved in 2024.

In the fourth quarter 2024, operating income for the Company’s Logistics segment was $10.1 million, or $1.2 million higher compared to the level achieved in the fourth quarter 2023.

The increase was primarily due to a higher contribution from supply chain management.

For 2025, the Company expects challenging business conditions for transportation brokerage for most of the year and a lower contribution from supply chain management, which the Company expects to lead to modestly lower operating income compared to the level achieved in 2024.

For the first quarter 2025, the Company expects Logistics operating income to be modestly lower than the $9.3 million achieved in the first quarter 2024.

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.

For the first quarter 2025, the Company expects consolidated operating income to be meaningfully higher than the $36.9 million achieved in the first quarter 2024.

For full year 2025, the Company expects consolidated operating income to be largely driven by the timing of trade flow normalization in the Red Sea, other geopolitical factors, supply chain activity and the trajectory of the U.S.

Assuming trade conditions in the Red Sea normalize by the end of the first half of the year and there are no significant changes from today in the other factors referenced above, the Company expects full year 2025 consolidated operating income to be moderately lower than the $551.3 million achieved in 2024.

However, if trade conditions in the Red Sea remain disrupted through year end and there are no significant changes from today in the other factors noted above, the Company expects full year 2025 consolidated operating income to approach the level achieved in 2024.

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.

For full year 2025, the Company expects depreciation and amortization expense to be approximately $200 million, inclusive of dry-docking amortization of approximately $26 million.

Interest Income:

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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.

The Company expects full year 2025 other income (expense) to be approximately $9 million in income, which is attributable to the amortization of certain components of net periodic benefit costs or gains related to the Company’s pension and post-retirement plans.

Income Taxes:

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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 made capital expenditure payments excluding new vessel construction expenditures of $214.5 million, new vessel construction expenditures (including capitalized interest and owner’s items) of $95.6 million, and dry-docking payments of $30.2 million.

For the full year 2025, the Company expects to make other capital expenditure payments, including maintenance capital expenditures, of approximately $120 to $140 million, new vessel construction expenditures (including capitalized interest and owner’s items) of approximately $305 million, and dry-docking payments of approximately $40 million.

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Fiscal years ended December 31, 2024 and 2023 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.

Consolidated Operating Revenue for the year ended December 31, 2024 increased $327.2 million, or 10.6 percent, compared to the prior year.

The increase was due to an increase in Ocean Transportation revenue of $332.7 million which was partially offset by a decrease in Logistics revenue of $5.5 million.

Operating Costs and Expenses for the year ended December 31, 2024 increased $118.7 million, or 4.3 percent, compared to the prior year.

The increase was due to an increase in Ocean Transportation operating costs and expenses of $126.6 million which was partially offset by a decrease in Logistics operating costs and expenses of $7.9 million.

Operating Income for the year ended December 31, 2024 increased $208.5 million, or 60.8 percent, compared to the prior year.

The increase was due to an increase in Ocean Transportation operating income of $206.1 million and an increase in Logistics operating income of $2.4 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 $48.3 million for the year ended December 31, 2024, compared to $36.0 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.

The increase in interest income was due to interest of $10.2 million earned on a federal income tax refund received during the year ended December 31, 2024.

The increase in interest income was also due to increased amounts of 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, 2024, compared to the prior year.

Interest Expense was $7.5 million for the year ended December 31, 2024, compared to $12.2 million in the prior year.

The decrease in interest expense was due to lower outstanding debt during the year ended December 31, 2023, compared to the prior year.

The decrease in interest expense was due to lower outstanding debt and a higher offset of capitalized interest related to the construction of new vessels during the year ended December 31, 2024, compared to the prior year.

Other Income (Expense), net was $7.3 million for the year ended December 31, 2024, compared to $6.4 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 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.

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, 2024, compared to the prior year.

Income Taxes for the year ended December 31, 2024 were $123.0 million, or 20.5 percent of income before income taxes, compared to $75.9 million, or 20.3 percent of income before income taxes in 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.

The 2023 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, 2024 increased $179.3 million, or 60.4 percent, to $476.4 million, compared to the prior year.

ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT

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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.

(1) Approximate volume 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 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;

Ocean Transportation revenue increased $332.7 million, or 13.4 percent, during the year ended December 31, 2024, compared with the year ended December 31, 2023.

The increase was primarily due to significantly higher freight rates in China, higher freight rates in the domestic tradelanes, and higher volume in China, partially offset by lower domestic tradelane volume.

On a year-over-year FEU basis, Hawaii container volume decreased 2.3 percent primarily due to lower general demand;

Alaska volume increased 0.6 percent due to higher general demand, partially offset by one less northbound sailing;

China volume increased 2.4 percent due to stronger seasonal volume in the fourth quarter 2024 and one additional sailing;

Guam volume decreased 6.5 percent primarily due to lower general demand;

and Other containers volume decreased 2.9 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 decrease was primarily driven by lower demurrage revenue.

Ocean Transportation operating income increased $206.1 million, or 69.9 percent, during the year ended December 31, 2024, compared with the year ended December 31, 2023.

The increase was primarily due to significantly higher freight rates in China, higher freight rates in the domestic tradelanes, and higher volume in China, partially offset by higher operating costs and general and administrative expenses.

The Company’s SSAT terminal joint venture investment incurred a loss of $1.0 million during the year ended December 31, 2024, compared to income of $2.2 million during the year ended December 31, 2023.

The decrease was due to an impairment charge related to the write-down of a terminal operating lease asset in the fourth quarter 2024 of $18.4 million, partially offset by higher lift volume.

2024 compared with 2023:

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Logistics revenue decreased $5.5 million, or 0.9 percent, during the year ended December 31, 2024, compared with the year ended December 31, 2023.

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.

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

Logistics operating income increased $2.4 million, or 5.0 percent, during the year ended December 31, 2024, compared with the year ended December 31, 2023.

The increase was primarily due to a higher contribution from supply chain management.

LIQUIDITY AND CAPITAL RESOURCES

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Accounts receivable, net (1)

CCF - cash and cash equivalents, and investments account

(1) Eligible accounts receivable of $178.1 million and $218.1 million at December 31, 2024 and 2023, respectively, were assigned to the CCF.

For additional information on the CCF, see Note 7 to the Consolidated Financial Statements.

Changes in the Company’s cash, cash equivalents and restricted cash for the years ended December 31, 2023, 2022 and 2021 were as follows:

Changes in the Company’s cash and cash equivalents and restricted cash for the years ended December 31, 2024, 2023 and 2022 were as follows:

As of December 31,

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Net cash used in financing activities (3)

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

Cash, cash equivalents and restricted cash, beginning of the period

Cash, cash equivalents and restricted cash, end of the period

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

Cash and cash equivalents, and restricted cash, beginning of the period

Cash and cash equivalents, and restricted cash, end of the period

(1) Changes in Net Cash Provided by Operating Activities:

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Accounts payable, accruals and other liabilities

Operating lease liabilities

Operating lease assets and liabilities, net

Non-cash amortization of operating lease right of use assets

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Other long-term liabilities

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

Loss from SSAT was $1.0 million for the year ended December 31, 2024, compared to income from SSAT of $2.2 million in the prior year.

Excluding the Company’s portion of an impairment charge of $18.4 million that was included in the loss from SSAT during the year ended December 31, 2024 related to the write-down of a terminal operating lease asset, the increase in income from SSAT was due to higher operating profits generated by SSAT during the year ended December 31, 2024 due to increased lift volume.

No impairment charge was recorded by SSAT during the year ended December 31, 2023.

Cash dividends received from SSAT was $14.0 million for the year ended December 31, 2024, compared to no cash distributions received in the prior year.

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

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 prepaid expenses and other assets were primarily due to a decrease in prepaid income tax receivables at

December 31, 2024 due to a refund of $118.6 million related to the Company’s 2021 federal tax return that was received during the year ended December 31, 2024, offset by higher prepaid fuel.

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.

Changes in operating lease liabilities were primarily due to new operating leases entered into during the year ended December 31, 2024, offset by operating leases that expired during the year ended December 31, 2024.

Deferred dry-docking payments were $30.2 million for the year ended December 31, 2024, compared to $24.1 million in the prior year.

The decrease in deferred dry-docking payments was due to a decrease in vessel dry-dock related activities during the year ended December 31, 2023, compared to the prior year.

The increase in deferred dry-docking payments was due to an increase in vessel dry-dock related activities during the year ended December 31, 2024.

Changes in other long-term liabilities primarily related to payments of pension and post-retirement liabilities, and multi-employer liabilities.

(2) Changes in Net Cash Used in Investing Activities:

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

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.

Payments for asset acquisitions

During the year ended December 31, 2024, cash and interest deposited into the CCF were $50.0 million and $18.8 million, compared to $100.0 million and $31.1 million in the prior year, respectively.

During the year ended December 31, 2024, cash withdrawals from the CCF were $89.6 million, compared to $49.9 million in the prior year, related to vessel construction milestone payments.

During the year ended December 31, 2024, the Company repurchased $53.8 million of assigned accounts receivable.

No assigned accounts receivable were repurchased during the year ended December 31, 2023.

Capitalized vessel construction expenditures were $95.6 million for the year ended December 31, 2024, compared to $52.9 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.

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

Capital expenditures (excluding vessel construction expenditures) were $214.5 million for the year ended December 31, 2024, compared to $195.5 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.

Capital expenditures (excluding vessel construction expenditures) during the year ended December 31, 2024 included costs associated with LNG installations, the reengining of an existing vessel, and the purchase of additional containers, chassis and other terminal equipment to support the Company’s operating activities.

During the year ended December 31, 2024, the Company paid $0.8 million related to asset acquisitions, compared to $12.4 million in the prior year.

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

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Repayments of fixed interest debt

Repayments and borrowings under revolving credit facility, net

Withholding tax related to net share settlements of restricted stock units

Shares withheld for taxes related to settlement of restricted stock units

Dividends paid

Payment of financing costs

The Company paid $199.1 million to repurchase common stock during the year ended December 31, 2024, compared to $155.2 million in the prior year.

The Company did not issue any new fixed interest debt during the years ended December 31, 2024 and 2023.

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 years ended December 31, 2023 and 2022.

The Company paid $39.7 million of scheduled fixed interest debt principal payments during the year ended December 31, 2024, compared to $76.9 million of prepaid and scheduled fixed interest debt principal payments during the prior year.

The value of shares withheld by the Company for taxes related to the settlement of restricted stock units was $17.6 million for the year ended December 31, 2024, compared to $12.6 million in the prior year.

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, 2023 and 2022 were as follows:

Cash on deposit and investments in the CCF and assigned accounts receivable as of December 31, 2024 and 2023 were as follows:

As of December 31,

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Capital Construction Fund:

Cash on deposit

Cash and cash equivalents, and investments account

Assigned accounts receivables

During the years ended December 31, 2023 and 2022, the Company deposited $128.5 million and $582.8 million into the CCF, respectively.

During the years ended December 31, 2023 and 2022, the Company made withdrawals of $49.9 million and $64.6 million out of the CCF, respectively, which were used to make milestone payments for the construction of new vessels.

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

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.

Cash on deposit in the CCF is invested in a U.S.

Treasury obligations fund with daily liquidity.

At December 31, 2024, securities held within the U.S.

Treasury obligations fund had a weighted average life of 96 days.

The Company’s CCF investments are in fixed-rate U.S.

Treasury obligations with various maturity dates of up to 3 years.

Cash on deposit and investments in the CCF are 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.

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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(In millions)

Variable interest debt

Fixed interest debt

Total Debt (excluding deferred loan fees)

Total debt decreased by $39.7 million during the year ended December 31, 2024 compared to the prior year.

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.

The decrease in fixed interest debt was due to the scheduled debt repayments made during the year ended December 31, 2024.

As of December 31, 2024, the Company had $643.9 million of unused capacity under the revolving credit facility, with a maturity date of March 31, 2026.

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The Company had a working capital surplus of $49.2 million at December 31, 2024, compared to a working capital surplus of $40.0 million at December 31, 2023.

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.

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 increase in the Company’s working capital surplus during the year ended December 31, 2024 was due to the increase in cash provided by operating activities offset by higher capital expenditures during the year.

Capital Expenditures:

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New vessel construction milestone payments and related costs

LNG installations and reengining on existing vessels

Maintenance and other capital expenditures

Total Estimated Capital Expenditures

New vessel construction milestone payments and related costs are for the Company’s new vessel program for the construction of three new vessels at a cost of approximately $1.0 billion with expected delivery dates during the fourth quarter of 2026, the second quarter of 2027 and the fourth quarter of 2027.

Future milestone payments are expected to be financed with cash currently on deposit in the Company’s CCF, cash and cash equivalents on the Consolidated Balance Sheets and through cash flows generated from future operations, borrowings available under the Company’s unsecured revolving credit facility or additional debt financings.

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 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.

New vessel construction milestone payments and related costs are for the Company’s construction of three new vessels at a cost of approximately $1.0 billion (excluding owners’ items and change orders) with expected delivery dates during the first quarter 2027, the third quarter 2027 and the second quarter 2028.

Future milestone payments are expected to be financed with cash currently on deposit in the Company’s CCF, cash and cash equivalents on the Consolidated Balance Sheets, cash flows generated from future operations, borrowings available under the Company’s unsecured revolving credit facility or additional debt financings.

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.

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

Repurchase of Shares:

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The remaining number of shares that may be repurchased under the Company’s stock repurchase program was 830,527 shares at December 31, 2024.

On February 27, 2025, the Company’s Board approved an additional 3.0 million shares of common stock to be added to the Company’s existing share repurchase program and extended the program’s expiration date to December 31, 2027.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

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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.

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

Long-Lived Assets, Intangible Assets and Goodwill:

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If this review determines that the amount recorded will not be recovered, the amount recorded for the asset group is reduced to its estimated fair value.

These asset impairment analyses are highly subjective because they require management to make assumptions and apply considerable judgments to, among other things, estimates of the timing and amount of future cash flows, expected useful lives of the assets, potential impact of future events, including changes in economic conditions and operating performance, and future costs of maintenance and improvements of the assets.

of maintenance and improvements of the assets.

If management uses different assumptions or if different conditions occur in future periods, the Company’s financial condition or its future operating results could be materially impacted.

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

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.

For certain 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.

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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, 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.

These estimates and judgments are applied in the calculation of taxable income, tax credits, tax benefits, CCF related tax deductions, foreign-derived intangible income 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;

changes in tax laws, regulations, and rulings;

changes in interpretations of existing tax laws, regulations and rulings;

and changes in the evaluation of the Company’s ability to realize deferred tax assets including operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when the temporary differences reverse.

changes in tax laws, regulations, rulings and interpretations of existing tax laws;

changes in the evaluation of the Company’s ability to realize deferred tax assets including operating loss and tax credit carryforwards.

Significant changes to these estimates may result in an increase or decrease to the Company’s income taxes in a subsequent period.

The Company records a valuation allowance if, based on the weight of available evidence, management believes that it is more likely than not that some portion or all of a recorded deferred tax asset would not be realized in future periods.

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.

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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-K

Item 7. Management’s Discussion and Analysis