UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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(
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Not Applicable
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
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Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company |
Emerging growth company |
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Number of shares of common stock outstanding as of September 30, 2023:
MATSON, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Condensed Consolidated Statements of Income and Comprehensive Income | 1 | ||
2 | |||
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4 | |||
5 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||
23 | |||
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27 |
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) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Operating Revenue: | |||||||||||||
Ocean Transportation | $ | | $ | | $ | | $ | | |||||
Logistics |
| |
| |
| |
| | |||||
Total Operating Revenue |
| |
| |
| |
| | |||||
Costs and Expenses: | |||||||||||||
Operating costs |
| ( |
| ( |
| ( |
| ( | |||||
Income (Loss) from SSAT |
| |
| |
| ( |
| | |||||
Selling, general and administrative |
| ( |
| ( |
| ( |
| ( | |||||
Total Costs and Expenses |
| ( |
| ( |
| ( |
| ( | |||||
Operating Income |
| |
| |
| |
| | |||||
Interest income | | | | | |||||||||
Interest expense |
| ( |
| ( |
| ( |
| ( | |||||
Other income (expense), net |
| |
| |
| |
| | |||||
Income before Taxes |
| |
| |
| |
| | |||||
Income taxes |
| ( |
| ( |
| ( |
| ( | |||||
Net Income | $ | | $ | | $ | | $ | | |||||
Other Comprehensive Income (Loss), Net of Income Taxes: | |||||||||||||
Net Income | $ | | $ | | $ | | $ | | |||||
Other Comprehensive Income (Loss): | |||||||||||||
Net change in pension and post-retirement liabilities | ( | ( | ( | | |||||||||
Other adjustments |
| ( |
| ( |
| |
| ( | |||||
Total Other Comprehensive Income (Loss), Net of Income Taxes |
| ( |
| ( |
| ( |
| ( | |||||
Comprehensive Income | $ | | $ | | $ | | $ | | |||||
Basic Earnings Per Share | $ | | $ | | $ | | $ | | |||||
Diluted Earnings Per Share | $ | | $ | | $ | | $ | | |||||
Weighted Average Number of Shares Outstanding: | |||||||||||||
Basic |
| |
| |
| |
| | |||||
Diluted |
| |
| |
| |
| |
See Notes to Condensed Consolidated Financial Statements.
1
MATSON, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, | December 31, | ||||||
(In millions) |
| 2023 |
| 2022 |
| ||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Accounts receivable, net of allowance for credit losses of $ |
| |
| | |||
Prepaid expenses and other assets |
| |
| | |||
Total current assets |
| |
| | |||
Long-term Assets: | |||||||
Investment in SSAT |
| |
| | |||
Property and equipment, net |
| |
| | |||
Operating lease right of use assets | | | |||||
Goodwill |
| |
| | |||
Intangible assets, net | | | |||||
Capital Construction Fund | | | |||||
Deferred dry-docking costs, net | | | |||||
Other long-term assets |
| |
| | |||
Total long-term assets | | | |||||
Total Assets | $ | | $ | | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Current portion of debt | $ | | $ | | |||
Accounts payable and accruals |
| |
| | |||
Operating lease liabilities | | | |||||
Other liabilities |
| |
| | |||
Total current liabilities |
| |
| | |||
Long-term Liabilities: | |||||||
Long-term debt, net of deferred loan fees |
| |
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Long-term operating lease liabilities | | | |||||
Deferred income taxes |
| |
| | |||
Other long-term liabilities | | | |||||
Total long-term liabilities |
| |
| | |||
Commitments and Contingencies (see Note 13) | |||||||
Shareholders’ Equity: | |||||||
Common stock |
| |
| | |||
Additional paid in capital |
| |
| | |||
Accumulated other comprehensive loss, net |
| ( |
| ( | |||
Retained earnings |
| |
| | |||
Total shareholders’ equity |
| |
| | |||
Total Liabilities and Shareholders’ Equity | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
2
MATSON, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, | |||||||
(In millions) |
| 2023 |
| 2022 |
| ||
Cash Flows From Operating Activities: | |||||||
Net income | $ | | $ | | |||
Reconciling adjustments: | |||||||
Depreciation and amortization |
| |
| | |||
Amortization of operating lease right of use assets | | | |||||
Deferred income taxes |
| ( |
| | |||
Share-based compensation expense |
| |
| | |||
Loss (income) from SSAT |
| |
| ( | |||
Distributions from SSAT | — | | |||||
Other | ( | ( | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable, net |
| ( |
| | |||
Deferred dry-docking payments |
| ( |
| ( | |||
Deferred dry-docking amortization |
| |
| | |||
Prepaid expenses and other assets |
| |
| ( | |||
Accounts payable, accruals and other liabilities |
| |
| ( | |||
Operating lease liabilities | ( | ( | |||||
Other long-term liabilities |
| ( |
| ( | |||
Net cash provided by operating activities |
| |
| | |||
Cash Flows From Investing Activities: | |||||||
Capitalized vessel construction expenditures | ( | ( | |||||
Other capital expenditures |
| ( |
| ( | |||
Proceeds from disposal of property and equipment, net |
| | | ||||
Payment for intangible asset acquisition | ( | ( | |||||
Cash deposits and interest into the Capital Construction Fund |
| ( |
| ( | |||
Withdrawals from Capital Construction Fund | | | |||||
Net cash used in investing activities |
| ( |
| ( | |||
Cash Flows From Financing Activities: | |||||||
Repayments of debt |
| ( |
| ( | |||
Dividends paid | ( |
| ( | ||||
Repurchase of Matson common stock | ( |
| ( | ||||
Tax withholding related to net share settlements of restricted stock units | ( | ( | |||||
Net cash used in financing activities |
| ( |
| ( | |||
Net Decrease in Cash, Cash Equivalents and Restricted Cash |
| ( |
| ( | |||
Cash, Cash Equivalents and Restricted Cash, Beginning of the Period |
| |
| | |||
Cash, Cash Equivalents and Restricted Cash, End of the Period | $ | | $ | | |||
Reconciliation of Cash, Cash Equivalents and Restricted Cash, End of the Period: | |||||||
Cash and Cash Equivalents | $ | | $ | | |||
Restricted Cash | | | |||||
Total Cash, Cash Equivalents and Restricted Cash, End of the Period | $ | | $ | | |||
Supplemental Cash Flow Information: | |||||||
Interest paid, net of capitalized interest (including debt prepaid fees) | $ | | $ | | |||
Income tax payments (refunds), net | $ | ( | $ | | |||
Non-cash Information: | |||||||
Capital expenditures included in accounts payable, accruals and other liabilities | $ | | $ | | |||
Non-cash payment for intangible asset acquisition | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
3
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, 2022 |
| | $ | |
| $ | | $ | ( | $ | | $ | | ||||
Net income |
| — |
| — |
|
| — |
| — |
| |
| | ||||
Other comprehensive income (loss), net of tax |
| — |
| — |
|
| — |
| |
| — |
| | ||||
Share-based compensation |
| — |
| — |
|
| |
| — |
| — |
| | ||||
Shares issued, net of shares withheld for employee taxes |
| | |
|
| ( |
| — |
| — |
| ( | |||||
Shares repurchased |
| ( | ( | ( | — | ( | ( | ||||||||||
Dividends ($ |
| — |
| — |
|
| — |
| — |
| ( |
| ( | ||||
Balance at March 31, 2023 |
| | |
| | ( | | | |||||||||
Net income |
| — |
| — |
|
| — |
| — |
| |
| | ||||
Other comprehensive income (loss), net of tax | — |
| — |
|
| — |
| ( |
| — |
| ( | |||||
Share-based compensation |
| — |
| — |
|
| |
| — |
| — |
| | ||||
Shares issued, net of shares withheld for employee taxes |
| — |
| — |
|
| |
| — |
| — |
| | ||||
Shares repurchased |
| ( | ( | ( | — | ( | ( | ||||||||||
Dividends ($ | — |
| — |
|
| — |
| — |
| ( |
| ( | |||||
Balance at June 30, 2023 |
| | |
| | ( | | | |||||||||
Net income |
| — |
| — |
|
| — |
| — |
| |
| | ||||
Other comprehensive income (loss), net of tax |
| — |
| — |
|
| — |
| ( |
| — |
| ( | ||||
Share-based compensation |
| — |
| — |
|
| |
| — |
| — |
| | ||||
Shares issued, net of shares withheld for employee taxes |
| — | — |
| ( |
| — |
| — |
| ( | ||||||
Shares repurchased |
| ( | ( | ( | — | ( | ( | ||||||||||
Balance at September 30, 2023 |
| | $ | |
| $ | | $ | ( | $ | | $ | |
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, 2021 |
| | $ | |
| $ | | $ | ( | $ | | $ | | ||||
Net income |
| — |
| — |
|
| — |
| — |
| |
| | ||||
Other comprehensive income (loss), net of tax |
| — |
| — |
|
| — |
| |
| — |
| | ||||
Share-based compensation |
| — |
| — |
|
| |
| — |
| — |
| | ||||
Shares issued, net of shares withheld for employee taxes |
| |
| |
|
| ( |
| — |
| — |
| ( | ||||
Shares repurchased | ( | ( | ( | — | ( | ( | |||||||||||
Dividends ($ |
| — |
| — |
|
| — |
| — |
| ( |
| ( | ||||
Balance at March 31, 2022 |
| | |
| | ( | | | |||||||||
Net income |
| — |
| — |
|
| — |
| — |
| |
| | ||||
Other comprehensive income (loss), net of tax | — |
| — |
|
| — |
| ( |
| — |
| ( | |||||
Share-based compensation |
| — |
| — |
|
| |
| — |
| — |
| | ||||
Shares issued, net of shares withheld for employee taxes |
| |
| — |
|
| ( |
| — |
| — |
| ( | ||||
Shares repurchased |
| ( | ( | ( | — | ( | ( | ||||||||||
Dividends ($ | — |
| — |
|
| — |
| — |
| ( | ( | ||||||
Balance at June 30, 2022 |
| | |
| | ( | | | |||||||||
Net income |
| — |
| — |
|
| — |
| — |
| |
| | ||||
Other comprehensive income (loss), net of tax |
| — |
| — |
|
| — |
| ( |
| — |
| ( | ||||
Share-based compensation |
| — |
| — |
|
| |
| — |
| — |
| | ||||
Equity interest in SSAT |
| — | — |
| — |
| — |
| ( | ( | |||||||
Shares repurchased |
| ( | ( | ( | — | ( |
| ( | |||||||||
Balance at September 30, 2022 | | $ | |
| $ | | $ | ( | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
4
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
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, provides services to Okinawa, Japan and various islands in the South Pacific, and operates an international export service from ports in Alaska to Asia. In addition, subsidiaries of MatNav provide stevedoring, refrigerated cargo services, inland transportation and other terminal services for MatNav on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai, and for MatNav and other ocean carriers in Alaska.
Matson has a
Logistics: Matson’s logistics business is conducted through Matson Logistics, Inc. (“Matson Logistics”), a wholly-owned subsidiary of MatNav. Established in 1987, Matson Logistics extends the geographic reach of Matson’s transportation network throughout North America and Asia, 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, trans-loading, value-added packaging and distribution services (collectively, “Warehousing” services); and (iv) supply chain management, non-vessel operating common carrier (“NVOCC”) freight forwarding and other services.
2. GENERAL AND 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, 2022, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2023.
5
Fiscal Period: The period end for Matson covered by this report is September 30, 2023. The period end for MatNav and its subsidiaries covered by this report is September 29, 2023.
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, 2022.
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 and other receivables; legal contingencies; insurance reserves and other related liabilities; accrual estimates; pension and post-retirement estimates; multi-employer withdrawal liabilities; operating lease assets and liabilities; income (loss) from SSAT; and income taxes. Future results could be materially affected if actual results differ from these estimates and assumptions.
Prepaid Expenses and Other Assets: Prepaid expenses and other assets consisted of the following at September 30, 2023 and December 31, 2022:
September 30, | December 31, | |||||
Prepaid Expenses and Other Assets (in millions) |
| 2023 |
| 2022 | ||
Income tax receivables, net | $ | | $ | | ||
Prepaid fuel |
| |
| | ||
Prepaid insurance and insurance related receivables |
| |
| | ||
Prepaid operating expenses | | | ||||
Prepaid leases | | | ||||
Restricted cash - vessel construction obligations | | | ||||
Other |
| |
| | ||
Total | $ | | $ | |
Income tax receivables include an expected federal income tax refund related to the Company’s 2021 federal tax return and other income tax receivables, offset by current federal income tax payables.
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:
Three Months Ended |
| Nine Months Ended | ||||||||||
September 30, |
| September 30, | ||||||||||
Ocean Transportation (in millions) (1) | 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Ocean Transportation services | $ | | $ | | $ | | $ | | ||||
Terminal and other related services | | | | | ||||||||
Fuel sales | | | | | ||||||||
Vessel management and related services | | | | | ||||||||
Total | $ | | $ | | $ | | $ | |
(1) | Ocean Transportation revenue transactions are primarily denominated in U.S. dollars except for less than |
◾ | 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 selling, 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. |
6
Three Months Ended |
| Nine Months Ended | ||||||||||
September 30, |
| September 30, | ||||||||||
Logistics (in millions) (1) | 2023 | 2022 | 2023 | 2022 | ||||||||
Transportation Brokerage and Freight Forwarding services | $ | | $ | | $ | | $ | | ||||
Warehousing and distribution services | | | | | ||||||||
Supply chain management and other services |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | |
(1) | Logistics revenue transactions are primarily denominated in U.S. dollars except for less than |
◾ | 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, agent commissions, 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, agent commissions, 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, 2022. A summary of the CCF cash account for the nine months ended September 30, 2023 and 2022 consisted of the following:
Nine Months Ended | |||||||
September 30, | |||||||
(In millions) |
| 2023 |
| 2022 | |||
CCF balance at beginning of period | $ | | $ | — | |||
Cash deposits into CCF | | | |||||
Interest earned on deposits | | — | |||||
Qualifying withdrawal payments | ( | ( | |||||
CCF balance at end of period | $ | | $ | |
The Company had $
During the nine months ended September 30, 2023, the Company pledged $
7
Investment in SSAT: Condensed income statement information for SSAT for the three and nine months ended September 30, 2023 and 2022 consisted of the following:
Three Months Ended |
| Nine Months Ended |
| ||||||||||
September 30, |
| September 30, |
| ||||||||||
(In millions) | 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||
Operating revenue | $ | | $ | | $ | | $ | | |||||
Operating costs and expenses | ( | ( | ( | ( | |||||||||
Operating (loss) income | ( |