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 March 31, ~~2018~~2019

☐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)

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 ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ☐
~~(Do not check if a 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 ☒

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

Number of shares of common stock outstanding as of March 31, ~~2018:~~ ~~42,654,359~~2019: 42,826,363

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	45
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1315
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	1821
Item 4.	Controls and Procedures	1921

Part II—OTHER INFORMATION		1921

Item 1.	Legal Proceedings	1921
Item 1A.	Risk Factors	1922
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1922
Item 3.	Defaults Upon Senior Securities	1922
Item 4.	Mine Safety Disclosures	1922
Item 5.	Other Information	1922
Item 6.	Exhibits	2022
	Signatures	2123

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				Three Months Ended
	March 31,				March 31,
(In millions, except per-share amounts)	2018		2017
(In millions, except per share amounts)					2019		2018
Operating Revenue:
Ocean Transportation	$	379.3	$	370.0	$	397.9	$	379.3
Logistics		132.1		104.4		134.5		132.1
Total Operating Revenue		511.4		474.4		532.4		511.4

Costs and Expenses:
Operating costs		(439.3)		(411.8)		(467.1)		(439.3)
Equity in income of Terminal Joint Venture		10.5		4.9		8.5		10.5
Selling, general and administrative		(53.9)		(50.3)		(56.3)		(53.9)
Total Costs and Expenses		(482.7)		(457.2)		(514.9)		(482.7)

Operating Income		28.7		17.2		17.5		28.7
Interest expense		(5.0)		(6.3)		(4.6)		(5.0)
Other income (expense), net		0.8		(0.8)		0.6		0.8
Income before Income Taxes		24.5		10.1		13.5		24.5
Income taxes		(10.3)		(3.1)		(1.0)		(10.3)
Net Income	$	14.2	$	7.0	$	12.5	$	14.2

Other Comprehensive Income (Loss), Net of Income Taxes:
Net Income	$	14.2	$	7.0	$	12.5	$	14.2
Other Comprehensive Income (Loss):
Amortization of prior service cost included in net periodic pension cost		(1.3)		(0.4)
Amortization of net loss included in net periodic pension cost		1.3		0.9
Amortization of prior service cost						(1.1)		(1.3)
Amortization of net loss						0.9		1.3
Other adjustments		0.2		0.2		—		0.2
Total Other Comprehensive Income		0.2		0.7
Total Other Comprehensive Income (Loss)						(0.2)		0.2
Comprehensive Income	$	14.4	$	7.7	$	12.3	$	14.4

Basic Earnings Per-Share:	$	0.33	$	0.16
Diluted Earnings Per-Share:	$	0.33	$	0.16
Basic Earnings Per Share:					$	0.29	$	0.33
Diluted Earnings Per Share:					$	0.29	$	0.33

Weighted Average Number of Shares Outstanding:
Basic		42.6		43.0		42.8		42.6
Diluted		42.9		43.4		43.1		42.9

Cash Dividends Per-Share	$	0.20	$	0.19

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)


	March 31,		December 31,		March 31,		December 31,
(In millions)	2018		2017		2019		2018
ASSETS
Current Assets:
Cash and cash equivalents	$	13.7	$	19.8	$	15.4	$	19.6
Accounts receivable, net		209.1		194.6		217.9		223.7
Prepaid expenses and other assets		46.0		51.6		73.3		75.1
Total current assets		268.8		266.0		306.6		318.4
Long-term Assets:
Investment in Terminal Joint Venture		96.7		93.2		91.3		87.0
Property and equipment, net		1,215.0		1,165.7		1,386.2		1,366.6
Operating lease right of use assets						243.3		—
Goodwill		323.7		323.7		327.8		327.8
Intangible assets, net		222.4		225.2		211.2		214.0
Deferred dry-docking costs, net		80.5		89.2		60.2		67.1
Other long-term assets		80.8		84.5		50.2		49.5
Total long-term assets		2,019.1		1,981.5		2,370.2		2,112.0
Total Assets	$	2,287.9	$	2,247.5	$	2,676.8	$	2,430.4

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of debt	$	36.5	$	30.8	$	45.2	$	42.1
Accounts payable		159.3		175.1		232.4		246.8
Operating lease liabilities						54.3		—
Accruals and other liabilities		79.8		80.4		79.2		81.9
Total current liabilities		275.6		286.3		411.1		370.8
Long-term Liabilities:
Long-term debt		867.1		826.3		822.9		814.3
Long-term operating lease liabilities						196.7		—
Deferred income taxes		291.6		285.2		317.9		312.7
Other long-term liabilities		171.2		171.5		165.2		177.3
Total long-term liabilities		1,329.9		1,283.0		1,502.7		1,304.3
Commitments and Contingencies (Note 2)
Shareholders’ Equity:
Common stock		32.0		31.9		32.1		32.0
Additional paid in capital		288.1		289.7		297.8		297.8
Accumulated other comprehensive loss, net		(30.7)		(24.9)		(34.7)		(34.5)
Retained earnings		393.0		381.5		467.8		460.0
Total shareholders’ equity		682.4		678.2		763.0		755.3
Total Liabilities and Shareholders’ Equity	$	2,287.9	$	2,247.5	$	2,676.8	$	2,430.4

See Notes to Condensed Consolidated Financial Statements.

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MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
(In millions)		2018		2017		2019		2018
Cash Flows From Operating Activities:
Net income		$	14.2	$	7.0	$	12.5	$	14.2
Reconciling adjustments:
Depreciation and amortization			23.6		24.6		23.3		23.6
Non-cash operating lease expense							16.7		—
Deferred income taxes			6.4		2.9		3.8		6.4
Share-based compensation expense			2.7		2.6		3.2		2.7
Equity in income of Terminal Joint Venture			(10.5)		(4.9)		(8.5)		(10.5)
Distribution from Terminal Joint Venture			7.0		—		4.2		7.0
Other			(0.6)		(2.6)		(0.6)		(0.6)
Changes in assets and liabilities:
Accounts receivable, net			(14.5)		(8.4)		5.8		(14.5)
Deferred dry-docking payments			(4.6)		(15.1)		(3.2)		(4.6)
Deferred dry-docking amortization			9.2		11.5		8.1		9.2
Prepaid expenses and other assets	��		8.2		(1.1)		4.8		8.2
Accounts payable, accruals and other liabilities			(11.0)		(13.3)		(20.4)		(11.0)
Operating lease liabilities							(16.7)		—
Other long-term liabilities			(0.2)		0.8		0.4		(0.2)
Net cash provided by operating activities			29.9		4.0		33.4		29.9

Cash Flows From Investing Activities:
Capitalized vessel construction expenditures			(57.7)		(1.3)		(20.9)		(57.7)
Other capital expenditures			(13.1)		(22.9)		(13.5)		(13.1)
Proceeds from disposal of property and equipment			1.0		—		1.2		1.0
Cash deposits into Capital Construction Fund			(53.5)		—		(13.4)		(53.5)
Withdrawals from Capital Construction Fund			53.5		—		13.4		53.5
Net cash used in investing activities			(69.8)		(24.2)		(33.2)		(69.8)

Cash Flows From Financing Activities:
Repayments of debt and capital leases			(2.5)		(2.6)		(8.2)		(2.5)
Proceeds from revolving credit facility			117.4		100.0		107.8		117.4
Repayments of revolving credit facility			(68.4)		(56.0)		(87.8)		(68.4)
Proceeds from issuance of capital stock			0.2		0.4		—		0.2
Dividends paid			(8.7)		(8.3)		(9.1)		(8.7)
Repurchase of Matson common stock			—		(0.7)
Tax withholding related to net share settlements of restricted stock units			(4.2)		(7.1)		(3.1)		(4.2)
Other			—		0.1
Net cash provided by financing activities			33.8		25.8
Net cash (used in) provided by financing activities							(0.4)		33.8

Net (Decrease) Increase in Cash and Cash Equivalents			(6.1)		5.6
Cash and Cash Equivalents, Beginning of the Period			19.8		13.9
Cash and Cash Equivalents, End of the Period		$	13.7	$	19.5
Net Decrease in Cash, Cash Equivalents and Restricted Cash							(0.2)		(6.1)
Cash, Cash Equivalents and Restricted Cash, Beginning of the Period							24.5		19.8
Cash, Cash Equivalents and Restricted Cash, End of the Period						$	24.3	$	13.7

Reconciliation of Cash, Cash Equivalents, and Restricted Cash, at End of the Period:
Cash and Cash Equivalents						$	15.4	$	13.7
Restricted Cash							8.9		—
Total Cash, Cash Equivalents and Restricted Cash, End of the Period						$	24.3	$	13.7

Supplemental Cash Flow Information:
Interest paid, net of capitalized interest		$	5.3	$	6.5	$	4.8	$	5.3
Income tax paid, net of income tax refunds		$	0.2	$	0.4	$	(5.4)	$	0.2

Non-cash Information:
Capital expenditures included in accounts payable, accruals and other liabilities		$	0.7	$	2.4	$	5.5	$	0.7

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, 2018	42.7	$	32.0	$	297.8	$	(34.5)	$	460.0	$	755.3
Adjustment related to the adoption of new lease accounting standard (see Note 7)	—		—		—		—		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


						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, 2017	42.5	$	31.9	$	289.7	$	(24.9)	$	380.5	$	677.2
Reclassification resulting from adoption of new accounting pronouncement	—		—		—		(6.0)		6.0		—
Net income	—		—		—		—		14.2		14.2
Other comprehensive income, net of tax	—		—		—		0.2		—		0.2
Share-based compensation	—		—		2.7		—		—		2.7
Shares issued, net of shares withheld for employee taxes	0.2		0.1		(4.3)		—		—		(4.2)
Dividends ($0.20 per share)	—		—		—		—		(8.7)		(8.7)
Balance at March 31, 2018	42.7	$	32.0	$	288.1	$	(30.7)	$	392.0	$	681.4

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 January 2012 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 a premium, expedited service from China to Long Beach, California, and also provides services to Okinawa, Japan and various islands in the South Pacific. 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 (“SSAT”), a joint venture between Matson Ventures, Inc., a wholly-owned subsidiary of MatNav, and SSA Ventures, Inc., a subsidiary of Carrix, Inc. SSAT provides terminal and stevedoring services to various carriers at ~~seven~~eight terminal facilities on the U.S. West Coast, including four facilities which are used by MatNav (“Terminal Joint Venture”). Matson records its share of net income from SSAT in ~~the Terminal Joint Venture in operating~~ 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 logistic services to its customers including: (i) multimodal transportation brokerage of domestic and international rail intermodal service, 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")~~“Transportation Brokerage” services); (ii) less-than-container load (“LCL”) consolidation and freight forwarding services (collectively “Freight ~~Forwarding Services”)~~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 and all wholly-owned subsidiaries, after elimination of ~~significant~~ 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. A controlling financial interest is one in which the Company has a majority voting interest or one in which the Company is the primary beneficiary of a variable interest entity. The Company accounts for its investment in the Terminal Joint Venture 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, ~~2017,~~2018, filed with the Securities and Exchange Commission (“SEC”) on ~~February 23, 2018.~~March 4, 2019.

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Fiscal Period: The period end for Matson covered by this report is March 31, ~~2018.~~2019. The period end for MatNav and its subsidiaries covered by this report occurred on the last Friday in March, or March ~~30, 2018,~~29, 2019, for the first quarter ~~2018.~~2019.

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, ~~2017.~~2018.

The Company adopted Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) on January 1, 2019. ASC 842 requires lessees to record leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. ASC 842 states that a lessee would recognize a lease liability for the obligation to make lease payments, and a right-of-use asset for the underlying leased asset for the period of the lease term. Refer to Note 7 for additional information on the Company’s adoption of ASC 842 and other lease related disclosures.

Recognition of Revenues and ~~Expenses:~~Related Costs: 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:


	Three Months Ended				Three Months Ended
	March 31,				March 31,
Ocean Transportation (in millions) (1)	2018		2017		2019		2018
Ocean transportation services	$	374.7	$	365.0
Ocean Transportation services					$	387.9	$	368.8
Terminal and other related services		0.8		0.8		6.7		6.2
Fuel sales		2.1		2.5		2.0		2.6
Ship management services		1.7		1.7
Vessel management and related services						1.3		1.7
Total	$	379.3	$	370.0	$	397.9	$	379.3

(1)

Ocean Transportation revenue transactions are primarily denominated in U.S. dollars except for ~~approximately~~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 ~~service revenues to third parties are~~services revenue is recognized as the services are performed. Related costs are recognized as incurred.

Fuel sales revenue isand 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.

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


	Three Months Ended				Three Months Ended
	March 31,				March 31,
Logistics (in millions) (1)	2018		2017		2019		2018
Transportation brokerage and freight forwarding services	$	119.2	$	92.3
Transportation Brokerage and Freight Forwarding services					$	126.4	$	124.5
Warehouse and distribution services		7.4		7.2		5.3		4.6
Supply chain management and other services		5.5		4.9		2.8		3.0
Total	$	132.1	$	104.4	$	134.5	$	132.1

(1)

Logistics revenue transactions are primarily denominated in U.S. dollars except for ~~approximately~~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.

~~Logistics transportation brokerage~~Transportation Brokerage and ~~freight forwarding~~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 costs. 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 ~~relationship~~arrangements with the customer and has latitude in establishing prices.

~~Logistics warehousing~~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

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provided to the customer. Storage ~~expenses~~related costs are recognized as incurred. Other warehousing and distribution services revenue and ~~expense~~related costs are recognized in proportion to the services performed.

Supply chain management and other services ~~revenue~~revenues, 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 ~~paid~~invoiced in advance by the

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~~customer or when the voyage or transportation services have not commenced as of the end of the fiscal period.~~ 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 administration 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, ~~2017.~~ 2018. As of March 31, ~~2018~~2019 and December 31, ~~2017, the following amounts related~~2018, $1.7 million and $1.0 million of eligible accounts receivable were assigned to the ~~Company’s CCF:~~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.

March 31,

December 31,

(In millions)

2018

2017

Capital Construction Fund:

Cash on deposit

$
0.9

$
0.9

Assigned accounts receivables

$
135.7

$
134.8

Cash on deposit in the CCF is held in a money market account and classified as a long-term ~~assets~~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 three months ended March 31, ~~2018,~~2019, the Company deposited ~~$53.5~~$13.4 million into the CCF, and made qualifying cash withdrawals of ~~$53.5~~$13.4 million from the ~~CCF, respectively. Eligible accounts receivable that are assigned into the CCF are classified as part~~CCF. The balance of ~~accounts receivable in the Condensed Consolidated Financial Statements due to the nature of the assignment.~~cash on deposit at March 31, 2019 and December 31, 2018 was nominal.

Investment in Terminal Joint Venture: The Company’s investment in ~~the Terminal Joint Venture~~SSAT was ~~$96.7~~$91.3 million and ~~$93.2~~$87.0 million at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Condensed income statement information (unaudited) for the Terminal Joint Venture for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 consisted of the following:


	Three Months Ended				Three Months Ended
	March 31,				March 31,
Condensed Statements of Operating Income and Net Income (Unaudited) (in millions)	2018		2017
(In millions)					2019		2018
Operating revenue	$	250.9	$	196.7	$	268.1	$	250.9
Operating costs and expenses		(219.7)		(184.0)		(244.2)		(219.7)
Operating income		31.2		12.7		23.9		31.2
Net Income (1)		30.7		14.3	$	22.5	$	30.7
Company Share of Net Income	$	10.5	$	4.9
Company Share of SSAT's Net Income (2)					$	8.5	$	10.5

(1)

Includes earnings from equity method investments held by ~~the Terminal Joint Venture~~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.

Income Taxes:In connection with the Tax Cuts and Jobs Act ~~that was signed into law on December 22,~~of 2017 (the “Tax Act”), the Company recorded a non-cash tax adjustment of $3.3 million ~~due~~that increased income taxes and decreased income tax receivables for the three months ended March 31, 2018. This adjustment related to the application of an estimated ~~6.6~~6.2 percent sequestration on alternative minimum tax (AMT) refunds due to the Company, and was based on guidance issued by the Internal Revenue Service (IRS) ~~on alternative minimum~~and emerging interpretations of the Tax Act during that period. On January 19, 2019, the IRS issued new guidance indicating that sequestration would not apply to refundable AMT credits. In accordance with this new guidance, the Company recorded a non-cash tax ~~(AMT) refunds for the years 2018 to 2021. The~~ adjustment of $2.9 million that decreased income taxes and increased income tax ~~expense during~~receivables for the three months ended March 31, ~~2018 and is based on recent guidance issued by the IRS and interpretations of the Tax Act that are currently available.~~ 2019.

The Company ~~will continue~~continues to assess the impact of the Tax Act, ~~and any~~ related interpretations and other tax legislation, when issued, on the Company’s income tax estimates. These and other factors could materially affect the Company’s financial condition or its future operating results.

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.

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consultation with counsel, would not have a material effect on the Company’s financial condition, results of operations, or cash flows.

~~Table~~Dividends: The Company’s first quarter 2019 cash dividend of ~~Contents~~

$0.21 per share was paid on March 7, 2019. On April 25, 2019, the Company’s Board of Directors declared a cash dividend of $0.21 per share payable on June 6, 2019.

New Accounting Pronouncements:

~~Revenues from Contracts with Customers (Topic 606), (“ASU 2014-09”):~~ ~~The Company has adopted ASU 2014-09 commencing the first quarter in 2018 using the modified retrospective method. This method allows the Company to recognize the cumulative effect~~Measurement of initially applying ASU 2014-09 as an adjustment to retained earnings as of December 31, 2017. Prior to adopting ASU 2014-09, the Company performed a review of its revenue contracts and evaluated the Company’s current accounting policies and procedures for recognizing revenues in the Company’s ConsolidatedCredit Losses on Financial ~~Statements, and compared these to the new requirements of ASU 2014-09. In addition, the Company identified the performance obligations and consideration applicable under each contract.~~

Based upon our evaluation, the Company determined that the impact of adopting ASU 2014-09 is immaterial because the analysis of the Company’s contracts under ASU 2014-09 supports the recognition of revenue over time as the service is performed, which is consistent with the Company’s current revenue recognition accounting policy. The majority of the Company’s contracts require the Company to provide ocean and logistics transportation services to its customers. Such services are provided by the Company over a period of time, generally, when cargo is being delivered from source to destination point, or as the service is being performed. Therefore, performance obligations are completed in a short period of time due to the nature of the services provided by the Company. Under the new standard, revenues from the majority of the Company’s contracts will continue to be recognized over time as the customer simultaneously receives and consumes the benefit of these services as described in ASU 2014-09. In addition, the identification of performance obligations and related consideration under the new standard is not materially different from our current accounting treatment.

~~Income Statement - Reporting Comprehensive Income (Topic 220),~~Instruments (“ASU ~~2018-02”~~2016-13”): In June 2016, the Financial Accounting Standards Board issued ASU ~~2018-02 allows~~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 ~~reclassification from accumulated other comprehensive income (loss) to retained earnings~~valuation allowance for the ~~remeasurement tax effects resulting from~~expected lifetime losses of certain financial instruments. Subsequent changes in the ~~Tax Act. The Company elected to early adopt ASU 2018-02 during the three months ended March 31, 2018,~~valuation allowance are recorded in current earnings and ~~recorded a reclassification adjustment~~reversal of ~~$6.0 million between accumulated other comprehensive income (loss) and retained earnings (see Note 7).~~

~~Leases (Topic 842)~~, (“ASU 2016-02”): ASU 2016-02 requires lessees to record most leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments, and a right-of-use asset for the underlying leased asset for the period of the lease term.previous losses is permitted. The new standard is effective for interim and annual periods beginning on or after December 15, ~~2018~~2019, and early adoption is permitted. The Company is in the process of evaluating this new standard, but does not expect the ~~implementation~~adoption of ~~this guidance.~~

~~Compensation – Retirement Benefits (Topic 715), Improving~~ASU 2016‑13 to have a significant impact on the ~~Presentation of Net Periodic Pension Cost and Benefit Cost~~ (“ASU 2017-07”): ASU 2017-07 requires employees that sponsor defined benefit pension and post-retirement plans to present the service cost component of net benefit cost in the same income statement line item as other employee compensation costs arising from services rendered, and that only the service cost component will be eligible for capitalization. The other components of the net periodic benefit cost must be presented separately from the line item that includes the service cost component and outside of the income from operations subtotal. The Company adopted ASU 2017-07 during the three months ended March 31, 2018, and recorded a retrospective reclassification adjustment of $(0.8) million from costs and expenses to other income (expenses) in the CondensedCompany’s Consolidated ~~Statement of Income and Comprehensive Income for the three months ended March 31, 2017.~~ Financial Statements.

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~~Company’s chief operating decision maker is its Chief Executive Officer.

~~Table of Contents~~

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 Terminal Joint Venture segment has been aggregated into the Company’s Ocean Transportation segment due to the operations of the Terminal Joint Venture 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. Accordingly, inter-segment revenue of ~~$18.3~~$21.8 million and ~~$16.9~~$18.3 million for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, have been eliminated from operating revenue in the table below.

Reportable segment results for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 consisted of the following:


	Three Months Ended				Three Months Ended
	March 31,				March 31,
(In millions)	2018		2017		2019		2018
Operating Revenue:
Ocean Transportation	$	379.3	$	370.0	$	397.9	$	379.3
Logistics		132.1		104.4		134.5		132.1
Total Operating Revenue	$	511.4	$	474.4	$	532.4	$	511.4
Operating Income:
Ocean Transportation (1)	$	24.5	$	15.3	$	9.4	$	24.5
Logistics		4.2		1.9		8.1		4.2
Total Operating Income		28.7		17.2		17.5		28.7
Interest expense, net		(5.0)		(6.3)		(4.6)		(5.0)
Other income (expense), net		0.8		(0.8)		0.6		0.8
Income before Income Taxes		24.5		10.1		13.5		24.5
Income taxes		(10.3)		(3.1)		(1.0)		(10.3)
Net Income	$	14.2	$	7.0	$	12.5	$	14.2

(1)

Ocean Transportation segment information includes ~~$10.5~~$8.5 million and ~~$4.9~~$10.5 million of equity in income from the ~~Terminal Joint Venture~~Company’s equity investment in SSAT for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

~~4. PROPERTY AND EQUIPMENT~~

~~Property and equipment at March 31, 2018 and December 31, 2017 consisted of the following:~~

March 31,

December 31,

(In millions)

2018

2017

Cost:

Vessels

$
1,440.9

$
1,433.6

Containers and equipment

538.2

543.0

Terminal facilities and other property

65.8

64.8

Vessel construction in progress

434.3

376.6

Other construction in progress

29.1

26.2

Total Property and Equipment

2,508.3

2,444.2

Less: Accumulated Depreciation

(1,293.3)

(1,278.5)

Total Property and Equipment, net

$
1,215.0

$
1,165.7

Vessel construction in progress relates to progress payments for the construction of four new vessels to be used within the Hawaii service, capitalized owners’ items and capitalized interest. Capitalized interest was $14.1 million and $10.4 million at March 31, 2018 and December 31, 2017, respectively.

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4. PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2019 and December 31, 2018 consisted of the following:


	March 31,		December 31,
(In millions)	2019		2018
Cost:
Vessels	$	1,490.1	$	1,489.2
Containers and equipment		514.7		513.6
Terminal facilities and other property		66.0		66.0
Vessel construction in progress		512.6		487.2
Other construction in progress		70.0		59.2
Total Property and Equipment		2,653.4		2,615.2
Less: Accumulated Depreciation		(1,267.2)		(1,248.6)
Total Property and Equipment, net	$	1,386.2	$	1,366.6

Vessel construction in progress relates to progress payments for the construction of three new vessels, capitalized owner’s items and capitalized interest. Capitalized interest included in vessel construction in progress was $21.0 million and $16.3 million at March 31, 2019 and December 31, 2018, respectively.

5. GOODWILL AND INTANGIBLES

Goodwill by segment at ~~both~~ March 31, ~~2018~~2019 and December 31, ~~2017~~2018 consisted of the following:


	Ocean						Ocean
(In millions)	Transportation		Logistics		Total		Transportation		Logistics		Total
Goodwill	$	218.5	$	105.2	$	323.7	$	222.6	$	105.2	$	327.8

Intangible assets at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 consisted of the following:


	March 31,		December 31,		March 31,		December 31,
(In millions)	2018		2017		2019		2018
Customer Relationships:
Ocean Transportation	$	140.6	$	140.6	$	140.6	$	140.6
Logistics		90.1		90.1		90.1		90.1
Total		230.7		230.7		230.7		230.7
Less: Accumulated Amortization		(35.6)		(32.8)		(46.8)		(44.0)
Total Customer Relationships, net		195.1		197.9		183.9		186.7
Trade name - Logistics		27.3		27.3		27.3		27.3
Total Intangible Assets, net	$	222.4	$	225.2	$	211.2	$	214.0

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6. DEBT

~~Debt at~~At March 31, ~~2018~~2019 and December 31, ~~2017~~2018, the Company’s debt consisted of the following:


	March 31,		December 31,		March 31,		December 31,
(In millions)	2018		2017		2019		2018
Private Placement Term Loans:
5.79 %, payable through 2020	$	17.5	$	17.5	$	10.5	$	10.5
3.66 %, payable through 2023		50.1		50.1		41.0		41.0
4.16 %, payable through 2027		49.8		49.8		44.5		44.5
3.37 %, payable through 2027		75.0		75.0		75.0		75.0
3.14 %, payable through 2031		200.0		200.0		194.0		200.0
4.31 %, payable through 2032		35.1		35.1		32.7		32.7
4.35 %, payable through 2044		100.0		100.0		100.0		100.0
3.92 %, payable through 2045		73.2		73.2		71.4		71.4
Title XI Bonds:
5.34 %, payable through 2028		23.1		24.2		20.9		22.0
5.27 %, payable through 2029		25.3		26.4		23.1		24.2
Revolving credit facility		254.0		205.0
Revolving credit facility, maturity date of June 29, 2022						255.0		235.0
Capital leases		0.5		0.8		—		0.1
Total Debt		903.6		857.1		868.1		856.4
Less: Current portion		(36.5)		(30.8)		(45.2)		(42.1)
Total Long-term Debt	$	867.1	$	826.3	$	822.9	$	814.3

The Company’s debt is described in Note 8 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, ~~2017.~~2018. 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 of June 29, 2022.

As of March 31, ~~2018,~~2019, the Company had ~~$285.4~~$246.5 million of remaining availability under the revolving credit facility. The interest rate on borrowings under the revolving credit facility approximated ~~3.07~~3.97 percent during the three months ended March 31, ~~2018.~~2019.

7. LEASES

Adoption of ASC 842: The Company adopted ASC 842 on January 1, 2019 and made the following elections:

Applied the transition requirements that resulted in a cumulative-effect adjustment of $4.4 million recorded to retained earnings at January 1, 2019, due to the elimination of deferred gains from the Company’s sale and leaseback transactions recorded in the Consolidated Balance Sheet as of December 31, 2018;

Elected to apply the package of practical expedient permitted under the transition guidance which allows, among other things, the historical lease classification and initial direct costs to be carried forward;

Elected the short-term lease exception which allows the Company to exclude leases with an initial term of one year or less from recognition on the Condensed Consolidated Balance Sheets;

Elected to separate non-lease components by underlying asset class for real estate and terminal leases and operations equipment leases; and

Elected to use a portfolio approach in applying discount rates to leases based upon the lease terms in the following categories: (i) one to five years; (ii) six to ten years; (iii) eleven to fifteen years; and (iv) sixteen years and greater, regardless of the type of underlying asset class.

Upon adoption, the Company recorded a right-of-use asset of approximately $251.4 million, a corresponding operating lease liability of $259.1 million, and de-recognized deferred rent of $7.7 million. The adoption of ASC 842 did not have a significant impact on the Company’s current earnings, liquidity or existing debt covenant requirements. Significant assumptions and judgments made in applying the new lease accounting standard include determining the Company’s incremental borrowing rate and evaluating the probability of exercising lease options.

910

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7.Description of Operating Leases: The Company has a variety of different types of operating leases, the specific terms and conditions of which vary from lease to lease. Certain operating lease agreements include terms such as: (i) renewal and early termination options; (ii) early buy-out and purchase options; and (iii) rent escalation clauses. The lease agreements also include provisions for the maintenance of the leased asset and payment of lease related costs. The Company reviews the specific terms and conditions of each lease and, as appropriate, notifies the lessor of any intent to exercise any option in accordance with the terms of the lease. In the normal course of business, the Company expects to be able to renew or replace most of its operating leases by other similar leases as they expire. Except for the residual value guarantee described below, the Company’s leases do not contain any other residual value guarantees.

The Company’s sub-lease income was nominal to the Company’s Condensed Consolidated Financial Statements for the three months ended March 31, 2019. The Company did not have any finance leases during the three month period ended March 31, 2019. Certain of the Company’s lease agreements include rental payments that may be adjusted in the future based on economic conditions and others include rental payments adjusted periodically for inflation. Variable lease expense is disclosed for the adjusted portion of such payments.

The lease type by underlying asset class and maximum terms of the Company’s operating leases are as follows:


Lease Type:		Life
Real estate and terminal leases		65 years
Vessel charter leases		10 years
Operations equipment and other leases		8 years

Incremental Borrowing Rate: As most of the Company’s operating leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate based on information available at the date of adoption and subsequent lease commencement dates in calculating the present value of its operating lease liabilities. The incremental borrowing rate is determined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and the collateralized nature of operating leases.

Components of Lease Cost: Components of lease cost recorded in the Company’s Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2019 consisted of the following:


	Three Months Ended
	March 31,
(In millions)	2019
Operating lease cost	$	16.7
Short-term lease cost		2.4
Variable lease cost		0.1
Total lease cost	$	19.2

Other Lease Information: Other information related to the Company’s operating leases for the three months ended March 31, 2019 is as follows:


	Three Months Ended
	March 31,
(In millions, except lease term and discount rate)	2019
Cash paid for amounts included in operating lease liabilities	$	16.7
Right of use assets obtained in the exchange for new operating lease liabilities	$	5.8
Weighted-average remaining operating lease term		7.9 years
Weighted-average incremental borrowing rate		4.5%

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Maturities of operating lease liabilities at March 31, 2019 are as follows:


	As of
Year (in millions)	March 31, 2019
2019	$	48.6
2020		59.8
2021		45.6
2022		35.6
2023		31.4
Thereafter		83.2
Total lease payments		304.2
Less: Interest		(53.2)
Present value of operating lease liabilities		251.0
Less: Short-term portion		(54.3)
Long-term operating lease liabilities	$	196.7

Future minimum payments under operating lease agreements at December 31, 2018 are as follows:


Year (in millions)	Total
2019	$	68.3
2020		59.2
2021		44.8
2022		34.7
2023		30.5
Thereafter		83.6
Total minimum lease payments	$	321.1

Residual Value Guarantee: On November 26, 2018, a wholly-owned subsidiary of the Company entered into a Bareboat Charter Agreement (the “Charter”). Charter lease payments are approximately $3.0 million per quarter and are included in the operating lease liabilities described above. The base term of the Charter is a five year period with a two year end-of-term renewal option. The Charter also includes a maximum residual value guarantee amount of $50.9 million after five years, or $47.7 million after the extended term. The residual value guarantee is excluded from operating lease liabilities described above as the Company determined that it is not probable that any portion of the residual value guarantee will be paid by the Company. The Charter and residual value guarantee 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, 2018.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2019 consisted of the following:


									Accumulated
					Non-				Other
			Post		Qualified				Comprehensive
(In millions)	Pensions		Retirement		Plans		Other		Income (Loss)
Balance at December 31, 2018	$	(55.8)	$	21.7	$	(0.1)	$	(0.3)	$	(34.5)
Amortization of prior service cost		(0.4)		(0.7)		—		—		(1.1)
Amortization of net loss		0.7		0.2		—		—		0.9
Balance at March 31, 2019	$	(55.5)	$	21.2	$	(0.1)	$	(0.3)	$	(34.7)

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Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2018 consisted of the following:


									Accumulated										Accumulated
					Non-				Other						Non-				Other
			Post		Qualified				Comprehensive				Post		Qualified				Comprehensive
(In millions)	Pensions		Retirement		Plans		Other		Income (Loss)		Pensions		Retirement		Plans		Other		Income (Loss)
Balance at December 31, 2017	$	(40.6)	$	15.6	$	(0.3)	$	0.4	$	(24.9)	$	(40.6)	$	15.6	$	(0.3)	$	0.4	$	(24.9)
Net gain in prior service costs		—		—		—		—		—
Reclassification adjustment related to the Tax Act (1)												(9.2)		3.4		(0.2)		—		(6.0)
Amortization of prior service cost		(0.4)		(0.9)		—		—		(1.3)		(0.4)		(0.9)		—		—		(1.3)
Amortization of net loss		0.9		0.3		0.1		—		1.3		0.9		0.3		0.1		—		1.3
Remeasurement adjustment related to the Tax Act (1)		(9.2)		3.4		(0.2)		—		(6.0)
Other adjustments		—		—		—		0.2		0.2		—		—		—		0.2		0.2
Balance at March 31, 2018	$	(49.3)	$	18.4	$	(0.4)	$	0.6	$	(30.7)	$	(49.3)	$	18.4	$	(0.4)	$	0.6	$	(30.7)

(1)

Reclassification from accumulated other comprehensive income (loss) to retained earnings for the remeasurement tax effects resulting from the Tax Act in accordance with ASU 2018-02.

~~Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2017 consisted of the following:~~

Accumulated

Non-

Other

Post

Qualified

Comprehensive

(In millions)

Pensions

Retirement

Plans

Other

Income (Loss)

Balance at December 31, 2016

$
(41.4)

$
18.1

$
(0.4)

$
0.1

$
(23.6)

Amortization of prior service cost

(0.4)

—

—

—

(0.4)

Amortization of net loss

0.8

0.1

—

—

0.9

Other adjustments

—

—

—

0.2

0.2

Balance at March 31, 2017

$
(41.0)

$
18.2

$
(0.4)

$
0.3

$
(22.9)

8.9. FAIR VALUE MEASUREMENTS

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 ~~CCF – cash on deposit, and~~ variable and fixed rate debt. The fair values of cash, ~~and~~ cash equivalents ~~CCF –~~and restricted cash, ~~on deposit,~~ and variable rate debt approximate their carrying values due to the nature of the instruments. The fair value of the Company’s fixed rate debt is calculated based upon interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.

~~Table of Contents~~

The carrying value and fair value of the Company’s financial instruments as of March 31, ~~2018~~2019 and December 31, ~~2017 were~~2018 are as follows:


					Quoted Prices in		Significant		Significant						Quoted Prices in		Significant		Significant
	Total				Active Markets		Observable		Unobservable		Total				Active Markets		Observable		Unobservable
	Carrying Value		Total		(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Carrying Value		Total		(Level 1)		Inputs (Level 2)		Inputs (Level 3)
(In millions)	March 31, 2018		Fair Value Measurements at March 31, 2018								March 31, 2019		Fair Value Measurements at March 31, 2019
Cash and cash equivalents	$	13.7	$	13.7	$	13.7	$	—	$	—	$	15.4	$	15.4	$	15.4	$	—	$	—
CCF - cash on deposit		0.9		0.9		—		0.9		—
Restricted cash												8.9		8.9		8.9		—		—
Variable rate debt		254.0		254.0		—		254.0		—		255.0		255.0		—		255.0		—
Fixed rate debt		649.6		633.6		—		633.6		—		613.1		594.1		—		594.1		—


(In millions)	December 31, 2017		Fair Value Measurements at December 31, 2017								December 31, 2018		Fair Value Measurements at December 31, 2018
Cash and cash equivalents	$	19.8	$	19.8	$	19.8	$	—	$	—	$	19.6	$	19.6	$	19.6	$	—	$	—
CCF - cash on deposit		0.9		0.9		—		0.9		—
Restricted cash												4.9		4.9		4.9		—		—
Variable rate debt		205.0		205.0		—		205.0		—		235.0		235.0		—		235.0		—
Fixed rate debt		652.1		651.4		—		651.4		—		621.4		584.5		—		584.5		—

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9.10. EARNINGS ~~PER-SHARE~~PER SHARE

~~The number of shares used to compute basic and diluted earnings per-share for the three months ended March 31, 2018 and 2017, were as follows:~~

Three Months Ended March 31, 2018

Three Months Ended March 31, 2017




Weighted

Per



Weighted

Per

Average

Common

Average

Common

Net

Common

Share

Net

Common

Share

(In millions, except per-share amounts)

Income

Shares

Amount

Income

Shares

Amount

Basic:

$
14.2

42.6

$
0.33

$
7.0

43.0

$
0.16

Effect of Dilutive Securities:

0.3

—

0.4

—

Diluted:

$
14.2

42.9

$
0.33

$
7.0

43.4

$
0.16

Basic earnings ~~per-share~~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~~per share includes the dilutive effect of unexercised non-qualified stock options and non-vested restricted stock units. The denominator used to compute basic and diluted earnings per share for the three months ended March 31, 2019 and 2018, are as follows:


	Three Months Ended March 31, 2019					Three Months Ended March 31, 2018
			Weighted	Per				Weighted	Per
			Average	Common				Average	Common
	Net		Common	Share		Net		Common	Share
(In millions, except per share amounts)	Income		Shares	Amount		Income		Shares	Amount
Basic:	$	12.5	42.8	$	0.29	$	14.2	42.6	$	0.33
Effect of Dilutive Securities:			0.3		—			0.3		—
Diluted:	$	12.5	43.1	$	0.29	$	14.2	42.9	$	0.33

The computation of weighted-average ~~dilutive~~common shares outstanding excludes ~~certain~~a nominal amount of anti-dilutive non-qualified stock options ~~to purchase shares of common stock where the options’ exercise prices were greater than the average market price of the Company’s common stock~~ for ~~the periods presented~~each period ended March 31, 2019 and ~~therefore, the effect would be anti-dilutive. The number of such shares excluded was nominal.~~2018.

~~10.~~11. SHARE-BASED COMPENSATION

~~During the three months ended March 31, 2018, the~~The Company granted approximately ~~351,600~~338,000 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 ~~$31.35.~~$33.30 during the three months ended March 31, 2019.

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 ~~$2.7~~$3.2 million and ~~$2.6~~$2.7 million for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Total unrecognized compensation cost related to unvested share-based compensation arrangements was ~~$19.6~~$21.2 million at March 31, ~~2018,~~2019, and is expected to be recognized over a weighted-average period of approximately 2.2 years. Total unrecognized compensation cost may be adjusted for any unearned performance shares or forfeited shares.

~~Table of Contents~~

~~11.~~12. PENSION AND POST-RETIREMENT PLANS

The ~~Company sponsors~~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, 2018. Components of net periodic benefit cost for the Company’s qualified defined benefit pension and post-retirement plans ~~(collectively, the “Plans”). The following table provides the components of net periodic benefit cost (benefit) for the Plans~~ for the three months ended March 31, 2019 and 2018 ~~and 2017:~~consisted of the following:


	Pension Benefits				Post-retirement Benefits				Pension Benefits				Post-retirement Benefits
	March 31,				March 31,				Three Months Ended March 31,				Three Months Ended March 31,
(In millions)	2018		2017		2018		2017		2019		2018		2019		2018
Components of Net Periodic Benefit Cost (Benefit):
Components of net periodic benefit cost (benefit):
Service cost	$	1.1	$	1.0	$	0.2	$	0.4	$	1.1	$	1.1	$	0.1	$	0.2
Interest cost		2.2		2.4		0.2		0.7		2.3		2.2		0.3		0.2
Expected return on plan assets		(3.4)		(3.4)		—		—		(3.1)		(3.4)		—		—
Amortization of net loss		1.1		1.2		0.4		0.3		0.9		1.1		0.2		0.4
Amortization of prior service credit		(0.6)		(0.6)		(0.9)		—		(0.6)		(0.6)		(0.9)		(0.9)
Net periodic benefit cost	$	0.4	$	0.6	$	(0.1)	$	1.4	$	0.6	$	0.4	$	(0.3)	$	(0.1)

******

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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 or business 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,” 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, ~~2017.~~2018. 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, ~~2017,~~2018, the Company’s reports on Forms 10-Q and 8-K, and other publicly available information.

BUSINESS OUTLOOK

Ocean Transportation: The Company’s container volume in the Hawaii service in the first quarter ~~2018~~2019 was ~~1.9~~2.2 percent lower year-over-year primarily due ~~primarily~~ to ~~lower eastbound volume as~~one less westbound ~~volume was essentially flat.~~sailing and weather-related impacts. The Hawaii economy continues to ~~be strong,~~show economic growth, supported primarily by healthy tourism activity and low unemployment. The Company expects ~~flat-to-modest~~ volume ~~growth~~in 2019 to approximate the level achieved in 2018, reflecting ~~a solid~~modest economic growth in Hawaii ~~economy~~ and stable market share.

In China, the Company’s container volume in the first quarter ~~2018~~2019 was ~~22.2~~16.0 percent ~~lower~~higher year-over-year largely due to ~~two fewer sailings~~one additional sailing and ~~lower~~stronger volume ~~during the~~post Lunar New ~~Year period.~~Year. Matson continued to realize a sizeable rate premium in the first quarter ~~2018~~2019 and achieved average freight rates ~~moderately~~modestly higher than the first quarter ~~2017.~~2018. For ~~2018,~~2019, the Company expects ~~pricing to remain as favorable and~~volume to approximate the ~~average rate~~exceptional level achieved in ~~2017~~2018 and ~~volume~~expects average freight rates to ~~be modestly lower compared to~~approach the levels achieved in ~~2017.~~2018.

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In Guam, ~~as expected,~~ the Company’s container volume in the first quarter ~~2018~~2019 was ~~lower~~higher on a year-over-year basis ~~the result of competitive losses.~~primarily due to typhoon relief-related volume. For ~~2018,~~2019, the Company expects ~~a heightened~~modestly lower volume as the highly competitive environment ~~and lower volume than the levels achieved in 2017.~~remains.

In Alaska, the Company’s container volume for the first quarter ~~2018~~2019 was ~~10.1~~5.7 percent ~~higher~~lower year-over-year, primarily due to ~~an increase~~a decrease in northbound volume mainly related to the dry-docking of a competitor’s vessel in the year ago period and one ~~additional~~less northbound sailing. For ~~2018,~~2019, the Company expects volume to be modestly higher than the level achieved in ~~2017~~2018 with ~~improvement in~~higher northbound volume ~~partially offset~~supported by ~~lower~~improving economic conditions in Alaska and higher southbound seafood-related volume due to ~~a moderation from the very strong~~stronger seafood harvest levels than in ~~2017.~~2018.

The contribution in the first quarter 2019 from the Company’s SSAT joint venture investment was $2.0 million lower than the first quarter 2018 due primarily to the absence of favorable one-time items in the year ago period. For 2019, the Company expects the contribution from SSAT to be lower as a result of lower lift volume coming off an exceptionally strong lift volume level in 2018.

As a result of the first quarter performance and the outlook trends noted above, the Company expects full year ~~2018~~2019 Ocean Transportation operating income to ~~be modestly higher than~~approximate the ~~$128.8~~$131.1 million achieved in ~~2017.~~2018 after taking into account a full year net operating expense impact of $7.2 million associated with the sale and leaseback of MV Maunalei. In the second quarter ~~2018,~~2019, the Company expects Ocean Transportation operating income to ~~approach~~be moderately lower than the level achieved in the second quarter ~~2017.~~2018.

Logistics: In the first quarter ~~2018,~~2019, operating income for the Company’s Logistics segment was ~~$2.3~~$3.9 million higher compared to the operating income achieved in the first quarter ~~2017~~2018 due to improved performance across ~~almost~~ all of the service lines. For ~~2018,~~2019, the Company expects Logistics operating income to be moderately higher than the ~~$20.6 million~~level achieved in ~~2017.~~2018 of $32.7 million. In the second quarter ~~2018,~~2019, the Company expects operating income to be ~~moderately~~modestly higher than the level achieved in the second quarter ~~2017.~~2018.

Depreciation and Amortization: For the full year ~~2018,~~2019, the Company expects depreciation and amortization expense to be approximately ~~$132~~$130 million, inclusive of dry-docking amortization of approximately ~~$36~~$35 million.

EBITDA: While the Company expects net income in 2019 to decline year-over-year, we expect EBITDA in 2019 to be approximately $288 million, which is higher than the level achieved in 2018 after taking into account the full year impact in 2018 of the $12.0 million of lease expense related to the sale and leaseback of MV Maunalei.

Other Income (Expense): The Company expects full year ~~2018 EBITDA~~2019 other income (expense) to be ~~lower than~~approximately $2.7 million in income, which is attributable to other component costs related to the ~~$296.0 million achieved in 2017.~~Company’s pension and post-retirement plans.

Interest Expense: The Company expects interest expense for the full year ~~2018~~2019 to be approximately ~~$23~~$25 million.

Income ~~Tax Expense:~~Taxes: In the first quarter ~~2018,~~2019, the Company’s effective tax rate was ~~42.0~~7.4 percent, which includes a favorable non-cash ~~tax~~ adjustment of ~~$3.3~~$2.9 million ~~resulting~~related to the reversal of an expense adjustment in 2018 arising from ~~a reduction in~~ the ~~alternative minimum tax receivable under~~enactment of the Tax Cuts and Jobs ~~Act.~~Act of 2017. For the ~~balance of 2018,~~full year 2019, the Company expects its effective tax rate to be approximately ~~28 percent.~~26.0 percent, which excludes the aforementioned positive non-cash adjustment of $2.9 million in the first quarter of 2019.

Capital and Vessel Dry-docking Expenditures: InFor the first quarter ~~2018,~~2019, the Company made ~~maintenance~~other capital expenditure payments of ~~$13.1~~$13.5 million, capitalized vessel construction expenditures of ~~$57.7~~$20.9 million, and dry-docking payments of ~~$4.6~~$3.2 million. For the full year ~~2018,~~2019, the Company expects to make ~~maintenance~~other capital expenditure payments, including maintenance capital expenditures, of approximately ~~$68~~$120 million, vessel construction expenditures ~~(inclusive of~~(including capitalized interest and owner’s items) of approximately ~~$388~~$215 million, and dry-docking payments of approximately ~~$18~~$12 million.

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CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Results: Three months ended March 31, ~~2018,~~2019, compared with ~~2017:~~2018:


	Three Months Ended March 31,								Three Months Ended March 31,
(Dollars in millions, except per-share amounts)	2018		2017		Change
(Dollars in millions, except per share amounts)									2019		2018		Change
Operating revenue	$	511.4	$	474.4	$	37.0	7.8	%	$	532.4	$	511.4	$	21.0	4.1	%
Operating costs and expenses		(482.7)		(457.2)		(25.5)	5.6	%		(514.9)		(482.7)		(32.2)	6.7	%
Operating income		28.7		17.2		11.5	66.9	%		17.5		28.7		(11.2)	(39.0)	%
Interest expense		(5.0)		(6.3)		1.3	(20.6)	%		(4.6)		(5.0)		0.4	(8.0)	%
Other income (expense), net		0.8		(0.8)		1.6	(200.0)	%		0.6		0.8		(0.2)	(25.0)	%
Income before income taxes		24.5		10.1		14.4	142.6	%		13.5		24.5		(11.0)	(44.9)	%
Income taxes		(10.3)		(3.1)		(7.2)	232.3	%		(1.0)		(10.3)		9.3	(90.3)	%
Net income	$	14.2	$	7.0	$	7.2	102.9	%	$	12.5	$	14.2	$	(1.7)	(12.0)	%
Basic earnings per-share	$	0.33	$	0.16	$	0.17	106.3	%
Diluted earnings per-share	$	0.33	$	0.16	$	0.17	106.3	%
Basic earnings per share									$	0.29	$	0.33	$	(0.04)	(12.1)	%
Diluted earnings per share									$	0.29	$	0.33	$	(0.04)	(12.1)	%

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 ~~during~~for the three months ended March 31, ~~2018,~~2019, compared to the three months ended March 31, ~~2017,~~2018, was due to increased interest expense ~~due to higher average debt borrowings,~~ offset by a higher amount of capitalized interest.

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 $1.0 million or 7.4 percent of income before income taxes for the three months ended March 31, 2019, compared to $10.3 million or 42.0 percent of income before income taxes for the three months ended March 31, ~~2018, compared to $3.1~~2018. In connection with the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), the Company recorded a non-cash tax adjustment of $3.3 million ~~or 30.7 percent of income before~~that increased income taxes for the three months ended March 31, ~~2017. The increase in the effective income tax rate during the three months ended March 31, 2018, was primarily due~~2018. This adjustment related to the ~~recording of a non-cash tax adjustment of $3.3 million due to an~~ application of an estimated ~~6.6~~6.2 percent sequestration on alternative minimum tax (AMT) refunds due to the Company for the years 2018 to 2021, and was based on guidance issued by the Internal Revenue Service (IRS) ~~on alternative minimum~~and emerging interpretations of the Tax Act during that period. On January 19, 2019, the IRS issued new guidance indicating that sequestration would not apply to refundable AMT credits. In accordance with this new guidance, the Company recorded a non-cash tax ~~(AMT) refunds. Excluding the impact~~adjustment of ~~this adjustment, the~~$2.9 million that decreased income ~~tax rate~~taxes for the three months ended March 31, ~~2018,~~2019.

Excluding the impact of these discrete tax adjustments, the adjusted effective tax rate would ~~have been 28.6~~be 28.9 percent ~~which is lower than the tax rate~~ for the three months ended March 31, ~~2017, as a result~~2019, compared to 28.6 percent for the three months ended March 31, 2018.

Table of ~~applying the tax law changes resulting from the Tax Act.~~Contents

ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT

Ocean Transportation Operating Results: Three months ended March 31, ~~2018,~~2019, compared with ~~2017:~~2018:


	Three Months Ended March 31,										Three Months Ended March 31,
(Dollars in millions)	2018			2017			Change				2019			2018			Change
Ocean Transportation revenue	$	379.3		$	370.0		$	9.3	2.5	%	$	397.9		$	379.3		$	18.6	4.9	%
Operating costs and expenses		(354.8)			(354.7)			(0.1)	0.0	%		(388.5)			(354.8)			(33.7)	9.5	%
Operating income	$	24.5		$	15.3		$	9.2	60.1	%	$	9.4		$	24.5		$	(15.1)	(61.6)	%
Operating income margin		6.5	%		4.1	%						2.4	%		6.5	%

Volume (Forty-foot equivalent units (FEU) except for automobiles) (1)
Volume (Forty-foot equivalent units (FEU), except for automobiles) (1)
Hawaii containers		35,700			36,400			(700)	(1.9)	%		34,900			35,700			(800)	(2.2)	%
Hawaii automobiles		16,800			13,800			3,000	21.7	%		17,000			16,800			200	1.2	%
Alaska containers		17,400			15,800			1,600	10.1	%		16,400			17,400			(1,000)	(5.7)	%
China containers		11,900			15,300			(3,400)	(22.2)	%		13,800			11,900			1,900	16.0	%
Guam containers		4,900			5,400			(500)	(9.3)	%		5,100			4,900			200	4.1	%
Other containers (2)		3,100			2,100			1,000	47.6	%		3,500			3,100			400	12.9	%

(1)

Approximate volumes included for the period are based on the voyage departure date, but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages in transit at the end of each reporting period.

(2)

Includes containers from services in various islands in Micronesia and the South Pacific, and in Okinawa, Japan.

Ocean Transportation revenue increased $18.6 million, or 4.9 percent, during the three months ended March 31, 2019, compared with the three months ended March 31, 2018. This increase was primarily due to higher fuel surcharge revenue and higher revenue in China, partially offset by lower container volume in Alaska and Hawaii.

On a year-over-year FEU basis, Hawaii container volume decreased 2.2 percent primarily due to one less westbound sailing and weather-related impacts; Alaska volume decreased by 5.7 percent primarily due to lower northbound volume mainly related to the dry-docking of a competitor’s vessel in the year ago period and one less sailing; China volume was 16.0 percent higher primarily due to one additional sailing and stronger volume post Lunar New Year; Guam volume was 4.1 percent higher primarily due to typhoon relief-related volume; and Other container volume increased 12.9 percent primarily due to the Japan service.

Ocean Transportation operating income decreased $15.1 million, or 61.6 percent, during the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The decrease was primarily due to higher vessel operating costs, including weather-related impacts and MV Maunalei lease expense, higher terminal handling costs and lower container volume in Alaska and Hawaii, partially offset by a higher contribution from the China service.

The Company’s SSAT terminal joint venture investment contributed $8.5 million during the three months ended March 31, 2019, compared to a contribution of $10.5 million during the three months ended March 31, 2018. The decrease was primarily attributable to the absence of favorable one-time items in the year ago period.

Logistics Operating Results: Three months ended March 31, 2019, compared with 2018:


	Three Months Ended March 31,
(Dollars in millions)	2019			2018			Change
Logistics revenue	$	134.5		$	132.1		$	2.4	1.8	%
Operating costs and expenses		(126.4)			(127.9)			1.5	(1.2)	%
Operating income	$	8.1		$	4.2		$	3.9	92.9	%
Operating income margin		6.0	%		3.2	%

Logistics revenue increased $2.4 million, or 1.8 percent, during the three months ended March 31, 2019, compared with the three months ended March 31, 2018. This increase was primarily due to higher freight forwarding revenue.

Logistics operating income increased $3.9 million, or 92.9 percent, for the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The increase was due primarily to higher contributions from transportation brokerage and freight forwarding.

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Ocean Transportation revenue increased $9.3 million, or 2.5 percent, during the three months ended March 31, 2018, compared with the three months ended March 31, 2017. This increase was primarily due to higher fuel surcharge revenue and higher volume in Alaska, partially offset by lower volume in China and lower revenue in Guam.

On a year-over-year FEU basis, Hawaii container volume decreased by 1.9 percent primarily due to lower eastbound volume; Alaska volume increased by 10.1 percent primarily due to an increase in northbound volumes mainly related to the dry-docking of a competitor’s vessel and one additional sailing; China volume was 22.2 percent lower primarily due to two fewer sailings and lower volume during the Lunar New Year period; and Guam volume was 9.3 percent lower due to increased competition.

Ocean Transportation operating income increased $9.2 million during the three months ended March 31, 2018, compared with the three months ended March 31, 2017. This increase was primarily due to the favorable timing of fuel surcharge collections, lower vessel operating costs, a higher contribution from SSAT, and higher Alaska volume, partially offset by lower volume in China, lower revenue from Guam and higher terminal handling costs.

The Company’s SSAT terminal joint venture investment contributed $10.5 million during the three months ended March 31, 2018, compared to a $4.9 million contribution during the three months ended March 31, 2017. The increase was nearly equally attributable to improved lift volume and one-time items.

~~Logistics Operating Results: Three months ended March 31, 2018, compared with 2017:~~

Three Months Ended March 31,

(Dollars in millions)

2018

2017

Change

Logistics Revenue

$
132.1

$
104.4

$
27.7

26.5
%
Operating costs and expenses

(127.9)

(102.5)

(25.4)

24.8
%
Operating income

$
4.2

$
1.9

$
2.3

121.1
%
Operating income margin

3.2
%

1.8
%

Logistics revenue increased $27.7 million, or 26.5 percent, during the three months ended March 31, 2018, compared with the three months ended March 31, 2017. This increase was primarily due to higher highway and intermodal brokerage revenue.

Logistics operating income increased $2.3 million for the three months ended March 31, 2018 compared with the three months ended March 31, 2017. The increase was due primarily to higher contributions from highway brokerage and freight forwarding.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity: Sources of liquidity available to the Company at March 31, ~~2018,~~2019, compared to December 31, ~~2017~~2018 were as follows:


	March 31,		December 31,				March 31,		December 31,
(In millions)	2018		2017		Change		2019		2018		Change
Cash and cash equivalents	$	13.7	$	19.8	$	(6.1)	$	15.4	$	19.6	$	(4.2)
Restricted cash							$	8.9	$	4.9	$	4.0
Accounts receivable, net (1)	$	209.1	$	194.6	$	14.5	$	217.9	$	223.7	$	(5.8)
CCF - cash on deposit	$	0.9	$	0.9	$	—

(1)

As of March 31, ~~2018~~2019 and December 31, ~~2017, $135.7~~2018, $1.7 million and ~~$134.8~~$1.0 million, respectively, of eligible accounts receivable were assigned to the CCF (see Note 2 of the Condensed Consolidated Financial Statements).

~~Revolving Credit Facility:~~ As of March 31, 2018, the Company had $285.4 million of availability under the revolving credit facility, with a maturity date of June 29, 2022. The Company’s revolving credit facility is described in Note 8 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, 2017.

~~Table of Contents~~

~~Changes in~~ Cash, ~~and~~ Cash Equivalents and Restricted Cash: Significant changes in the Company’s cash, ~~and~~ cash equivalents and restricted cash for the three months ended March 31, ~~2018,~~2019, compared to the three months ended March 31, ~~2017 were~~2018 are as follows:

Three Months Ended March 31,

(In millions)

2018

2017

Change

Net cash provided by operating activities (1)

$
29.9

$
4.0

$
25.9

Net cash used in investing activities (2)

(69.8)

(24.2)

(45.6)

Net cash provided by financing activities (3)

33.8

25.8

8.0

Net (decrease) increase in cash and cash equivalents

(6.1)

5.6

(11.7)

Cash and cash equivalents, beginning of the year

19.8

13.9

5.9

Cash and cash equivalents, end of the year

$
13.7

$
19.5

$
(5.8)


	Three Months Ended March 31,
(In millions)	2019		2018		Change
Net cash provided by operating activities (1)	$	33.4	$	29.9	$	3.5
Net cash used in investing activities (2)		(33.2)		(69.8)		36.6
Net cash (used in) provided by financing activities (3)		(0.4)		33.8		(34.2)
Net decrease in cash, cash equivalents and restricted cash		(0.2)		(6.1)		5.9
Cash, cash equivalents and restricted cash, beginning of the period		24.5		19.8		4.7
Cash, cash equivalents and restricted cash, end of the period	$	24.3	$	13.7	$	10.6

(1) Change in net cash provided by operating activities:

Changes in net cash provided by operating activities for the three months ended March 31, ~~2018,~~2019, compared to the three months ended March 31, ~~2017,~~2018, were due to the following:


(In millions)	Change		Change
Net income from operations	$	7.2	$	(1.7)
Non-cash deferred income taxes		3.5		(2.6)
Other non-cash related changes, net		(6.8)		1.1
Distributions from Terminal Joint Venture		7.0		(2.8)
Deferred dry-docking payments		10.5		1.4
Accounts receivable, net		(6.1)		20.3
Prepaid expenses and other assets		9.3		(3.4)
Accounts payable, accruals and other liabilities		2.3		(9.4)
Other long-term liabilities		(1.0)		0.6
Total	$	25.9	$	3.5

~~Distributions received~~The decrease in equity income and distributions from Terminal Joint Venture results from a decrease in the Company’s share of income from the ~~Company’s~~ Terminal Joint Venture to $8.5 million during the three months ended March 31, 2019, compared to $10.5 million for the three months ended March 31, 2018 ~~were~~while distributions from the Terminal Joint Venture decreased to $4.2 million for the three months ended March 31, 2019, compared to $7.0 million for the three months ended March 31, 2018. The decrease in equity income and distributions from Terminal Joint Venture was primarily attributed to the absence of favorable one-time items in the prior year period, and the timing of distributions. Deferred dry-docking payments decreased to $3.2 million for the three months ended March 31, 2019, compared to ~~no distributions~~$4.6 million for the three months ended March 31, 2018, primarily due to fewer vessels in dry-docking during the current year period. Changes in accounts receivable were primarily due to decreased receivables resulting from the timing of billings and collections associated with those receivables. The decrease in prepaid expenses and other assets primarily related to an income tax refund received during the three months ended March 31, 2017. Deferred dry-docking payments decreased during the three months ended March 31, 2018, compared to the three months ended March 31, 2017, due to fewer vessels in dry-docking during the period. Changes in accounts receivable were due to2019, and the timing of ~~billings and collections. Changes in prepaid expenses~~prepayments and other ~~assets primarily relates to the timing of insurance prepayments and a reduction in income tax receivable.~~assets. Changes in accounts payable, accruals and other liabilities were due to decrease in accounts payables

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and accrued costs resulting from operations during the three months ended March 31, 2019, compared to the same prior year period, and the timing of payments associated with those liabilities.

(2) Change in net cash used in investing activities:

Changes in net cash used in investing activities for the three months ended March 31, ~~2018,~~2019, compared to the three months ended March 31, ~~2017,~~2018, were due to the following:


~~(In millions)~~	~~Change~~
~~Capitalized vessel construction expenditures~~	$	~~(56.4)~~
~~Other capital expenditures~~		~~9.8~~
~~Proceeds from disposal of property and equipment, net~~		~~1.0~~
~~Total~~	$	~~(45.6)~~



(In millions)	Change
Capitalized vessel construction expenditures	$	36.8
Cash deposits into CCF		40.1
Withdrawals from CCF		(40.1)
Other capital expenditures		(0.4)
Proceeds from disposal of property and equipment, net		0.2
Total	$	36.6

Vessel construction expenditures ~~including~~(including capitalized ~~interest~~interest) were ~~$57.7~~$20.9 million ~~during~~for the three months ended March 31, ~~2018,~~2019, compared to ~~$1.3~~$57.7 million ~~during~~for the three months ended March 31, ~~2017, and~~2018. Vessel construction expenditures relate to progress payments for the construction of ~~four~~ new vessels for the Hawaii ~~service.~~service, capitalized interest and owner’s items. 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 ~~decreased to $13.1~~payments were $13.5 million ~~during~~for the three months ended March 31, ~~2018,~~2019, compared to ~~$22.9~~$13.1 million ~~during~~for the three months ended March 31, ~~2017. The decrease was primarily due to lower capital expenditures incurred during 2018 due to the timing of capital projects.~~2018.

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(3) Change in net cash used in financing activities:

Changes in net cash used in financing activities for the three months ended March 31, ~~2018,~~2019, compared to the three months ended March 31, ~~2017,~~2018, were due to the following:

(In millions)

Change

Repayments of debt and capital leases

$
0.1

Increase in borrowings under revolving credit facility, net

5.0

Repurchase of Matson common stock

0.7

Dividends paid

(0.4)

Change in other payments, net

2.6

Total

$
8.0



(In millions)	Change
Repayments of fixed interest debt and capital leases	$	(5.7)
Borrowings under revolving credit facility, net		(29.0)
Dividends paid		(0.4)
Change in other payments, net		0.9
Total	$	(34.2)

During the three months ended March 31, ~~2018,~~2019, the Company paid $8.2 million in scheduled fixed debt and capital lease repayments compared to $2.5 million during the three months ended March 31, 2018. During the three months ended March 31, 2019, the Company increased net borrowings under the ~~Company’s~~ revolving credit facility ~~was $49.0~~by $20.0 million, compared to ~~$44.0~~$49.0 million for the three months ended March 31, ~~2017.~~2018. Borrowings from the Company’s revolving credit facility were primarily used to fund progress payments related to the construction of ~~four~~ new vessels for the Hawaii service. During the three months ended March 31, ~~2018,~~2019, the Company paid ~~$8.7~~$9.1 million in dividends, compared to ~~$8.3~~$8.7 million during the three months ended March 31, ~~2017. During~~2018. The increase in dividend payments resulted from an increase in dividends declared per share of common stock by the ~~three months ended~~Company.

Debt: Total debt as of March 31, ~~2017, the Company paid $0.7~~2019 and December 31, 2018 is as follows:


	March 31,		December 31,
(In millions)	2019		2018		Change
Revolving credit facility	$	255.0	$	235.0	$	20.0
Fixed interest debt		613.1		621.4		(8.3)
Total Debt	$	868.1	$	856.4	$	11.7

Total debt increased by $11.7 million ~~in the repurchase of Matson common stock. There was no repurchases of any Matson common stock~~ during the three months ended March 31, ~~2018.~~2019. The increase in the Company’s revolving credit facility was primarily due to the funding of progress payments related to the construction of new vessels for the Hawaii service. The reduction in fixed interest debt was due to increased scheduled debt repayments.

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As of March 31, 2019, the Company had $246.5 million of availability under the revolving credit facility, with a maturity date of June 29, 2022. The Company’s debt is described in Note 8 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, 2018, which is incorporated herein by reference.

Working Capital:The Company had a working capital deficiency of ~~$6.8~~$104.5 million and ~~$20.3~~$52.4 million at March 31, ~~2018~~2019 and ~~2017,~~December 31, 2018, respectively.

CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

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, ~~2017,~~2018, which is incorporated herein by ~~reference, except as described below.~~reference.

Payment Due By Period

Contractual Obligations (in millions)

2018

2019-2020

2021-2022

Thereafter

Total
Construction of vessels (1)

$
345.3

$
217.2

$
—

$
—

$
562.5

~~(1)~~

The amounts shown above for construction of vessels represents the revised timing and amount of the remaining contractual obligations at December 31, 2017 related to the two Aloha Class and two Kanaloa Class vessels to be used in the Hawaii service that are described in Part I, Item 1 “Business” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The 2018 amount includes $53.4 million of capitalized vessel construction expenditures (excluding owners items and capitalized interest) paid by the Company during the three months ended March 31, 2018. Actual timing and amounts of future payments are subject to change and may be materially different from the amounts estimated by the Company as shown 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, ~~2017.~~2018.

OTHER MATTERS

The Company’s first quarter ~~2018~~2019 cash dividend of ~~$0.20 per-share~~$0.21 per share was paid on March ~~1, 2018 to shareholders of record as of February 8, 2018.~~7, 2019. On April ~~26, 2018,~~25, 2019, the Company’s Board of Directors declared a cash dividend of ~~$0.20 per-share~~$0.21 per share payable on June ~~7, 2018 to shareholders of record as of the close of business on May 10, 2018.~~6, 2019.

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, ~~2017.~~2018.

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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 March 31, ~~2018,~~2019, the Company’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting.

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 March 31, ~~2018,~~2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

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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, ~~2017.~~2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Share Repurchases:~~ On November 4, 2015, the Company announced that Matson’s Board of Directors had approved a share repurchase program of up to 3.0 million shares of common stock through November 2, 2018. Shares can be repurchased in the open market from time to time, and may be made pursuant to a trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. During the quarter ended March 31, 2018, no shares were repurchased, excluding shares withheld for employee taxes upon vesting of share-based awards. The maximum number of remaining shares that may be purchased under the share repurchase program was 1,151,288 as of March 31, 2018.None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

31.2	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

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

2022

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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: May ~~2, 2018~~9, 2019	/s/ Joel M. Wine
	Joel M. Wine
	Senior Vice President and
	Chief Financial Officer


Date: May ~~2, 2018~~9, 2019	/s/ Kevin L. Stuck
	Kevin L. Stuck
	Vice President and Controller
	(~~Principal Accounting Officer)~~principal accounting officer)

2123


	Three Months Ended March 31, 2018					Three Months Ended March 31, 2017
			Weighted	Per				Weighted	Per
			Average	Common				Average	Common
	Net		Common	Share		Net		Common	Share
(In millions, except per-share amounts)	Income		Shares	Amount		Income		Shares	Amount
Basic:	$	14.2	42.6	$	0.33	$	7.0	43.0	$	0.16
Effect of Dilutive Securities:			0.3		—			0.4		—
Diluted:	$	14.2	42.9	$	0.33	$	7.0	43.4	$	0.16


			Payment Due By Period
Contractual Obligations (in millions)	2018		2019-2020		2021-2022		Thereafter		Total
Construction of vessels (1)	$	345.3	$	217.2	$	—	$	—	$	562.5