Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-34187
Matson, Inc.
(Exact name of registrant as specified in its charter)
Hawaii
99-0032630
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1411 Sand Island Parkway
Honolulu, HI
(Address of principal executive offices)
96819
(Zip Code)
(808) 848-1211
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, without par value
MATX
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of common stock outstanding as of September 30, 2021: 42,031,967
MATSON, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Part I—FINANCIAL INFORMATION
1
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Statements of Income and Comprehensive Income
Condensed Consolidated Balance Sheets
2
Condensed Consolidated Statements of Cash Flows
3
Condensed Consolidated Statements of Shareholders’ Equity
4
Notes to the Condensed Consolidated Financial Statements
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
23
Item 4.
Controls and Procedures
Part II—OTHER INFORMATION
24
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
25
Signatures
26
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
(In millions, except per share amounts)
2021
2020
Operating Revenue:
Ocean Transportation
$
863.5
498.3
2,106.9
1,310.0
Logistics
208.1
146.9
551.4
373.2
Total Operating Revenue
1,071.6
645.2
2,658.3
1,683.2
Costs and Expenses:
Operating costs
(649.3)
(495.8)
(1,809.6)
(1,370.4)
Income from SSAT
13.0
7.7
35.0
15.4
Selling, general and administrative
(57.4)
(58.7)
(171.7)
(165.6)
Total Costs and Expenses
(693.7)
(546.8)
(1,946.3)
(1,520.6)
Operating Income
377.9
98.4
712.0
162.6
Interest expense
(5.1)
(5.7)
(17.9)
(22.5)
Other income (expense), net
1.8
2.4
4.7
4.5
Income before Income Taxes
374.6
95.1
698.8
144.6
Income taxes
(91.4)
(24.2)
(165.9)
(37.1)
Net Income
283.2
70.9
532.9
107.5
Other Comprehensive Income (Loss), Net of Income Taxes:
Other Comprehensive Income (Loss):
Amortization of prior service cost
(1.1)
(1.2)
(3.4)
(3.5)
Amortization of net loss
1.0
0.5
3.5
3.1
Other adjustments
(0.1)
0.2
(0.2)
(0.6)
Total Other Comprehensive Income (Loss)
(0.5)
(1.0)
Comprehensive Income
283.0
70.4
532.8
106.5
Basic Earnings Per Share
6.60
1.65
12.31
2.50
Diluted Earnings Per Share
6.53
1.63
12.19
2.48
Weighted Average Number of Shares Outstanding:
Basic
42.9
43.1
43.3
43.0
Diluted
43.4
43.5
43.7
See Notes to Condensed Consolidated Financial Statements.
December 31,
(In millions)
ASSETS
Current Assets:
Cash and cash equivalents
75.9
14.4
Accounts receivable, net of allowance for credit loss of $9.0 million and $6.3 million, respectively
328.6
253.4
Prepaid expenses and other assets
77.2
38.1
Total current assets
481.7
305.9
Long-term Assets:
Investment in SSAT
37.2
48.7
Property and equipment, net
1,826.8
1,689.9
Operating lease right of use assets
264.0
251.4
Goodwill
327.8
Intangible assets, net
183.8
192.0
Deferred dry-docking costs, net
63.1
51.9
Other long-term assets
38.4
33.0
Total long-term assets
2,741.1
2,594.7
Total Assets
3,222.8
2,900.6
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of debt
65.0
59.2
Accounts payable and accruals
299.0
283.1
Operating lease liabilities
86.9
72.4
Other liabilities
96.4
96.8
Total current liabilities
547.3
511.5
Long-term Liabilities:
Long-term debt, net of deferred loan fees
567.5
685.6
Long-term operating lease liabilities
185.8
186.9
Deferred income taxes
420.0
389.6
Other long-term liabilities
157.4
165.8
Total long-term liabilities
1,330.7
1,427.9
Commitments and Contingencies
Shareholders’ Equity:
Common stock
31.5
32.4
Additional paid in capital
313.9
321.5
Accumulated other comprehensive loss, net
(50.9)
(50.8)
Retained earnings
1,050.3
658.1
Total shareholders’ equity
1,344.8
961.2
Total Liabilities and Shareholders’ Equity
Nine Months Ended September 30,
Cash Flows From Operating Activities:
Net income
Reconciling adjustments:
Depreciation and amortization
100.9
84.5
Amortization of operating lease right of use assets
73.9
53.1
30.3
33.5
Share-based compensation expense
14.2
12.0
(35.0)
(15.4)
Distribution from SSAT
46.9
37.9
Other
Changes in assets and liabilities:
Accounts receivable, net
(75.2)
(28.9)
Deferred dry-docking payments
(25.8)
(11.1)
Deferred dry-docking amortization
18.0
17.8
(46.7)
19.6
Accounts payable, accruals and other liabilities
30.2
24.0
(72.1)
(53.7)
(8.1)
(10.5)
Net cash provided by operating activities
583.3
270.8
Cash Flows From Investing Activities:
Capitalized vessel construction expenditures
—
(57.8)
Other capital expenditures
(244.7)
(53.5)
Proceeds from disposal of property and equipment
2.2
15.7
Cash deposits into Capital Construction Fund
(31.2)
(97.1)
Withdrawals from Capital Construction Fund
31.2
97.1
Net cash used in investing activities
(242.5)
(95.6)
Cash Flows From Financing Activities:
Proceeds from issuance of debt
325.5
Repayments of debt
(41.1)
(204.2)
Proceeds from revolving credit facility
304.3
547.4
Repayments of revolving credit facility
(376.1)
(803.5)
Payment of financing costs
(3.0)
(18.5)
Proceeds from issuance of capital stock
0.1
Dividends paid
(33.3)
(29.1)
Repurchase of Matson common stock
(115.7)
Tax withholding related to net share settlements of restricted stock units
(14.4)
(5.6)
Net cash used in financing activities
(279.3)
(187.9)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
61.5
(12.7)
Cash, Cash Equivalents and Restricted Cash, Beginning of the Period
19.7
28.4
Cash, Cash Equivalents and Restricted Cash, End of the Period
81.2
Reconciliation of Cash, Cash Equivalents and Restricted Cash, End of the Period:
Cash and Cash Equivalents
12.7
Restricted Cash
5.3
3.0
Total Cash, Cash Equivalents and Restricted Cash, End of the Period
Supplemental Cash Flow Information:
Interest paid, net of capitalized interest
15.3
22.4
Income tax payments and (refunds), net
162.1
(18.0)
Non-cash Information:
Capital expenditures included in accounts payable, accruals and other liabilities
5.6
5.9
Accumulated
Common Stock
Additional
Stated
Paid In
Comprehensive
Retained
Shares
Value
Capital
Income (Loss)
Earnings
Total
Balance at December 31, 2020
43.2
87.2
Other comprehensive income (loss), net of tax
Share-based compensation
4.8
Shares issued, net of shares withheld for employee taxes
(14.3)
(14.1)
Dividends ($0.23 per share)
(10.1)
Balance at March 31, 2021
32.6
312.0
735.2
1,028.9
162.5
Dividends ($0.23 per share and $0.30 per share)
(23.3)
Balance at June 30, 2021
316.5
(50.7)
874.4
1,172.8
Shares repurchased
(1.5)
(7.2)
(107.4)
Balance at September 30, 2021
42.0
Balance at December 31, 2019
32.2
306.2
(36.9)
504.2
805.7
3.8
(4.6)
(4.5)
Equity interest in SSAT
Dividends ($0.22 per share)
(9.5)
Balance at March 31, 2020
32.3
304.7
(37.5)
500.7
800.2
32.8
Dividends ($0.22 per share and $0.23 per share)
(19.6)
Balance at June 30, 2020
306.7
(37.4)
513.9
815.5
6.0
Balance at September 30, 2020
312.6
(37.9)
584.8
891.8
NOTES TO THE CONDENSED CONSOLIDATED FINANICAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Matson, Inc., a holding company incorporated in the State of Hawaii, and its subsidiaries (“Matson” or the “Company”), is a leading provider of ocean transportation and logistics services. The Company consists of two segments, Ocean Transportation and Logistics:
Ocean Transportation: Matson’s Ocean Transportation business is conducted through Matson Navigation Company, Inc. (“MatNav”), a wholly-owned subsidiary of Matson, Inc. Founded in 1882, MatNav provides a vital lifeline of ocean freight transportation services to the domestic non-contiguous economies of Hawaii, Alaska and Guam, and to other island economies in Micronesia. MatNav also operates premium, expedited services from China to Long Beach, California, and provides services to Okinawa, Japan and various islands in the South Pacific, and operates an international export service from Dutch Harbor to Asia. In addition, subsidiaries of MatNav provide stevedoring, refrigerated cargo services, inland transportation and other terminal services for MatNav and other ocean carriers on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai, and in the Alaska locations of Anchorage, Kodiak and Dutch Harbor.
Matson has a 35 percent ownership interest in SSA Terminals, LLC, a joint venture between Matson Ventures, Inc., a wholly-owned subsidiary of MatNav, and SSA Ventures, Inc., a subsidiary of Carrix, Inc. (“SSAT”). SSAT currently provides terminal and stevedoring services to various carriers at seven terminal facilities on the U.S. West Coast, including three facilities dedicated for MatNav’s use. Matson records its share of income from SSAT in costs and expenses in the Condensed Consolidated Statements of Income and Comprehensive Income, and within the Ocean Transportation segment due to the nature of SSAT’s operations.
Logistics: Matson’s Logistics business is conducted through Matson Logistics, Inc. (“Matson Logistics”), a wholly-owned subsidiary of MatNav. Matson Logistics, established in 1987, extends the geographic reach of Matson’s transportation network throughout North America, and is an asset-light business that provides a variety of logistics services to its customers including: (i) multimodal transportation brokerage of domestic and international rail intermodal services, long-haul and regional highway trucking services, specialized hauling, flat-bed and project services, less-than-truckload services, and expedited freight services (collectively, “Transportation Brokerage” services); (ii) less-than-container load (“LCL”) consolidation and freight forwarding services (collectively, “Freight Forwarding” services); (iii) warehousing and distribution services; and (iv) supply chain management, non-vessel operating common carrier (“NVOCC”) freight forwarding and other services.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The Condensed Consolidated Financial Statements are unaudited, and include the accounts of Matson, Inc. and all wholly-owned subsidiaries, after elimination of intercompany amounts and transactions. Significant investments in businesses, partnerships, and limited liability companies in which the Company does not have a controlling financial interest, but has the ability to exercise significant influence, are accounted for under the equity method. The Company accounts for its investment in SSAT using the equity method of accounting.
Due to the nature of the Company’s operations, the results for interim periods are not necessarily indicative of results to be expected for the year. These Condensed Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim periods, and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements.
The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021.
Fiscal Period: The period end for Matson covered by this report is September 30, 2021. The period end for MatNav and its subsidiaries covered by this report occurred on the last Friday in September, or September 24, 2021.
Significant Accounting Policies: The Company’s significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Use of Estimates: The preparation of the interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported. Estimates and assumptions are used for, but not limited to: impairment of investments; impairment of long-lived assets, intangible assets and goodwill; capitalized interest; allowance for doubtful accounts; legal contingencies; insurance reserves and other related liabilities; accrual estimates; pension and post-retirement estimates; multi-employer withdrawal liabilities; operating lease assets and liabilities; and income taxes. Future results could be materially affected if actual results differ from these estimates and assumptions.
Recognition of Revenues and Expenses: Revenue in the Company’s Condensed Consolidated Financial Statements is presented net of elimination of intercompany transactions. The following is a description of the Company’s principal revenue generating activities by segment, and the Company’s revenue recognition policy for each activity for the periods presented:
Ocean Transportation (in millions) (1)
Ocean Transportation services
855.2
490.8
2,083.8
1,284.5
Terminal and other related services
5.1
12.5
15.5
Fuel sales
1.9
1.3
Vessel management and related services
1.6
1.1
5.5
4.0
Logistics (in millions) (1)
Transportation Brokerage and Freight Forwarding services
186.1
133.0
495.9
337.0
Warehouse and distribution services
12.2
9.5
31.8
25.9
Supply chain management and other services
9.8
4.4
23.7
10.3
6
The Company generally invoices its customers at the commencement of the voyage or the transportation service being provided, or as other services are being performed. Revenue is deferred when services are invoiced in advance to the customer. The Company’s receivables are classified as short-term as collection terms are for periods of less than one year. The Company expenses sales commissions and contract acquisition costs as incurred because the amounts are generally immaterial. These expenses are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income.
Capital Construction Fund: The Company’s Capital Construction Fund (“CCF”) is described in Note 7 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. As of September 30, 2021 and December 31, 2020, $1.8 million and $1.7 million of eligible accounts receivable was assigned to the CCF, respectively. Due to the nature of the assignment of eligible accounts receivable into the CCF, such assigned amounts are classified as part of accounts receivable in the Condensed Consolidated Balance Sheets. Cash on deposit in the CCF is held in a money market account and classified as a long-term asset in the Company’s Condensed Consolidated Balance Sheets, as the Company intends to use qualified cash withdrawals to fund long-term investment in the construction of new vessels. During the nine months ended September 30, 2021, the Company deposited $31.2 million into the CCF and made qualifying cash withdrawals of $31.2 million from the CCF. The Company made no qualifying cash deposits or withdrawals during the three months ended September 30, 2021. The balance of cash on deposit at September 30, 2021 and December 31, 2020 was nominal.
Investment in SSAT: Condensed income statement information for SSAT for the three and nine months ended September 30, 2021 and 2020 consisted of the following:
Operating revenue
316.3
273.9
944.6
796.1
Operating costs and expenses
(274.2)
(243.1)
(831.3)
(738.4)
Operating income
42.1
30.8
113.3
57.7
Net Income (1)
37.3
26.2
100.5
51.5
Company Share of SSAT’s Net Income (2)
The Company’s investment in SSAT was $37.2 million and $48.7 million at September 30, 2021 and December 31, 2020, respectively.
Contingencies: Environmental Matters: The Company’s Ocean Transportation business has certain risks that could result in expenditures for environmental remediation. The Company believes that based on all information available to it, the Company is currently in compliance, in all material respects, with applicable environmental laws and regulations.
Other Matters: The Company and its subsidiaries are parties to, or may be contingently liable in connection with other legal actions arising in the normal course of their businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on the Company’s financial condition, results of operations, or cash flows.
Dividends: The Company’s third quarter 2021 cash dividend of $0.30 per share was paid on September 2, 2021. On October 28, 2021, the Company’s Board of Directors declared a cash dividend of $0.30 per share payable on December 2, 2021.
7
3. REPORTABLE SEGMENTS
Reportable segments are components of an enterprise that engage in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Company’s chief operating decision maker is its Chief Executive Officer.
The Company consists of two reportable segments, Ocean Transportation and Logistics, which are further described in Note 1. Reportable segments are measured based on operating income. In arrangements where the customer purchases ocean transportation and logistics services, the revenues are allocated to each reportable segment based upon the contractual amounts for each type of service. The Company’s SSAT segment has been aggregated into the Company’s Ocean Transportation segment due to the operations of SSAT being an integral part of the Company’s Ocean Transportation business.
The Company’s Ocean Transportation segment provides ocean transportation services to the Logistics segment, and the Logistics segment provides logistics services to the Ocean Transportation segment in certain transactions. Accordingly, inter-segment revenue of $57.8 million and $40.2 million for the three months ended September 30, 2021 and 2020, and $140.5 million and $83.8 million for the nine months ended September 30, 2021 and 2020, respectively, have been eliminated from operating revenues in the table below.
Reportable segment financial information for the three and nine months ended September 30, 2021 and 2020 are as follows:
Ocean Transportation (1)
Logistics (2)
Operating Income:
Ocean Transportation (3)
361.9
86.5
677.0
136.7
16.0
11.9
Total Operating Income
Interest expense, net
8
4. PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2021 and December 31, 2020 consisted of the following:
Cost:
Vessels
2,323.8
2,191.6
Containers and equipment
611.7
572.3
Terminal facilities and other property
120.2
119.8
Construction in progress
52.7
28.6
Total Property and Equipment
3,108.4
2,912.3
Less: Accumulated Depreciation
(1,281.6)
(1,222.4)
Total Property and Equipment, net
5. GOODWILL AND INTANGIBLES
Goodwill by segment as of September 30, 2021 and December 31, 2020 consisted of the following:
Ocean
Transportation
222.6
105.2
Intangible assets as of September 30, 2021 and December 31, 2020 consisted of the following:
Customer Relationships:
140.6
90.1
230.7
Less: Accumulated Amortization
(74.2)
(66.0)
Total Customer Relationships, net
156.5
164.7
Trade name – Logistics
27.3
Total Intangible Assets, net
The Company evaluates its goodwill and intangible assets for possible impairment in the fourth quarter, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than its carrying amount. The Company has reporting units within the Ocean Transportation and Logistics reportable segments. The Company considered the general economic and market conditions due to the COVID-19 pandemic and its impact on the performance of each of the Company’s reporting units. Based on the Company’s assessment of its market capitalization, future forecasts and the amount of excess of fair value over the carrying value of the reporting units in the 2020 annual impairment tests, the Company concluded that an impairment triggering event did not occur during the quarter ended September 30, 2021.
The Company will monitor events and changes in circumstances that could negatively impact the key assumptions used in determining the fair value, including the amount and timing of estimated future cash flows generated by the reporting units, long-term growth and discount rates, comparable company market valuations, and industry and economic trends. It is possible that future changes in such circumstances, including a more prolonged and/or severe COVID-19 pandemic, or future changes in the assumptions and estimates used in assessing the fair value of the reporting unit, could require the Company to record a non-cash impairment charge.
9
6. DEBT
As of September 30, 2021 and December 31, 2020, the Company’s debt consisted of the following:
Private Placement Term Loans:
3.66 %, payable through 2023
18.2
22.8
4.16 %, payable through 2027
31.4
34.0
3.37 %, payable through 2027
75.0
3.14 %, payable through 2031
151.2
169.6
4.31 %, payable through 2032
26.7
27.9
Title XI Debt:
5.34 %, payable through 2028
17.6
5.27 %, payable through 2029
19.8
1.22 %, payable through 2043
178.0
182.0
1.35 %, payable through 2044
133.7
139.6
Revolving credit facility, maturity date of March 31, 2026
71.8
Total Debt
647.2
760.1
Less: Current portion
(65.0)
(59.2)
Total Long-term Debt
582.2
700.9
Less: Deferred loan fees
(14.7)
(15.3)
Total Long-term Debt, net of deferred loan fees
Except as described below, the Company’s debt is described in Note 8 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and in Note 6 to the Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2021.
Revolving Credit Facility: As of September 30, 2021, the Company had $641.9 million of remaining borrowing availability under the revolving credit facility. The Company used $8.1 million of the sublimit for letters of credit outstanding as of September 30, 2021. Although there were no outstanding borrowings under the facility at September 30, 2021, based on the Company’s consolidated net leverage ratio, which stipulates borrowing margins, the interest rate applicable to the revolving credit facility would have been approximately 1.10 percent at September 30, 2021. Borrowings under the revolving credit facility are classified as long-term debt in the Condensed Consolidated Balance Sheets, as principal payments are not required until the maturity date.
Debt Security and Guarantees: All of the debt of the Company and MatNav, including related guarantees, as of September 30, 2021 was unsecured, except for the Title XI debt.
Debt Maturities: As of September 30, 2021, debt maturities during the next five years and thereafter are as follows:
As of
Year (in millions)
September 30, 2021
Remainder of 2021
18.1
2022
2023
60.4
2024
51.7
2025
Thereafter
400.3
10
7. LEASES
The Company’s leases are described in Note 9 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Components of Lease Cost: Components of lease cost recorded in the Company’s Condensed Consolidated Statement of Income and Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 consisted of the following:
Operating lease cost
20.0
79.4
60.5
Short-term lease cost
2.9
6.9
Variable lease cost
0.6
Total lease cost
26.9
24.6
82.8
68.0
Sale and Leaseback of Equipment: There were no sale and leaseback transactions during the three and nine months ended September 30, 2021. During the three months ended March 31, 2020, the Company entered into an agreement for the sale and leaseback of multiple tranches of chassis and container equipment. The net proceeds from the sales were $14.3 million, and the gain on the disposal of the equipment was not material to the Company’s Condensed Consolidated Financial Statements. The Company subsequently leased back the equipment under a five-year operating lease agreement that includes purchase options exercisable at fair market value. There were no sale and leaseback transactions during the three months ended June 30, 2020 and September 30, 2020.
Termination of Vessel Charter: On July 7, 2021, a wholly-owned subsidiary of the Company entered into an agreement to terminate a Bareboat Charter Agreement (the “Charter”) on the vessel, Maunalei, for $95.8 million thereby acquiring the vessel. The Company paid the termination payment with a combination of cash on hand and borrowing on the revolving credit facility. The Company derecognized the related right-of-use (“ROU”) asset of $27.4 million and ROU liability of $28.5 million, and increased property and equipment by $94.7 million, net. Concurrent with the termination of the Charter, the Company was released from obligations under a Guaranty related to the Charter.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in accumulated other comprehensive income (loss) by component, net of tax, for the nine months ended September 30, 2021 consisted of the following:
Post-
Non-
Pension
Retirement
Qualified
Benefits
Plans
(61.7)
(0.7)
(0.4)
0.9
1.2
Foreign currency exchange
(61.2)
11.7
(0.9)
0.3
(60.6)
11.3
(0.8)
(60.1)
10.7
11
Changes in accumulated other comprehensive income (loss) by component, net of tax, for the nine months ended September 30, 2020 consisted of the following:
(51.9)
16.3
(51.3)
15.8
(1.6)
(50.6)
15.2
(0.3)
(1.7)
Amortization of net loss (gain)
14.7
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company values its financial instruments based on the fair value hierarchy of valuation techniques for fair value measurements. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability. If the technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy, the lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.
The Company uses Level 1 inputs for the fair values of its cash, cash equivalents and restricted cash, and Level 2 inputs for its variable and fixed rate debt. The fair values of cash, cash equivalents and restricted cash, and variable rate debt approximate their carrying values due to the nature of the instruments. The fair value of fixed rate debt is calculated based upon interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.
The carrying value and fair value of the Company’s financial instruments as of September 30, 2021 and December 31, 2020 are as follows:
Quoted Prices in
Significant
Active Markets
Observable
Unobservable
Carrying Value
(Level 1)
Inputs (Level 2)
Inputs (Level 3)
Fair Value Measurements at September 30, 2021
Restricted cash
Variable rate debt
Fixed rate debt
636.0
December 31, 2020
Fair Value Measurements at December 31, 2020
688.3
686.7
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10. EARNINGS PER SHARE
Basic earnings per share is determined by dividing net income by the weighted average common shares outstanding during the period. The calculation of diluted earnings per share includes the dilutive effect of unexercised non-qualified stock options and non-vested restricted stock units. The computation of weighted average common shares outstanding excluded a nominal amount of anti-dilutive non-qualified stock options for each period ended September 30, 2021 and 2020.
The computations for basic and diluted earnings per share for the three and nine months ended September 30, 2021 and 2020 are as follows:
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
Weighted
Per
Average
Common
Net
Share
Income
Amount
Effect of Dilutive Securities
(0.07)
0.4
(0.12)
Three Months Ended September 30, 2020
Nine Months Ended September 30, 2020
(0.02)
11. SHARE-BASED COMPENSATION
During the three and nine months ended September 30, 2021, the Company granted approximately 900 and 238,400 in total of time-based restricted stock units and performance-based shares to certain of its employees at a weighted average grant date fair value of $75.07 and $68.39 per share, respectively.
Total share-based compensation cost recognized in the Condensed Consolidated Statements of Income and Comprehensive Income as a component of selling, general and administrative expenses was $4.7 million and $5.9 million for the three months ended September 30, 2021 and 2020, and $14.2 million and $12.0 million for the nine months ended September 30, 2021 and 2020, respectively. Total unrecognized compensation cost related to unvested share-based compensation arrangements was $25.8 million at September 30, 2021, and is expected to be recognized over a weighted average period of approximately 1.7 years. Total unrecognized compensation cost may be adjusted for any unearned performance shares or forfeited shares.
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12. PENSION AND POST-RETIREMENT PLANS
The Company’s pension and post-retirement plans are described in Note 11 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Components of net periodic benefit cost and other amounts recognized in Other Comprehensive Income (Loss) for the qualified pension plans and the post-retirement benefit plans for the three and nine months ended September 30, 2021 and 2020 consisted of the following:
Pension Benefits
Post-retirement Benefits
Three Months Ended September 30,
Components of net periodic benefit cost (benefit):
Service cost
Interest cost
1.4
2.1
Expected return on plan assets
(3.9)
Amortization of prior service credit
Net periodic benefit cost (benefit)
3.6
4.6
(10.8)
(10.4)
3.4
0.7
(1.8)
(2.7)
(2.8)
(1.4)
******
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and related notes, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
Except for historical information, the statements made in this Quarterly Report on Form 10-Q are forward-looking statements made pursuant to the safe-harbor provisions of the Private Security Litigation Reform Act of 1995. Such forward-looking statements may be contained in, among other things, SEC filings, such as reports on 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 officers of the Company.
This report, and other statements that the Company may make, may contain forward-looking statements with respect to the Company’s future financial, business or ESG performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” “design,” “goal,” “plan,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.
The Company cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time, including, but not limited to, the risk factors that are described in Part I, Item 1A, “Risk Factors” of Matson’s Annual Report on Form 10-K for the year ended December 31, 2020. Forward-looking statements speak only as of the date they are made, and the Company assumes no duty to and does not undertake any obligation to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
OVERVIEW
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 financial statements from period to period, the primary factors that accounted for those changes, and how certain accounting principles, policies and estimates affect the Company’s financial statements. MD&A is provided as a supplement to the Condensed Consolidated Financial Statements and notes herein, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Company’s reports on Forms 10-Q and 8-K, and other publicly available information.
THIRD QUARTER 2021 DISCUSSION AND UPDATE ON BUSINESS CONDITIONS
Ocean Transportation: The Company’s container volume in the Hawaii service in the third quarter 2021 was 11.5 percent higher year-over-year. The increase was primarily due to higher retail and hospitality-related demand due to the continued rebound in tourism and the Hawaii economy compared to the pandemic-reduced volume in the year ago period. Volume in the third quarter 2020 was negatively impacted by the state’s COVID-19 mitigation efforts, including restrictions on tourism. Domestic visitor travel to the state remained strong throughout much of the third quarter 2021 until the end of the quarter when the state’s efforts to address the spread of the COVID-19 Delta variant, including the Governor’s request to defer travel plans, led to a softening in airline passenger traffic. As a result, we experienced a modest negative impact in freight demand late in the quarter. In the near-term, the Hawaii economy may experience a brief slowdown as a result of the state’s response to the COVID-19 Delta variant and the related impacts on tourism trends. In late October, the Governor announced that non-essential travel to the state can resume on November 1, 2021.
In China, the Company’s container volume in the third quarter 2021 increased 21.7 percent year-over-year. The increase was primarily due to volume from the China-California Express (“CCX”) service and volume from an extra loader. The total number of eastbound voyages in the China service increased by six year-over-year of which five were from CCX
voyages and one from an extra loader. Volume demand in the quarter was driven by e-commerce, garments and other goods. Matson continued to realize a significant rate premium in the third quarter 2021 and achieved average freight rates that were considerably higher than in the year ago period. Currently, supply chain congestion continues in the Transpacific tradelane with the combination of ongoing elevated consumption trends, inventory restocking, and bottlenecks at critical points for both ocean and overland transportation. We expect these conditions to remain largely in place at least through mid-year 2022.
In Guam, the Company’s container volume in the third quarter 2021 increased 14.6 percent year-over-year primarily due to higher retail-related demand compared to the pandemic-reduced volume in the year ago period. The economic recovery trajectory in Guam continues to remain uncertain as the economy recovers slowly and tourism remains constrained.
In Alaska, the Company’s container volume for the third quarter 2021 increased 10.7 percent year-over-year due to
(i) the addition of volume from the Alaska-Asia Express, (ii) higher northbound volume primarily due to an additional sailing and higher retail-related demand, and (iii) higher southbound volume. In the near-term, we expect improving economic trends in Alaska, but the recovery’s trajectory continues to remain uncertain.
The contribution in the third quarter 2021 from the Company’s SSAT joint venture investment was $13.0 million, or $5.3 million higher than the third quarter 2020. The increase was primarily driven by higher lift volume.
Logistics: In the third quarter 2021, operating income for the Company’s Logistics segment was $16.0 million, or $4.1 million higher compared to the level achieved in the third quarter 2020. The increase was due primarily to higher contributions from supply chain management and transportation brokerage as a result of elevated goods consumption, inventory restocking and favorable supply and demand fundamentals in our core markets.
CONSOLIDATED RESULTS OF OPERATIONS
Consolidated Results - Three months ended September 30, 2021 compared with 2020:
(Dollars in millions, except per share amounts)
Change
426.4
66.1
%
(146.9)
279.5
284.0
(25.0)
Income before income taxes
293.9
(67.2)
277.7
212.3
299.4
Basic earnings per share
4.95
300.0
Diluted earnings per share
4.90
300.6
Changes in operating revenue, and operating costs and expenses are further described below in the Analysis of Operating Revenue and Income by Segment.
The decrease in interest expense for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, was due to lower outstanding debt during the period.
Other income (expense) relates to the amortization of certain components of net periodic benefit costs or gains related to the Company’s pension and post-retirement plans.
Income tax expense was $91.4 million or 24.4 percent of income before income taxes for the three months ended September 30, 2021, compared to $24.2 million or 25.4 percent of income before income taxes for the three months ended September 30, 2020. The effective tax rate for the three months ended September 30, 2021 was lower than the effective tax rate for the three months ended September 30, 2020 due to the impact of state taxes that lowered the effective tax rate for the current period.
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Consolidated Results - Nine months ended September 30, 2021 compared with 2020:
975.1
57.9
(425.7)
28.0
549.4
337.9
(20.4)
554.2
383.3
(128.8)
347.2
425.4
395.7
9.81
392.4
9.71
391.5
The decrease in interest expense for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was due to a lower outstanding debt during the period.
Income tax expense was $165.9 million or 23.7 percent of income before income taxes for the nine months ended September 30, 2021, compared to $37.1 million or 25.7 percent of income before income taxes for the nine months ended September 30, 2020. The effective tax rate for the nine months ended September 30, 2021 was lower than the effective tax rate for the nine months ended September 30, 2020 as it benefitted from discrete adjustments related to the release of the valuation allowance against the Company’s foreign income tax net operating losses and stock compensation that lowered the effective tax rate for the current period.
ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT
Ocean Transportation Operating Results - Three months ended September 30, 2021 compared with 2020:
(Dollars in millions)
Ocean Transportation revenue
365.2
73.3
(501.6)
(411.8)
(89.8)
21.8
275.4
318.4
Operating income margin
41.9
17.4
Volume (Forty-foot equivalent units (FEU), except for automobiles) (1)
Hawaii containers
40,600
36,400
4,200
11.5
Hawaii automobiles
12,600
12,900
(300)
(2.3)
Alaska containers
21,800
19,700
2,100
China containers
46,500
38,200
8,300
21.7
Guam containers
5,500
4,800
700
14.6
Other containers (2)
5,400
4,600
800
Ocean Transportation revenue increased $365.2 million, or 73.3 percent, during the three months ended September 30, 2021, compared with the three months ended September 30, 2020. The increase was primarily due to higher revenue in China, higher fuel-related surcharge revenue, and higher revenue in Hawaii and Alaska.
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On a year-over-year FEU basis, Hawaii container volume increased 11.5 percent primarily due to higher retail and hospitality-related demand due to the continued rebound in tourism and the Hawaii economy compared to the volume in the year ago period, which was negatively impacted by the state’s COVID-19 mitigation efforts, including restrictions on tourism; Alaska volume increased 10.7 percent due to the addition of volume from the Alaska-Asia Express, higher northbound volume primarily due to an additional sailing and higher retail-related demand, and higher southbound volume; China volume was 21.7 percent higher primarily due to CCX volume and volume from an extra loader; Guam volume was 14.6 percent higher primarily due to higher retail-related demand; and Other containers volume increased 17.4 percent primarily due to higher volume in Okinawa.
Ocean Transportation operating income increased $275.4 million during the three months ended September 30, 2021, compared with the three months ended September 30, 2020. The increase was primarily due to a higher contribution from China.
The Company’s SSAT terminal joint venture investment contributed $13.0 million during the three months ended September 30, 2021, compared to a contribution of $7.7 million during the three months ended September 30, 2020. The increase was primarily driven by higher lift volume.
Ocean Transportation Operating Results - Nine months ended September 30, 2021 compared with 2020:
796.9
60.8
(1,429.9)
(1,173.3)
(256.6)
21.9
540.3
395.2
32.1
10.4
116,100
108,100
8,000
7.4
36,000
34,400
1,600
58,800
55,000
3,800
131,200
78,500
52,700
67.1
16,200
13,900
2,300
16.5
14,600
2,000
15.9
Ocean Transportation revenue increased $796.9 million, or 60.8 percent, during the nine months ended September 30, 2021, compared with the nine months ended September 30, 2020. The increase was primarily due to higher revenue in China and Hawaii, higher fuel-related surcharge revenue and higher revenue in Alaska.
On a year-over-year FEU basis, Hawaii container volume increased 7.4 percent primarily due to higher retail and hospitality-related demand due to the reopening of the Hawaii economy compared to the negatively impacted volume in the year ago period as a result of the pandemic and the state’s COVID-19 mitigation efforts, partially offset by volume associated with the dry-docking of a competitor’s vessel in the second quarter of last year; Alaska volume increased by 6.9 percent due to higher northbound volume primarily due to higher retail-related demand compared to the negatively impacted volume in the year ago period as a result of the pandemic and the state’s COVID-19 mitigation efforts, higher southbound volume, and the addition of volume from the Alaska-Asia Express service; China volume was 67.1 percent higher primarily due to incremental volume from the CLX+ service, higher volume on the CLX service as a result of increased capacity in the tradelane, and the addition of volume from the CCX service; Guam volume was 16.5 percent higher primarily due to higher retail-related demand compared to the negatively impacted volume in the year ago period as a result of the pandemic and the island’s COVID-19 mitigation measures; and Other container volume increased 15.9 percent primarily due to higher volume in Okinawa.
Ocean Transportation operating income increased $540.3 million during the nine months ended September 30, 2021, compared with the nine months ended September 30, 2020. The increase was primarily due to a higher contribution from China.
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The Company’s SSAT terminal joint venture investment contributed $35.0 million during the nine months ended September 30, 2021, compared to a contribution of $15.4 million during the nine months ended September 30, 2020. The increase was primarily driven by higher lift volume.
Logistics Operating Results: Three months ended September 30, 2021, compared with 2020:
Logistics revenue
61.2
41.7
(192.1)
(135.0)
(57.1)
42.3
4.1
34.5
8.1
Logistics revenue increased $61.2 million, or 41.7 percent, during the three months ended September 30, 2021, compared with the three months ended September 30, 2020. The increase was primarily due to higher transportation brokerage and supply chain management revenue.
Logistics operating income increased $4.1 million, or 34.5 percent, for the three months ended September 30, 2021, compared with the three months ended September 30, 2020. The increase was primarily due to higher contributions from supply chain management and transportation brokerage.
Logistics Operating Results: Nine months ended September 30, 2021, compared with 2020:
178.2
47.7
(516.4)
(347.3)
(169.1)
9.1
35.1
6.3
Logistics revenue increased $178.2 million, or 47.7 percent, during the nine months ended September 30, 2021, compared with the nine months ended September 30, 2020. The increase was primarily due to higher transportation brokerage and supply chain management revenue.
Logistics operating income increased $9.1 million, or 35.1 percent, for the nine months ended September 30, 2021, compared with the nine months ended September 30, 2020. The increase was due primarily to higher contributions from transportation brokerage, supply chain management, and freight forwarding.
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LIQUIDITY AND CAPITAL RESOURCES
Sources of liquidity available to the Company as of September 30, 2021, compared to December 31, 2020 were as follows:
Cash, Cash Equivalents, Restricted Cash and Accounts Receivable: Cash and cash equivalents, restricted cash and accounts receivable as of September 30, 2021, compared to December 31, 2020 were as follows:
Accounts receivable, net (1)
75.2
Changes in the Company’s cash, cash equivalents and restricted cash for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020 were as follows:
Net cash provided by operating activities (1)
312.5
Net cash used in investing activities (2)
Net cash used in financing activities (3)
Net increase (decrease) in cash, cash equivalents and restricted cash
74.2
Cash, cash equivalents and restricted cash, beginning of the period
(8.7)
Cash, cash equivalents and restricted cash, end of the period
65.5
(1) Change in net cash provided by operating activities:
Changes in net cash provided by operating activities for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, were due to the following:
20.8
16.4
Non-cash deferred income taxes
(3.2)
Other non-cash related changes, net
Income and distributions from SSAT, net
(10.6)
(46.3)
(66.3)
6.2
(18.4)
Income and cash distributions from SSAT was $35.0 million and $46.9 million for the nine months ended September 30, 2021, respectively, compared to $15.4 million and $37.9 million for the nine months ended September 30, 2020. The change in income and cash distributions was due to greater levels of operating profits generated by SSAT during the nine months ended September 30, 2021 as compared to the same prior year period. Changes in accounts receivable were primarily due to increased levels of revenues, and the timing of collections associated with those receivables. Changes in prepaid expenses and other assets were primarily due to increased prepaid fuel and other operating related costs, primarily due to increased levels of operations, and prepaid income taxes, primarily due to increased levels of earnings for the nine months ended September 30, 2021, as compared to the same prior year period. Changes in accounts payable, accruals and other liabilities were primarily due to increased levels of operating costs and the timing of
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payments associated with those liabilities. Deferred dry-docking payments for the nine months ended September 30, 2021 were $25.8 million, compared to $11.1 million for the nine months ended September 30, 2020. The increase in deferred dry-docking payments was due to an increase in dry-dock related activity during the nine months ended September 30, 2021 as compared to the same prior year period.
(2) Change in net cash used in investing activities:
Changes in net cash used in investing activities for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, were due to the following:
Cash deposits into CCF
65.9
Withdrawals from CCF
(65.9)
(191.2)
57.8
Proceeds from disposal of property and equipment, net
(13.5)
Capitalized vessel construction expenditures (including capitalized interest) were $57.8 million for the nine months ended September 30, 2020. There were no capitalized vessel construction expenditures during the nine months ended September 30, 2021 due to the completion of the Company’s fleet renewal program in 2020. Changes in cash deposits into CCF and withdrawals from CCF primarily relate to the timing of when deposits are made into the CCF, and when the subsequent withdrawals are made out of the CCF for the purposes of vessel construction progress payments. Other capital expenditures payments were $244.7 million for the nine months ended September 30, 2021, compared to $53.5 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, the Company increased its acquisition of containers, chassis and other terminal equipment, as compared to the same prior year period, primarily driven by the increased level of operating activities. The increase in other capital expenditure payments was also due to the repurchase of Maunalei for $95.8 million, repurchase of other leased equipment, installation of scrubbers on certain vessels, and the timing of certain capital project activities incurred during 2021 as compared to 2020. The decrease in proceeds from disposal of property and equipment was primarily due to the sale and leaseback of chassis and container equipment for net proceeds of $14.3 million during the nine months ended September 30, 2020. There were no sale and leaseback transactions during the nine months ended September 30, 2021.
(3) Change in net cash used in financing activities:
Changes in net cash used in financing activities for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, were due to the following:
Proceeds received from issuance of fixed interest debt
(325.5)
Repayments of fixed interest debt
163.1
Repayments and borrowings under revolving credit facility, net
184.3
(8.8)
(4.2)
Change in other payments, net
During the nine months ended September 30, 2021, the Company paid $41.1 million in scheduled fixed debt payments, compared to $34.7 million in scheduled fixed debt payments and redeemed debt at par of $169.5 million during the nine months ended September 30, 2020. During the nine months ended September 30, 2021, the Company decreased net borrowings under the revolving credit facility by $71.8 million, compared to a $256.1 million decrease during the nine months ended September 30, 2020. During the nine months ended September 30, 2021, the Company paid $3.0 million in financing costs, compared to $18.5 million paid during the nine months ended September 30, 2020, related to amendments of its revolving credit facility, private placement term loans and Title XI debt. During the nine months ended September 30, 2021, the Company paid $14.4 million in taxes related to vested restricted stock units, compared to $5.6 million for the nine months ended September 30, 2020. The increase in taxes was primarily due to the increase of
21
the Company’s stock price as of the vesting date of the restricted stock units. During the nine months ended September 30, 2021, the Company paid $33.3 million in dividends, compared to $29.1 million during the nine months ended September 30, 2020. The increase in dividend payments resulted from an increase in dividends declared per share of common stock by the Company. During the nine months ended September 30, 2021, the Company paid $115.7 million for the repurchase of Matson common stock. There was no stock repurchase activity during the prior year.
Debt: Total Debt as of September 30, 2021 and December 31, 2020 is as follows:
Revolving credit facility
(71.8)
Fixed interest debt
(112.9)
Total Debt decreased by $112.9 million during the nine months ended September 30, 2021. The decrease in the Company’s outstanding revolving credit borrowings was primarily due to the increase in net cash provided by operating activities during that same period. The decrease in fixed interest debt was due to the scheduled repayments of private placement term loans and Title XI debt during the nine months ended September 30, 2021.
As of September 30, 2021, the Company had $641.9 million of remaining borrowing availability under the revolving credit facility, with a maturity date of March 31, 2026. The Company’s debt is described in Note 6 of Part I, Item 1 above.
Working Capital: The Company had a working capital deficit of $65.6 million and $205.6 million at September 30, 2021 and December 31, 2020, respectively. The Company manages its working capital needs through the use of borrowings on its revolving credit facility which can be received on short notice. The decrease in working capital deficit at September 30, 2021 is primarily due to the increase in cash flow generated from operating activities during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. Working capital is also impacted by the timing of collections associated with accounts receivable and other assets, and the timing of payments associated with accounts payable, accruals, income taxes and other liabilities.
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Except as described below, there were no material changes during this quarter to the Company’s contractual obligations, commitments, contingencies and off-balance sheet arrangements that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which is incorporated herein by reference.
The Company’s debt is described in Note 6 to the Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2021, which is incorporated herein by reference.
On July 7, 2021, the Company terminated a Bareboat Charter Operating Lease agreement as described in Note 7 of Part I, Item 1 above.
CRITICAL ACCOUNTING ESTIMATES
There have been no changes during this quarter to the Company’s critical accounting estimates as discussed in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
OTHER MATTERS
The Company’s third quarter 2021 cash dividend of $0.30 per share was paid on September 2, 2021. On October 28, 2021, the Company’s Board of Directors declared a cash dividend of $0.30 per share payable on December 2, 2021.
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From October 1, 2021 through November 2, 2021, Matson repurchased an additional 0.4 million shares for a total cost of $33.1 million. As of November 2, 2021, the Company had approximately 1.1 million shares remaining on its share repurchase program.
In early November, the Company announced short, medium and long-term goals designed to significantly reduce its impact on climate change by lowering the Company’s greenhouse gas emissions. To help meet these goals, the Company plans to install tanks, piping and other equipment on Daniel K. Inouye, its first Aloha Class vessel, to operate its dual fuel engine on liquefied natural gas (“LNG”) as originally designed. The installation is expected to take approximately five months to complete and is scheduled to begin during the first quarter of 2023, at an estimated cost of approximately $35 million. The Company is actively considering further LNG installations on Kaimana Hila and the two Kanaloa Class vessels (Lurline and Matsonia). In addition, the Company plans to re-engine Manukai to operate on both LNG and conventional fuels at an estimated cost of approximately $60 million. The Company is continuing to evaluate different initiatives to increase efficiency and lower emissions. For more information about risks and uncertainties associated with the Company’s greenhouse gas emissions reduction goals, please see Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company’s market risk position from the information provided under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2021, the Company’s disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting.
Except described below, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
During the quarter ended June 30, 2021, the Company implemented the financial modules of a new enterprise resource planning (“ERP”) system intended to enhance operating efficiencies and provide more effective management of its business operations. The Company completed pre-implementation testing and is currently performing post-implementation monitoring of the financial modules to ensure the continued effectiveness of internal controls over financial reporting. As a result of this implementation, certain internal controls over financial reporting have been automated, modified or implemented. While the Company believes the ERP financial modules system will strengthen its internal control environment, there are inherent risks in implementing any new system. The Company will continue to evaluate these internal control changes as part of its assessment of internal controls over financial reporting throughout 2021.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Environmental Matters: The Company’s Ocean Transportation segment has certain risks that could result in expenditures for environmental remediation. The Company believes that based on all information available to it, the Company is currently in compliance, in all material respects, with applicable environmental laws and regulations.
In accordance with SEC rules, with respect to administrative or judicial proceedings involving the environment, the Company has determined that in future filings it will disclose any such proceeding if it reasonably believes such proceeding will result in monetary sanctions, exclusive of interest and costs, at or in excess of $1 million. The Company believes that such threshold is reasonably designed to result in disclosure of environmental proceedings that are material to its business or financial condition.
Other Matters: The Company and its subsidiaries are parties to, or may be contingently liable in connection with, other legal actions arising in the normal course of their businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on the Company’s financial condition, results of operations, or cash flows.
ITEM 1A. RISK FACTORS
There were no material changes to the Company’s risk factors that are described in Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchases.
The following is the summary of Matson shares that were repurchased under the Company’s share repurchase program during the three months ended September 30, 2021:
Total Number of
Maximum Number
Shares Purchased
of Shares that May
as Part of Publicly
Be Purchased
Average Price
Announced Plans or
Under the Plans or
Period
Purchased
Paid Per Share
Programs (1)
Programs
July 1 – 31, 2021
August 1 – 31, 2021
964,446
75.08
2,035,554
September 1 – 30, 2021
514,978
83.94
1,520,576
1,479,424
78.16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
10.1*
Amended and Restated Matson, Inc. 2016 Incentive Compensation Plan (incorporated by reference to Exhibit 99.1 of Matson’s Form S-8 dated July 30, 2021).
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted in Inline XBRL and included as Exhibit 101).
* Indicates management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MATSON, INC.
(Registrant)
Date: November 4, 2021
/s/ Joel M. Wine
Joel M. Wine
Executive Vice President and
Chief Financial Officer
/s/ Kevin L. Stuck
Kevin L. Stuck
Vice President and Controller
(principal accounting officer)