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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, 2020

☐

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, 2020: 43,078,715

Table of Contents

MATSON, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
Part I—FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Income and Comprehensive Income	1
	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	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23

Part II—OTHER INFORMATION		24

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
	Signatures	36

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions, except per share amounts)	2020		2019		2020		2019
Operating Revenue:
Ocean Transportation	$	498.3	$	437.2	$	1,310.0	$	1,250.5
Logistics		146.9		134.9		373.2		411.9
Total Operating Revenue		645.2		572.1		1,683.2		1,662.4

Costs and Expenses:
Operating costs		(495.8)		(472.6)		(1,370.4)		(1,412.5)
Income from SSAT		7.7		8.4		15.4		17.8
Selling, general and administrative		(58.7)		(52.7)		(165.6)		(164.0)
Total Costs and Expenses		(546.8)		(516.9)		(1,520.6)		(1,558.7)

Operating Income		98.4		55.2		162.6		103.7
Interest expense		(5.7)		(6.2)		(22.5)		(16.9)
Other income (expense), net		2.4		(0.5)		4.5		0.9
Income before Income Taxes		95.1		48.5		144.6		87.7
Income taxes		(24.2)		(12.3)		(37.1)		(20.6)
Net Income	$	70.9	$	36.2	$	107.5	$	67.1

Other Comprehensive Income (Loss), Net of Income Taxes:
Net Income	$	70.9	$	36.2	$	107.5	$	67.1
Other Comprehensive Income (Loss):
Amortization of prior service cost		(1.2)		(1.0)		(3.5)		(3.3)
Amortization of net loss		0.5		1.2		3.1		3.0
Other adjustments		0.2		(0.7)		(0.6)		(0.9)
Total Other Comprehensive Income (Loss)		(0.5)		(0.5)		(1.0)		(1.2)
Comprehensive Income	$	70.4	$	35.7	$	106.5	$	65.9

Basic Earnings Per Share	$	1.65	$	0.84	$	2.50	$	1.57
Diluted Earnings Per Share	$	1.63	$	0.84	$	2.48	$	1.55

Weighted Average Number of Shares Outstanding:
Basic		43.1		42.9		43.0		42.8
Diluted		43.5		43.3		43.4		43.2

See Notes to Condensed Consolidated Financial Statements.

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MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30,		December 31,
(In millions)	2020		2019
ASSETS
Current Assets:
Cash and cash equivalents	$	12.7	$	21.2
Accounts receivable, net of allowance for credit loss of $5.9 million and $4.3 million, respectively		234.3		205.9
Prepaid expenses and other assets		42.6		62.5
Total current assets		289.6		289.6
Long-term Assets:
Investment in SSAT		55.2		76.2
Property and equipment, net		1,614.6		1,598.1
Operating lease right of use assets		244.3		256.1
Goodwill		327.8		327.8
Intangible assets, net		194.7		202.9
Deferred dry-docking costs, net		49.9		56.9
Other long-term assets		30.6		37.8
Total long-term assets		2,517.1		2,555.8
Total Assets	$	2,806.7	$	2,845.4

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of debt	$	53.4	$	48.4
Accounts payable and accruals		245.4		235.7
Operating lease liabilities		63.9		66.6
Other liabilities		90.9		86.0
Total current liabilities		453.6		436.7
Long-term Liabilities:
Long-term debt, net of deferred loan fees		754.5		910.0
Long-term operating lease liabilities		188.3		198.0
Deferred income taxes		370.9		337.6
Other long-term liabilities		147.6		157.4
Total long-term liabilities		1,461.3		1,603.0
Commitments and Contingencies
Shareholders’ Equity:
Common stock		32.3		32.2
Additional paid in capital		312.6		306.2
Accumulated other comprehensive loss, net		(37.9)		(36.9)
Retained earnings		584.8		504.2
Total shareholders’ equity		891.8		805.7
Total Liabilities and Shareholders’ Equity	$	2,806.7	$	2,845.4

See Notes to Condensed Consolidated Financial Statements.

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MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(In millions)	2020		2019
Cash Flows From Operating Activities:
Net income	$	107.5	$	67.1
Reconciling adjustments:
Depreciation and amortization		84.5		73.4
Amortization of operating lease right of use assets		53.1		52.3
Deferred income taxes		33.5		21.9
Share-based compensation expense		12.0		8.7
Income from SSAT		(15.4)		(17.8)
Distribution from SSAT		37.9		14.7
Other		0.5		(1.5)
Changes in assets and liabilities:
Accounts receivable, net		(28.9)		(0.2)
Deferred dry-docking payments		(11.1)		(17.9)
Deferred dry-docking amortization		17.8		25.9
Prepaid expenses and other assets		19.6		25.3
Accounts payable, accruals and other liabilities		24.0		(11.7)
Operating lease liabilities		(53.7)		(51.7)
Other long-term liabilities		(10.5)		(8.1)
Net cash provided by operating activities		270.8		180.4

Cash Flows From Investing Activities:
Capitalized vessel construction expenditures		(57.8)		(108.7)
Other capital expenditures		(53.5)		(62.7)
Proceeds from disposal of property and equipment		15.7		3.1
Cash deposits into Capital Construction Fund		(97.1)		(68.2)
Withdrawals from Capital Construction Fund		97.1		68.2
Net cash used in investing activities		(95.6)		(168.3)

Cash Flows From Financing Activities:
Proceeds from issuance of debt		325.5		—
Repayments of debt		(204.2)		(28.4)
Proceeds from revolving credit facility		547.4		383.3
Repayments of revolving credit facility		(803.5)		(328.3)
Payment of financing costs		(18.5)		—
Proceeds from issuance of capital stock		0.1		0.1
Dividends paid		(29.1)		(27.7)
Tax withholding related to net share settlements of restricted stock units		(5.6)		(3.3)
Net cash used in financing activities		(187.9)		(4.3)

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash		(12.7)		7.8
Cash, Cash Equivalents and Restricted Cash, Beginning of the Period		28.4		24.5
Cash, Cash Equivalents and Restricted Cash, End of the Period	$	15.7	$	32.3

Reconciliation of Cash, Cash Equivalents and Restricted Cash, End of the Period:
Cash and Cash Equivalents	$	12.7	$	23.6
Restricted Cash		3.0		8.7
Total Cash, Cash Equivalents and Restricted Cash, End of the Period	$	15.7	$	32.3

Supplemental Cash Flow Information:
Interest paid, net of capitalized interest	$	22.4	$	16.8
Income tax (refunds) and payments, net	$	(18.0)	$	(25.7)

Non-cash Information:
Capital expenditures included in accounts payable, accruals and other liabilities	$	5.9	$	9.8

See Notes to Condensed Consolidated Financial Statements.

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MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)


						Accumulated
	Common Stock			Additional		Other
		Stated		Paid In		Comprehensive		Retained
(In millions, except per share amounts)	Shares	Value		Capital		Income (Loss)		Earnings		Total
Balance at December 31, 2019	42.9	$	32.2	$	306.2	$	(36.9)	$	504.2	$	805.7
Net income	—		—		—		—		3.8		3.8
Other comprehensive loss, net of tax	—		—		—		(0.6)		—		(0.6)
Share-based compensation	—		—		3.1		—		—		3.1
Shares issued, net of shares withheld for employee taxes	0.1		0.1		(4.6)		—		—		(4.5)
Equity interest in SSAT	—		—		—		—		2.2		2.2
Dividends ($0.22 per share)	—		—		—		—		(9.5)		(9.5)
Balance at March 31, 2020	43.0		32.3		304.7		(37.5)		500.7		800.2
Net income	—		—		—		—		32.8		32.8
Other comprehensive income, net of tax	—		—		—		0.1		—		0.1
Share-based compensation	—		—		3.0		—		—		3.0
Shares issued, net of shares withheld for employee taxes	0.1		—		(1.0)		—		—		(1.0)
Dividends ($0.22 per share and $0.23 per share)	—		—		—		—		(19.6)		(19.6)
Balance at June 30, 2020	43.1		32.3		306.7		(37.4)		513.9		815.5
Net income	—		—		—		—		70.9		70.9
Other comprehensive loss, net of tax	—		—		—		(0.5)		—		(0.5)
Share-based compensation	—		—		6.0		—		—		6.0
Shares issued, net of shares withheld for employee taxes	—		—		(0.1)		—		—		(0.1)
Balance at September 30, 2020	43.1	$	32.3	$	312.6	$	(37.9)	$	584.8	$	891.8


						Accumulated
	Common Stock			Additional		Other
		Stated		Paid In		Comprehensive		Retained
(In millions, except per share amounts)	Shares	Value		Capital		Income (Loss)		Earnings		Total
Balance at December 31, 2018	42.7	$	32.0	$	297.8	$	(34.5)	$	460.0	$	755.3
Adoption of new lease accounting standard	—		—		—		—		4.4		4.4
Net income	—		—		—		—		12.5		12.5
Other comprehensive loss, net of tax	—		—		—		(0.2)		—		(0.2)
Share-based compensation	—		—		3.2		—		—		3.2
Shares issued, net of shares withheld for employee taxes	0.1		0.1		(3.2)		—		—		(3.1)
Dividends ($0.21 per share)	—		—		—		—		(9.1)		(9.1)
Balance at March 31, 2019	42.8		32.1		297.8		(34.7)		467.8		763.0
Net income	—		—		—		—		18.4		18.4
Other comprehensive loss, net of tax	—		—		—		(0.5)		—		(0.5)
Share-based compensation	—		—		3.0		—		—		3.0
Shares issued, net of shares withheld for employee taxes	0.1		—		(0.1)		—		—		(0.1)
Dividends ($0.21 per share and $0.22 per share)	—		—		—		—		(18.6)		(18.6)
Balance at June 30, 2019	42.9		32.1		300.7		(35.2)		467.6		765.2
Net income	—		—		—		—		36.2		36.2
Other comprehensive loss, net of tax	—		—		—		(0.5)		—		(0.5)
Share-based compensation	—		—		2.5		—		—		2.5
Shares issued, net of shares withheld for employee taxes	—		0.1		—		—		—		0.1
Dividends	—		—		—		—		(0.2)		(0.2)
SSAT̕s adoption of new lease accounting standard	—		—		—		—		(5.6)		(5.6)
Balance at September 30, 2019	42.9	$	32.2	$	303.2	$	(35.7)	$	498.0	$	797.7

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

MATSON, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANICAL STATEMENTS

(Unaudited)

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 two premium, expedited services from China to Long Beach, California, provides service 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 container 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 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. Established in 1987, Matson Logistics 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, 2019, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2020.

Fiscal Period: The period end for Matson covered by this report is September 30, 2020. The period end for MatNav and its subsidiaries covered by this report occurred on the last Friday in September, or September 25, 2020.

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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, 2019.

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; uninsured risks and 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.

Allowance for Doubtful Accounts Receivable: Allowance for doubtful accounts receivable is established by management based on estimates of collectability. Estimates of collectability are principally based on an evaluation of the current financial condition of the customer and the potential risks to collection, the customers’ payment history, expected future credit losses and other factors which are regularly monitored by the Company.

Recognition of Revenues and Related 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:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Ocean Transportation (in millions) (1)	2020		2019		2020		2019
Ocean Transportation services	$	490.8	$	424.1	$	1,284.5	$	1,218.6
Terminal and other related services		5.1		8.3		15.5		19.8
Fuel sales		1.3		3.3		6.0		7.9
Vessel management and related services		1.1		1.5		4.0		4.2
Total	$	498.3	$	437.2	$	1,310.0	$	1,250.5

(1)	Ocean Transportation revenue transactions are primarily denominated in U.S. dollars except for less than 3 percent of Ocean Transportation revenues and fuel sales revenue categories which are denominated in foreign currencies.

◾

Ocean Transportation services revenue is recognized ratably over the duration of a voyage based on the relative transit time completed in each reporting period. Vessel operating costs and other ocean transportation operating costs, such as terminal operating overhead and general and administrative expenses, are charged to operating costs as incurred.

◾	Terminal and other related services revenue is recognized as the services are performed. Related costs are recognized as incurred.

◾	Fuel sales revenue and related costs are recognized when the Company has completed delivery of the product to the customer in accordance with the terms and conditions of the contract.

◾	Vessel management and related services revenue is recognized in proportion to the services completed. Related costs are recognized as incurred.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Logistics (in millions) (1)	2020		2019 (2)		2020		2019 (2)
Transportation Brokerage and Freight Forwarding services	$	133.0	$	123.5	$	337.0	$	378.5
Warehouse and distribution services		9.5		8.5		25.9		25.2
Supply chain management and other services		4.4		2.9		10.3		8.2
Total	$	146.9	$	134.9	$	373.2	$	411.9

(1)	Logistics revenue transactions are primarily denominated in U.S. dollars except for less than 3 percent of transportation brokerage and freight forwarding services revenue, and supply chain management and other services revenue categories which are denominated in foreign currencies.

(2)

The Company has reclassified $3.9 million and $10.0 million from transportation brokerage and freight forwarding services to warehouse and distribution services for the three and nine months ended September 30, 2019, respectively, to be consistent with its current period presentation. There was no change in total Logistics revenue for the three and nine months ended September 30, 2019.

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◾

Transportation Brokerage and Freight Forwarding services revenue consists of amounts billed to customers for services provided. The primary costs include third-party purchased transportation services, labor and equipment. Revenue and the related purchased third-party transportation costs are recognized over the duration of a delivery based upon the relative transit time completed in each reporting period. Labor and other operating costs are expensed as incurred. The Company reports revenue on a gross basis as the Company serves as the principal in these transactions because it is responsible for fulfilling the contractual arrangements with the customer and has latitude in establishing prices.

◾

Warehousing and distribution services revenue consist of amounts billed to customers for storage, handling, and value-added packaging of customer merchandise. Storage revenue is recognized in the month the service is provided to the customer. Storage related costs are recognized as incurred. Other warehousing and distribution services revenue and related costs are recognized in proportion to the services performed.

◾	Supply chain management and other services revenue, and related costs are recognized in proportion to the services performed.

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, 2019. As of September 30, 2020 and December 31, 2019, $1.7 million of eligible accounts receivable was assigned to the CCF. 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, 2020, the Company deposited $97.1 million into the CCF, and made qualifying cash withdrawals of $97.1 million from the CCF, respectively. The Company made no qualifying cash deposits or withdrawals during the three months ended September 30, 2020. The balance of cash on deposit at September 30, 2020 and December 31, 2019 was nominal.

Investment in SSAT: Condensed income statement information for SSAT for the three and nine months ended September 30, 2020 and 2019 consisted of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2020		2019		2020		2019
Operating revenue	$	273.9	$	288.7	$	796.1	$	825.6
Operating costs and expenses		(243.1)		(262.6)		(738.4)		(771.8)
Operating income		30.8		26.1		57.7		53.8
Net Income (1)	$	26.2	$	23.3	$	51.5	$	50.1
Company Share of SSAT’s Net Income (2)	$	7.7	$	8.4	$	15.4	$	17.8

(1)	Includes earnings from equity method investments held by SSAT less earnings allocated to non-controlling interests.

(2)	The Company records its share of net income from SSAT in costs and expenses in the Condensed Consolidated Statement of Income and Comprehensive Income due to the nature of SSAT’s operations.

The Company’s investment in SSAT was $55.2 million and $76.2 million at September 30, 2020 and December 31, 2019, respectively. During the nine months ended September 30, 2020, the Company recorded an increase of $2.2 million in its investment in SSAT and a corresponding increase in retained earnings related to the formation of a new subsidiary of SSAT, whose controlling interest is retained by SSAT.

Deferred Loan Fees: The Company records deferred loan fees, excluding those related to the revolving credit facility, as a reduction to Total Debt in the Company’s Condensed Consolidated Balance Sheets in accordance with Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. These costs are being amortized over the life of the related debt using the effective interest method (see Note 6).

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Deferred loan fees related to the Company’s revolving credit facility are recorded in other long-term assets in the Company’s Condensed Consolidated Balance Sheets. These deferred loan fees are being amortized using the straight-line method as the difference between that and the use of the effective interest method is not material. These deferred loan fees were $2.5 million and $1.3 million at September 30, 2020 and December 31, 2019, 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 2020 cash dividend of $0.23 per share was paid on September 3, 2020. On October 29, 2020, the Company’s Board of Directors declared a cash dividend of $0.23 per share payable on December 3, 2020.

New Accounting Pronouncements:

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”): In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities and other financial instruments. ASU 2016-13 requires entities to establish a valuation allowance for the expected lifetime losses of certain financial instruments. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses is permitted. The new standard is effective for interim and annual periods beginning on or after December 15, 2019.

The Company adopted ASU 2016-13 effective January 1, 2020 using the modified retrospective approach. Upon adoption, the Company included an evaluation of expected future credit losses as part of its estimate for determining the allowance for doubtful accounts. The impact of this change was not material to the Company’s allowance for doubtful accounts receivable in the Condensed Consolidated Financial Statements. The Company will continue to monitor the impact of COVID-19 pandemic on expected future credit losses. The Company’s accounting policy related to allowance for doubtful accounts receivable is described above.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”): In August 2018, FASB issued ASU 2018-15 which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain internal-use software. The Company adopted ASU 2018-15 on a prospective basis effective January 1, 2020. During the nine months ended September 30, 2020, the Company capitalized costs of $1.9 million related to cloud computing arrangements and which were included in other long-term assets on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2020.

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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, exclusive of interest expense and income taxes. 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 $40.2 million and $28.2 million for the three months ended September 30, 2020 and 2019, and $83.8 million and $75.3 million for the nine months ended September 30, 2020 and 2019, respectively, have been eliminated from operating revenues in the table below.

Reportable segment financial information for the three and nine months ended September 30, 2020 and 2019 are as follows: