ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Company, from time to time, may make or may have made certain forward-looking statements, whether orally or in writing, such as, among others, forecasts or projections of the Company’s future performance or statements of management’s plans and objectives. These statements are considered “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be contained in, among other things, SEC filings such as Forms 10-K, 10-Q and 8-K, the Company’s Annual Report to Shareholders, the Company’s Sustainability Report, 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. Except for historical information contained in these written or oral communications, all other statements are forward-looking statements. These include, for example, all references to 2024 or future years, including such references included under “Fourth Quarter 2023 Discussion and Update on Business Conditions,” as well as statements generally identified through the inclusion of words such as “anticipate,” “believe,” “can,” “commit,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “target,” “should,” “seek,” and “will,” or similar statements or variations of such terms and other similar expressions. New risks or uncertainties may emerge from time to time, risks that the Company currently does not consider to be material could become material, and it is not possible for the Company to predict all such risks, nor can it assess the impact of all such risks on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results or outcomes, or the timing of results or outcomes, to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results or outcomes and involve a number of risks and uncertainties that could cause actual results or outcomes to differ materially from those projected in the statements, including but not limited to the factors that are described in Part I, Item 1A under the caption “Risk Factors” of this Annual Report on Form 10-K, which section is incorporated herein by reference, and elsewhere in this report. Except as required by law, the Company undertakes no obligation to revise or update publicly forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, circumstances occurring after the date of this report, or otherwise.
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 assists in understanding the changes in the Company’s Consolidated Financial Statements from year to year, the primary factors that accounted for those changes, and how certain accounting principles, policies and estimates affected the Company’s Consolidated Financial Statements. The MD&A is provided as a supplement to the Consolidated Financial Statements and the accompanying notes to the Consolidated Financial Statements in Item 8 of Part II below, and should be read in conjunction with the entirety of the Company’s Annual Report on Form 10-K and other reports on Forms 10-Q and 8-K, and other publicly available information. Discussion and analysis of the financial condition and results of operations of Matson for the year ended December 31, 2022 compared with the year ended December 31, 2021 can be found in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023.
The MD&A is presented in the following sections:
◾ Historical Financial Information
◾ Fourth Quarter 2023 Discussion and Outlook for 2024
◾ Consolidated Results of Operations
◾ Analysis of Operating Revenue and Income by Segment
◾ Liquidity and Capital Resources
◾ Commitments, Contingencies and Off-Balance Sheet Arrangements
◾ Critical Accounting Estimates
◾ Other Matters
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HISTORICAL FINANCIAL INFORMATION
The comparative selected financial information of the Company is presented for each of the past five years ended December 31, 2023. The information should be read in conjunction with Item 8, “Financial Statements and Supplementary Data.” All fiscal years include 52 weeks, except for the year ended December 31, 2021 which includes 53 weeks (a description of the Company’s fiscal year is included in Note 2 to the Consolidated Financial Statements in Item 8 of Part II below):
Operating Revenue:
Operating and Net Income:
Interest income 36.0 8.2 — — —
Other income (expense), net 6.4 8.5 6.4 6.1 1.2
Capital Expenditures:
Depreciation and Amortization:
Earnings Per Share in Net Income:
Cash dividends per share declared $ 1.26 $ 1.22 $ 1.06 $ 0.90 $ 0.86
As of December 31:
Capital Construction Fund (“CCF”) (3) $ 599.4 $ 518.2 $ — $ — $ —
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FOURTH QUARTER 2023 DISCUSSION AND OUTLOOK FOR 2024
Ocean Transportation: The Company’s container volume in the Hawaii service in the fourth quarter 2023 was 1.9 percent lower year-over-year. The decrease was primarily due to lower general demand. According to UHERO’s most recent forecast report, the Hawaii economy is projected to grow modestly despite challenged growth in visitor arrivals primarily due to reduced tourism to Maui as a result of the wildfires last year and sluggish recovery of international tourism. The Company expects volume in 2024 to be comparable to the level in 2023, reflecting modest economic growth in Hawaii and stable market share.
In China, the Company’s container volume in the fourth quarter 2023 increased 23.3 percent year-over-year. The increase was primarily due to higher demand for the China service resulting in higher volumes for both CLX and CLX+. The Company achieved lower freight rates in the fourth quarter 2023 as compared to the prior year period. Currently in the Transpacific marketplace, the Company continues to see steady U.S. consumer demand, which the Company expects to lead to similar demand for Matson’s CLX and CLX+ services in 2024 as in 2023. The Company also expects average freight rates in 2024 to be modestly higher than the levels achieved in 2023.
In Guam, the Company’s container volume in the fourth quarter 2023 increased 2.0 percent year-over-year primarily due to higher general demand. In the near-term, the Company expects continued improvement in the Guam economy with a low unemployment rate and a modest increase in tourism. For 2024, the Company expects volume to approximate the level achieved last year.
In Alaska, the Company’s container volume for the fourth quarter 2023 decreased 0.6 percent year-over-year due to lower export seafood volume from the Alaska-Asia Express service (“AAX”), partially offset by higher northbound volume due to an additional sailing and higher southbound volume due to higher domestic seafood volume. In the near-term, the Company expects continued economic growth in Alaska supported by a low unemployment rate, jobs growth and lower levels of inflation. For 2024, the Company expects volume to approximate the level achieved last year.
The contribution in the fourth quarter 2023 from the Company’s SSAT joint venture investment was $4.1 million, or $3.1 million higher than the fourth quarter 2022. For 2024, the Company expects the contribution from SSAT to be higher than the levels achieved in 2023 due to an expected increase in lift volumes.
Absent a significant change in trajectory of the U.S. economy, the Company expects trade dynamics across all its tradelanes in 2024 to be comparable to 2023 as consumer-related spending activity is expected to remain stable and, as noted above, the Company also expects increased operating income contributions from SSAT. As such, the Company expects full year 2024 Ocean Transportation operating income to be higher than the $294.8 million achieved in 2023. In the first quarter 2024, the Company expects Ocean Transportation operating income to be lower than the $27.8 million achieved in the first quarter 2023.
Logistics: In the fourth quarter 2023, operating income for the Company’s Logistics segment was $8.9 million, or $3.9 million lower compared to the level achieved in the fourth quarter 2022. The decrease was primarily due to a lower contribution from transportation brokerage. For 2024, the Company expects challenging business conditions for transportation brokerage at least through the first half of the year, which the Company expects to lead to operating income being lower in 2024 than the level achieved in 2023. For the first quarter 2024, the Company expects Logistics operating income to be lower than the $10.9 million achieved in the first quarter 2023.
Consolidated Operating Income: For full year 2024, the Company expects consolidated operating income to approximate the $342.8 million achieved in 2023 and expects comparable seasonality to the prior year. For the first quarter 2024, the Company expects consolidated operating income to be lower than the $38.7 million achieved in the first quarter 2023.
Depreciation and Amortization: For the full year 2024, the Company expects depreciation and amortization expense to be approximately $180 million, inclusive of dry-docking amortization of approximately $27 million.
Interest Income: The Company expects interest income for the full year 2024 to be approximately $35 million.
Interest Expense: The Company expects interest expense for the full year 2024 to be approximately $8 million.
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Other Income (Expense): The Company expects full year 2024 other income (expense) to be approximately $7 million in income, which is attributable to other component costs related to the Company’s pension and post-retirement plans.
Income Taxes: In the fourth quarter 2023, the Company’s effective tax rate was 26.0 percent. For the full year 2024, the Company expects its effective tax rate to be approximately 22.0 percent.
Capital and Vessel Dry-docking Expenditures: For the full year 2023, the Company made capital expenditure payments excluding new builds of $195.5 million, capitalized vessel construction expenditures of $52.9 million, and dry-docking payments of $24.1 million. For the full year 2024, the Company expects to make other capital expenditure payments, including maintenance capital expenditures, of approximately $180 to $200 million, new vessel construction expenditures (including capitalized interest and owner’s items) of approximately $75 million, and dry-docking payments of approximately $35 million.
CONSOLIDATED RESULTS OF OPERATIONS
The following analysis of the financial results of operations of Matson for the years ended December 31, 2023 and 2022 should be read in conjunction with the Consolidated Financial Statements in Item 8 of Part II below.
Consolidated Results: 2023 compared with 2022:
Years Ended December 31,
(Dollars in millions, except per share amounts) 2023 2022 Change
Other income (expense), net 6.4 8.5 (2.1) (24.7) %
Fiscal Year: Fiscal years ended December 31, 2023 and 2022 include 52 weeks.
Consolidated Operating Revenue for the year ended December 31, 2023 decreased $1,248.4 million, or 28.7 percent, compared to the prior year. The decrease was due to decrease in Ocean Transportation revenue of $1,067.6 million and a decrease in Logistics revenue of $180.8 million.
Operating Costs and Expenses for the year ended December 31, 2023 decreased $237.6 million, or 7.9 percent, compared to the prior year. The decrease was due to a decrease in Ocean Transportation operating costs and expenses of $81.2 million and a decrease in Logistics operating costs and expenses of $156.4 million.
Operating Income for the year ended December 31, 2023 decreased $1,010.8 million, or 74.7 percent, compared to the prior year. The decrease was due to a decrease in Ocean Transportation operating income of $986.4 million and a decrease in Logistics operating income of $24.4 million.
The reasons for changes in operating revenue, operating costs and expenses, and operating income are described below, by business segment, in “Analysis of Operating Revenue and Income by Segment.”
Interest Income was $36.0 million for the year ended December 31, 2023, compared to $8.2 million in the prior year. The increase in interest income was due to amounts on deposit in cash and cash equivalent accounts, and cash on deposit within the Capital Construction Fund that were invested in interest bearing accounts during the year ended December 31, 2023.
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Interest Expense was $12.2 million for the year ended December 31, 2023, compared to $18.0 million in the prior year. The decrease in interest expense was due to lower outstanding debt during the year ended December 31, 2023, compared to the prior year.
Other Income (Expense), net was $6.4 million for the year ended December 31, 2023, compared to $8.5 million in the prior year, and relates to the amortization of certain components of net periodic benefit costs or gains related to the Company’s pension and post-retirement plans. The decrease in Other income (expense) was due to unfavorable adjustments reflected in the Company’s pension and post-retirement plan liabilities during the year ended December 31, 2023.
Income Taxes for the year ended December 31, 2023 were $75.9 million, or 20.3 percent of income before income taxes, compared to $288.4 million, or 21.3 percent of income before income taxes in the prior year. The 2023 income tax rate benefited from certain discrete tax adjustments that lowered the effective tax rate in the current year.
Net Income during the year ended December 31, 2023 decreased $766.8 million, or 72.1 percent, to $297.1 million for the year ended December 31, 2023, compared to the prior year.
ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT
The following analysis of operating revenue and income by segment for the years ended December 31, 2023 and 2022 should be read in conjunction with the Company’s reportable segments information included in Note 3 to the Consolidated Financial Statements in Item 8 of Part II.
Ocean Transportation:2023 compared with 2022:
Years Ended December 31,
Operating income margin 11.9 % 36.1 %
Ocean Transportation revenue decreased $1,067.6 million, or 30.1 percent, during the year ended December 31, 2023, compared with the year ended December 31, 2022. The decrease was primarily due to lower average freight rates and volume in China.
On a year-over-year FEU basis, Hawaii container volume decreased 3.0 percent primarily due to lower general westbound demand and lower eastbound volume; Alaska volume decreased 5.8 percent due to lower export seafood volume from the AAX; China volume was 13.7 percent lower primarily due to CCX volume in the first nine months of 2022 (the CCX service was discontinued in the third quarter 2022); Guam volume was 4.7 percent lower primarily due to lower general demand; and Other containers volume decreased 22.2 percent.
Ocean Transportation operating income decreased $986.4 million during the year ended December 31, 2023, compared with the year ended December 31, 2022. The decrease was primarily due to lower freight rates and volume in China and a lower contribution from SSAT, partially offset by lower operating costs and expenses including fuel-related expenses primarily related to the discontinuation of the CCX service and lower fuel costs and the timing of fuel-related surcharge collections.
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The Company’s SSAT terminal joint venture investment contributed $2.2 million during the year ended December 31, 2023, compared to a contribution of $83.1 million during the year ended December 31, 2022. The decrease was primarily driven by lower demurrage revenue.
Logistics:2023 compared with 2022:
Years Ended December 31,
Operating income margin 7.8 % 9.1 %
Logistics revenue decreased $180.8 million, or 22.6 percent, during the year ended December 31, 2023, compared with the year ended December 31, 2022. The decrease was primarily due to lower revenue in transportation brokerage.
Logistics operating income decreased $24.4 million, or 33.7 percent, during the year ended December 31, 2023, compared with the year ended December 31, 2022. The decrease was primarily due to lower contributions from transportation brokerage and supply chain management.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are its cash flows generated from operating activities and its debt. Sources of liquidity available to the Company as of December 31, 2023 compared to December 31, 2022, were as follows:
Cash and Cash Equivalents, Restricted Cash and Accounts Receivable: Cash and cash equivalents, restricted cash and accounts receivable, net as of December 31, 2023 and 2022 were as follows:
As of December 31,
Restricted cash $ 2.3 $ 3.9 $ (1.6)
Changes in the Company’s cash, cash equivalents and restricted cash for the years ended December 31, 2023, 2022 and 2021 were as follows:
As of December 31,
Change
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Change
Non-cash depreciation and amortization 3.1 5.4
Deferred income taxes (70.6) 57.0
Other non-cash related changes, net 4.9 (1.7)
Income and distribution from SSAT, net 33.6 (26.4)
Accounts receivable, net (85.5) 164.9
Prepaid expenses and other assets 78.7 2.9
Accounts payable, accruals and other liabilities 42.6 (71.3)
Operating lease liabilities 9.3 (54.4)
Non-cash amortization of operating lease right of use assets (11.0) 49.7
Deferred dry-docking payments 1.6 10.6
Non-cash deferred dry-docking amortization 0.4 0.6
Other long-term liabilities (1.7) 14.0
Income from SSAT was $2.2 million for the year ended December 31, 2023, compared to $83.1 million in the prior year. The decrease in income from SSAT was primarily due to lower operating profits generated by SSAT during the year ended December 31, 2023, compared to the prior year. No cash distributions were received from SSAT during the year ended December 31, 2023, compared to $47.3 million of dividends received in the prior year. Cash distributions from SSAT are dependent on the level of cash available for distribution after SSAT’s operational and capital needs. Changes in accounts receivable were primarily due to the timing of collections associated with those receivables. Changes in prepaid expenses and other assets were primarily due to a decrease in prepaid income taxes at the end of December 31, 2023 as compared to the prior year. Changes in accounts payable, accruals and other liabilities were primarily due to the timing of payments associated with those liabilities. Changes in operating lease liabilities were primarily due to operating leases that expired during the year ended December 31, 2023, partially offset by new operating leases entered into during the year ended December 31, 2023. Deferred dry-docking payments were $24.1 million for the year ended December 31, 2023, compared to $25.7 million in the prior year. The decrease in deferred dry-docking payments was due to a decrease in vessel dry-dock related activities during the year ended December 31, 2023, compared to the prior year.
Change
Cash deposits and interest into the CCF $ 454.3 $ (551.6)
Withdrawals from CCF (14.7) 33.4
Capitalized vessel construction expenditures 9.5 (47.5)
During the year ended December 31, 2023, cash deposits and interest earned in the CCF were $100.0 million and $28.5 million, respectively, compared to $579.7 million and $3.1 million in the prior year, respectively. Cash withdrawals from the CCF were $49.9 million during the year ended December 31, 2023, compared to $64.6 million in the prior year, and were related to vessel construction milestone payments. Capitalized vessel construction expenditures were $52.9 million for the year ended December 31, 2023, compared to $62.4 million in the prior year. The decrease in capitalized vessel construction expenditures was due to the timing of milestone payments related to the Company’s new fleet renewal program. Capital expenditures (excluding vessel construction expenditures) were $195.5 million for the year ended December 31, 2023, compared to $146.9 million for the prior year. Capital expenditures (excluding vessel construction expenditures) during the year ended December 31, 2023 included costs associated with LNG installations and the reengining of an existing vessel, and the purchase of additional containers, chassis and other terminal equipment to support the Company’s operational activities.
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Change
Repurchase of Matson common stock $ 241.8 $ (198.7)
Repayments of fixed interest debt 34.6 (52.2)
Repayments and borrowings under revolving credit facility, net — 71.8
Dividends paid 3.0 (2.1)
Payment of financing costs — 3.0
The Company paid $155.2 million to repurchase common stock during the year ended December 31, 2023, compared to $397.0 million in the prior year. The Company did not issue any new fixed interest debt during the years ended December 31, 2023 and 2022. The Company paid $76.9 million of prepaid and scheduled fixed interest debt principal payments, compared to $111.5 million of prepaid scheduled principal payments during the prior year. During the year ended December 31, 2021, the Company paid $71.8 million, net, to fully repay the Company’s revolving credit facility. There were no borrowings under the revolving credit facility during the years ended December 31, 2023 and 2022.
Capital Construction Fund:The Company utilizes its CCF to fund milestone payments for the construction of new vessels. The Company’s CCF is described in Note 7 to the Consolidated Financial Statements. Cash on deposit in the CCF and assigned accounts receivable as of December 31, 2023 and 2022 were as follows:
As of December 31,
Capital Construction Fund:
Assigned accounts receivables $ 218.1 $ 9.9
During the years ended December 31, 2023 and 2022, the Company deposited $128.5 million and $582.8 million into the CCF, respectively. During the years ended December 31, 2023 and 2022, the Company made withdrawals of $49.9 million and $64.6 million out of the CCF, respectively, which were used to make milestone payments for the construction of new vessels. Cash on deposit in the CCF is held in short term U.S. Treasury Obligation Funds and is classified as a long-term asset in the Company’s Consolidated Balance Sheets, as the Company intends to use qualified cash withdrawals from the CCF to fund long-term investments in the construction of new vessels. Assigned accounts receivable in the CCF are classified as part of accounts receivable in the Consolidated Balance Sheets due to the nature of the assignment.
In February 2024, the Company purchased approximately $450 million of fixed-rate U.S. Treasuries with CCF cash deposits. The fixed-rate investments have various maturity dates up to 3 years.
Debt: The Company utilizes a mix of fixed and variable debt for liquidity and to fund the Company’s operations. Total debt as of December 31, 2023 and 2022 is as follows:
As of December 31,
Total debt decreased by $76.9 million during the year ended December 31, 2023 compared to the prior year. The decrease in fixed interest debt was due to the $26.4 million prepayments of Title XI debt, and scheduled debt repayments of private placement term loans and Title XI debt made during the year ended December 31, 2023.
As of December 31, 2023, the Company had $644.2 million of unused capacity under the revolving credit facility, with a maturity date of March 31, 2026. The Company’s debt is described in Note 8 to the Consolidated Financial Statements in Item 8 of Part II.
Working Capital: The Company had a working capital surplus of $40.0 million at December 31, 2023, compared to a working capital surplus of $178.0 million at December 31, 2022. Working capital is primarily impacted by the amount
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of net cash provided by operating activities, the amount of capital expenditures, the amount and timing of collections associated with accounts receivable, prepaid expenses and other assets, and the amount and timing of payments associated with accounts payable, accruals, income taxes, debt and other liabilities. The decrease in the Company’s working capital surplus during the year ended December 31, 2023 was due to the decrease in cash provided by operating activities and higher capital expenditures during the year.
Capital Expenditures: The Company expects to make the following capital expenditures during the years ending December 31, 2024, 2025 and 2026:
New vessel construction milestone payments and related costs are for the Company’s new vessel program for the construction of three new vessels at a cost of approximately $1.0 billion with expected delivery dates during the fourth quarter of 2026, the second quarter of 2027 and the fourth quarter of 2027. Future milestone payments are expected to be financed with cash currently on deposit in the Company’s CCF, cash and cash equivalents on the Consolidated Balance Sheets and through cash flows generated from future operations, borrowings available under the Company’s unsecured revolving credit facility or additional debt financings.
LNG installations on existing vessels includes capital expenditures for the installation of tanks, piping and cryogenic equipment on existing Aloha Class vessels so that they can operate on LNG and conventional fuels. The LNG installation project on Kaimana Hila is currently scheduled to begin during the second quarter of 2024 at a cost of approximately $47 million. Additionally, the reengining of Manukai to operate on LNG and conventional fuels is in progress with an expected remaining cost of approximately $72 million.
Maintenance and other capital expenditures include amounts that the Company expects to spend on various capital projects, including capital expenditures related to the second and third phase of its program to modernize and renovate its terminal facility at Sand Island, Honolulu, Hawaii, repurchases of leased equipment, vessel capital maintenance and annual equipment purchases to support the Company’s operations. The Company expects to fund these capital expenditures (including the LNG installations) with cash and cash equivalents on the Consolidated Balance Sheets and through cash flows generated from future operating activities.
Repurchase of Shares: During the year ended December 31, 2023, the Company repurchased approximately 2.1 million shares for a total cost of $158.2 million. The remaining number of shares that may be repurchased under the Company’s stock repurchase program was 2,462,188 shares at December 31, 2023.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Commitments and Contingencies: A description of other commitments and contingencies is set forth in Note 9, Note 11 and Note 17 to the Consolidated Financial Statements in Item 8 of Part II below, and is incorporated herein by reference.
Off-balance Sheet Arrangements: The Company is not currently party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, results of operations or cash flows.
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CRITICAL ACCOUNTING ESTIMATES
The Company’s significant accounting policies are described in Note 2 to the Consolidated Financial Statements in Item 8 of Part II below. The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, upon which the Company’s Management Discussion and Analysis of Financial Condition and Results of Operations is based, requires that management exercise judgment in making accounting estimates about future events that may affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Future events and their effects cannot be determined with certainty and actual results will, inevitably, differ from those accounting estimates. These differences could be material.
The Company considers an accounting estimate to be critical if (i)(a) the accounting estimate requires the Company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made, (b) changes in the estimate are reasonably likely to occur in periods after the period in which the estimate was made, or (c) the Company could have used different estimates; and (ii) changes in those accounting estimates would have had a material impact on the financial condition or results of operations of the Company. The critical accounting policies and estimates considered in the preparation of the Company’s Consolidated Financial Statements are described below. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.
Long-Lived Assets, Intangible Assets and Goodwill: The Company evaluates its long-lived assets, intangible assets and goodwill for possible impairment in the fourth quarter, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than its carrying amount. The Company has reporting units within the Ocean Transportation and Logistics reportable segments.
Long-lived Assets and Finite-lived Intangible Assets: Long-lived assets and finite-lived intangible assets are grouped at the lowest level for which identifiable cash flows are available. In evaluating for impairment, the estimated future undiscounted cash flows generated by each of these asset groups are compared with the carrying value recorded for each asset group to determine if its carrying value is recoverable. If this review determines that the amount recorded will not be recovered, the amount recorded for the asset group is reduced to its estimated fair value. These asset impairment analyses are highly subjective because they require management to make assumptions and apply considerable judgments to, among other things, estimates of the timing and amount of future cash flows, expected useful lives of the assets, potential impact of future events, including changes in economic conditions and operating performance, and future costs of maintenance and improvements of the assets. If management uses different assumptions or if different conditions occur in future periods, the Company’s financial condition or its future operating results could be materially impacted. The Company has evaluated its long-lived assets and finite-lived intangible assets for impairment and determined that there was no impairment for the years ended December 31, 2023, 2022, and 2021.
Indefinite-life Intangible Assets and Goodwill: The Company’s intangible assets include goodwill and a trade name, and are grouped at the lowest level reporting unit for which identifiable cash flows are available. In estimating the fair value of a reporting unit, the Company uses a combination of a discounted cash flow model and fair value based on market multiples of earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The discounted cash flow approach requires the Company to use a number of assumptions, including market factors specific to the business, the amount and timing of estimated future cash flows generated by the business over an extended period of time, long-term growth rates for the business, and a discount rate that considers the risks related to the amount and timing of the cash flows. Although the assumptions used by the Company in its discounted cash flow model are consistent with the assumptions the Company used to generate its internal strategic plans and forecasts, significant judgment is required to estimate the amount and timing of future cash flows from the reporting unit and the risk of achieving those cash flows. When using market multiples of EBITDA, the Company makes judgments about the comparability of multiples in closed and proposed transactions. Accordingly, changes in assumptions and estimates, including, but not limited to, changes driven by external factors, such as industry and economic trends, and those driven by internal factors, such as changes in the Company’s business strategy and its internal forecasts, could have a material effect on the Company’s financial condition or its future operating results. The Company has evaluated its indefinite-life intangible assets and goodwill for impairment and determined that there was no impairment for the years ended December 31, 2023, 2022, and 2021.
Insurance Related Liabilities: The Company purchases insurance with deductibles or self-insured retentions to mitigate significant risks that it is exposed to. Such insurance includes, but is not limited to, employee health, workers’ compensation, marine liability, cybersecurity, auto liability and physical damage to property and equipment. For certain
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risks, the Company elects to not purchase insurance because of the excessive cost of such insurance, the perceived remoteness of the risk or insurance coverage is not commercially available. The Company retains the risk of loss for insurance deductibles and self-insured retentions, for amounts that exceed the limits of the Company’s insurance policies, and for other risks not covered by insurance.
When estimating its reserves for retained risks and related liabilities, the Company considers a number of factors, including historical claims experience, demographic factors, current trends, and analyses provided by independent third parties. Periodically, management reviews its assumptions and estimates used to determine the adequacy of the Company’s reserves for retained risks and other related liabilities. The Company’s retained risks and other related liabilities contain uncertainties because management is required to apply judgment and make long-term assumptions to estimate the ultimate cost to settle reported claims, and of claims incurred but not reported, as of the balance sheet date. Insurance related liabilities were $41.3 million and $45.4 million at December 31, 2023 and 2022, respectively. The Company’s estimate of insurance related liabilities could change if management uses different assumptions or if different conditions occur in future periods, however the Company does not expect any such change would have a material impact on the Company’s financial condition and results of operations.
Pension and Post-Retirement Plans: The estimation of the Company’s pension and post-retirement benefit expenses and liabilities requires the Company to make various assumptions. These assumptions include factors such as discount rates, expected long-term rate of return on pension plan assets, salary growth, health care cost trend rates, inflation, retirement rates, mortality rates and expected contributions. Actual results that differ from the assumptions made could materially affect the Company’s financial condition or its future operating results. The effects of changing assumptions are included in unamortized net gains and losses, which directly affect accumulated other comprehensive income (loss). Additionally, these unamortized gains and losses are amortized and reclassified to income (loss) over future periods.
Additional information about the Company’s pension and post-retirement plans and assumptions used is included in Note 11 to the Consolidated Financial Statements in Item 8 of Part II below.
Income Taxes: The Company’s income tax expense requires the Company to make various estimates and judgments. These estimates and judgments are applied in the calculation of taxable income, tax credits, tax benefits, CCF and other tax deductions, and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue, costs and expenses for tax purposes. The calculation of deferred tax assets and liabilities may be impacted by various factors including but not limited to changes in tax rates; changes in tax laws, regulations, and rulings; changes in interpretations of existing tax laws, regulations and rulings; and changes in the evaluation of the Company’s ability to realize deferred tax assets including operating loss and tax credit carryforwards. Deferred tax assets and liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when the temporary differences reverse. Significant changes to these estimates may result in an increase or decrease to the Company’s income taxes in a subsequent period.
The Company records a valuation allowance if, based on the weight of available evidence, management believes that it is more likely than not that some portion or all of a recorded deferred tax asset would not be realized in future periods.
Additional information about the Company’s income taxes is included in Note 10 to the Consolidated Financial Statements in Item 8 of Part II below.
OTHER MATTERS
New Accounting Pronouncements: See Note 2 to the Consolidated Financial Statements in Item 8 of Part II below for additional information on new accounting pronouncements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Debt and Interest Rate Risks: The Company is exposed to changes in interest rates, primarily as a result of its borrowing and investing activities used to maintain liquidity and to fund business operations, including borrowings under its revolving credit facility, private placement term loans and Title XI debt. In order to manage its exposure to changes in interest rates, the Company utilizes a balanced mix of both fixed-rate and variable-rate debt with various maturity dates. The nature and amount of the Company’s outstanding debt are expected to fluctuate as a result of future business requirements, market conditions and other factors.
Other than in certain events of default, the Company is not obligated to prepay its variable and fixed rate debt prior to maturity. For fixed rate debt, changes in market interest rates would not affect the Company’s financial condition or results of operations.
Additional information about the Company’s debt is included in Note 8 to the Consolidated Financial Statements in Item 8 of Part II below.
Investment Risks: The Company invests excess cash in short-term money market funds that purchase government securities or corporate debt securities, or in other deposit products. These money market funds and deposits maintain a weighted average maturity of less than 90 days. A one percent change in interest rates is not expected to have a material impact on the fair value of these investments or on the Company’s results of operations.
The Company may invest funds on deposit in the CCF in money market funds, U.S. Treasury Obligation Funds or other eligible credit-based investments for maturities of up to three years. A one percent change in interest rates is not expected to have a material impact on the fair value of these investments or on the Company’s results of operations.
Foreign Currency Risks: The Company has no material exposure to foreign currency risks, although it is indirectly affected by changes in currency rates to the extent that changes in rates affect tourism in Hawaii, Guam, Alaska and other locations. Transactions related to the Company’s China and Japan services are primarily denominated in U.S. dollars, and therefore, a one percent change in the Chinese Yuan or Japanese Yen exchange rate would not have a material effect on the Company’s results of operations. Transactions related to the Company’s South Pacific service are primarily denominated in New Zealand dollars. A one percent change in the New Zealand dollar exchange rate is not expected to have a material effect on the Company’s results of operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Management’s Annual Report on Internal Control Over Financial Reporting 43
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 44
Consolidated Statements of Income and Comprehensive Income 46
Consolidated Balance Sheets 47
Consolidated Statements of Cash Flows 48
Consolidated Statements of Shareholders’ Equity 49
Notes to Consolidated Financial Statements 50
1. Description of the Business 50
2. Significant Accounting Policies 50
3. Reportable Segments 56
4. Investment in SSAT 57
5. Property and Equipment 58
6. Goodwill and Intangible Assets 58
7. Capital Construction Fund 59
11. Pension and Post-Retirement Plans 66
12. Multi-Employer Withdrawal Liabilities 73
13. Accumulated Other Comprehensive Income (Loss) 73
14. Earnings Per Share 74
15. Share-Based Awards 74
16. Fair Value of Financial Instruments 75
17. Commitments and Contingencies 76
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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Matson, Inc. and subsidiaries (the “Company”) has the responsibility for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting only provides reasonable assurance with respect to financial statement presentation and preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its assessment, management believes that, as of December 31, 2023, the Company’s internal control over financial reporting is effective. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company’s internal control over financial reporting.
/s/ Matthew J. Cox /s/ Joel M. Wine
Matthew J. Cox Joel M. Wine
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the shareholders of Matson, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Matson, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that
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are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill – Span Alaska Reporting Unit — Refer to Notes 2 and 6 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. In estimating the fair value of a reporting unit, the Company uses a combination of a discounted cash flow model and fair value based on market multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”). The discounted cash flow approach requires the Company to make several business and valuation assumptions, including, but not limited to, those related to the discount rate. Changes in assumptions and estimates could have a material effect on either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance was $327.8 million as of December 31, 2023, of which $78.6 million is allocated to the Span Alaska reporting unit in the Logistics reportable segment, resulting from the acquisition of Span Intermediate, LLC (“Span Alaska”) in fiscal year 2016. The Company has evaluated its goodwill for impairment as part of its annual assessment in fiscal year 2023 and determined that the fair value of the Span Alaska reporting unit exceeded the carrying amount as of the date of the impairment review.
We identified goodwill related to Span Alaska as a critical audit matter because of the significant estimates and assumptions management made to estimate the fair value of Span Alaska. Specifically, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of the discount rate for Span Alaska included the following, among others:
/s/ Deloitte & Touche LLP
Honolulu, Hawaii
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MATSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31,
Operating Revenue:
Costs and Expenses:
Selling, general and administrative (283.3) (261.0) (236.5)
Interest income 36.0 8.2 —
Other income (expense), net 6.4 8.5 6.4
Other Comprehensive Income (Loss), Net of Income Taxes:
Other Comprehensive Income (Loss):
Other adjustments 1.2 0.2 (0.5)
Diluted Earnings Per Share $ 8.32 $ 27.07 $ 21.47
Weighted Average Number of Shares Outstanding:
See Notes to Consolidated Financial Statements.
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MATSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
ASSETS
Current Assets:
Cash and cash equivalents $ 134.0 $ 249.8
Prepaid expenses and other assets 188.9 241.3
Long-term Assets:
Investment in SSAT 85.5 81.2
Operating lease right of use assets 289.6 396.9
Intangible assets, net 176.4 174.9
Capital Construction Fund 599.4 518.2
Deferred dry-docking costs, net 57.3 55.3
Other long-term assets 66.4 53.6
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of debt $ 39.7 $ 76.9
Accounts payable and accruals 277.9 255.6
Operating lease liabilities 136.7 143.6
Total current liabilities 562.3 581.6
Long-term Liabilities:
Long-term debt, net of deferred loan fees 389.3 427.7
Long-term operating lease liabilities 159.3 262.5
Other long-term liabilities 113.7 114.8
Commitments and Contingencies (see Note 17)
Shareholders’ Equity:
Additional paid in capital 293.4 290.4
Accumulated other comprehensive loss, net (8.2) (6.9)
Total Liabilities and Shareholders’ Equity $ 4,294.6 $ 4,330.0
See Notes to Consolidated Financial Statements.
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MATSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
Cash Flows From Operating Activities:
Reconciling adjustments:
Loss (Gain) on disposal of property and equipment 0.6 (1.5) (0.8)
Share-based compensation expense 23.8 18.3 19.3
Income from SSAT (2.2) (83.1) (56.3)
Distributions from SSAT — 47.3 46.9
Other (2.7) — —
Changes in assets and liabilities:
Accounts receivable, net (10.9) 74.6 (90.3)
Deferred dry-docking payments (24.1) (25.7) (36.3)
Deferred dry-docking amortization 25.3 24.9 24.3
Prepaid expenses and other assets 33.5 (45.2) (48.1)
Accounts payable, accruals and other liabilities 10.9 (31.7) 39.6
Operating lease liabilities (144.8) (154.1) (99.7)
Other long-term liabilities (2.0) (0.3) (14.3)
Net cash provided by operating activities 510.5 1,271.9 984.1
Cash Flows From Investing Activities:
Capitalized vessel construction expenditures (52.9) (62.4) (14.9)
Proceeds from disposal of property and equipment 1.2 1.2 1.9
Payments for intangible asset acquisitions (12.4) (3.0) —
Withdrawals from Capital Construction Fund 49.9 64.6 31.2
Net cash used in investing activities (338.2) (729.3) (323.4)
Cash Flows From Financing Activities:
Proceeds from revolving credit facility — — 304.3
Repayments of revolving credit facility — — (376.1)
Payment of financing costs — — (3.0)
Repurchase of Matson common stock (155.2) (397.0) (198.3)
Net cash used in financing activities (289.7) (576.6) (392.7)
Restricted Cash 2.3 3.9 5.3
Supplemental Cash Flow Information:
Interest paid, net of capitalized interest $ 11.1 $ 16.2 $ 19.3
Income tax paid, net of income tax refunds $ 7.5 $ 215.2 $ 241.6
Non-cash Information:
Non-cash payments for intangible asset acquisitions $ 2.7 $ 2.2 $ —
See Notes to Consolidated Financial Statements.
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MATSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2023
Accumulated
Common Stock Additional Other
Stated Paid In Comprehensive Retained
Other comprehensive income (loss), net of tax — — — 19.9 — 19.9
Share-based compensation — — 19.3 — — 19.3
Share repurchase (2.5) (1.9) (12.0) — (186.2) (200.1)
Dividends ($1.06 per share) — — — — (45.9) (45.9)
Other comprehensive income (loss), net of tax — — — 24.0 — 24.0
Share-based compensation — — 18.3 — — 18.3
Share repurchase (5.0) (3.7) (21.7) — (371.6) (397.0)
Dividends ($1.22 per share) — — — — (48.0) (48.0)
Other comprehensive income (loss), net of tax — — — (1.3) — (1.3)
Share-based compensation — — 23.8 — — 23.8
Share repurchase (2.1) (1.6) (8.1) — (148.5) (158.2)
Dividends ($1.26 per share) — — — — (45.0) (45.0)
See Notes to Consolidated Financial Statements.
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MATSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Matson, Inc., a holding company incorporated in the State of Hawaii, and its subsidiaries (“Matson” or the “Company”), is a leading provider of ocean transportation and logistics services. The Company consists of two segments, Ocean Transportation and Logistics. For financial information on the Company’s reportable segments for the three years ended December 31, 2023, see Note 3.
Ocean Transportation: Matson’s Ocean Transportation business is conducted through Matson Navigation Company, Inc. (“MatNav”), a wholly-owned subsidiary of Matson, Inc. Founded in 1882, MatNav provides a vital lifeline of ocean freight transportation services to the domestic non-contiguous economies of Hawaii, Alaska and Guam, and to other island economies in Micronesia. MatNav also operates premium, expedited services from China to Long Beach, California, provides services to Okinawa, Japan and various islands in the South Pacific, and operates an international export service from Dutch Harbor, Alaska to Asia. In addition, subsidiaries of MatNav provide stevedoring, refrigerated cargo services, inland transportation and other terminal services for MatNav on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai, and for MatNav and other ocean carriers in Alaska.
Matson has a 35 percent ownership interest in SSA Terminals, LLC, a joint venture between Matson Ventures, Inc., a wholly-owned subsidiary of MatNav, and SSA Ventures, Inc., a subsidiary of Carrix, Inc. (“SSAT”). SSAT currently provides terminal and stevedoring services to various carriers at eight terminal facilities on the U.S. West Coast, including three facilities dedicated for MatNav’s use. Matson records its share of income from SSAT in costs and expenses in the Consolidated Statements of Income and Comprehensive Income, and within the Ocean Transportation segment due to the nature of SSAT’s operations (see Note 4).
Logistics: Matson’s Logistics business is conducted through Matson Logistics, Inc. (“Matson Logistics”), a wholly-owned subsidiary of MatNav. Established in 1987, Matson Logistics extends the geographic reach of Matson’s transportation network throughout North America and Asia, and is an asset-light business that provides a variety of logistics services to its customers including: (i) multimodal transportation brokerage of domestic and international rail intermodal services, long-haul and regional highway trucking services, specialized hauling, flat-bed and project services, less-than-truckload services, and expedited freight services (collectively, “Transportation Brokerage” services); (ii) less-than-container load (“LCL”) consolidation and freight forwarding services (collectively, “Freight Forwarding” services); (iii) warehousing, trans-loading, value-added packaging and distribution services (collectively, “Warehousing” services); and (iv) supply chain management, non-vessel operating common carrier (“NVOCC”) freight forwarding and other services.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The Consolidated Financial Statements include the accounts of Matson, Inc. and all wholly-owned subsidiaries, after elimination of intercompany amounts and transactions. Significant investments in businesses, partnerships, and limited liability companies in which the Company does not have a controlling financial interest, but has the ability to exercise significant influence, are accounted for under the equity method. The Company accounts for its investment in SSAT using the equity method of accounting (see Note 4).
Fiscal Year: The year end for Matson is December 31. The period end for MatNav occurred on the last Friday in December, except for certain Company subsidiaries whose period closed on December 31. Included in these Consolidated Financial Statements are 52 weeks in fiscal years 2023 and 2022 and 53 weeks in fiscal year 2021 for MatNav.
Foreign Currency Transactions: The United States (U.S.) dollar is the functional currency for substantially all of the financial statements of the Company’s foreign subsidiaries. Foreign currency denominated assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates existing at the respective balance sheet dates. Translation adjustments resulting from fluctuations in exchange rates are recorded as a component of accumulated other comprehensive loss (gain) within shareholders’ equity. The Company translates the result of operations of its foreign subsidiaries at the average exchange rate during the respective periods. Gains and losses
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resulting from foreign currency transactions are included in Costs and Expenses in the Consolidated Statements of Income and Comprehensive Income.
Use of Estimates: The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported. Estimates and assumptions are used for, but not limited to: impairment of investments; impairment of long-lived assets, intangible assets and goodwill; capitalized interest; allowance for doubtful accounts and other receivables; legal contingencies; insurance reserves and other related liabilities; contingent acquisition related consideration; accrual estimates; pension and post-retirement estimates; multi-employer withdrawal liabilities; operating lease assets and liabilities; income (loss) from SSAT; and income taxes. Future results could be materially affected if actual results differ from these estimates and assumptions.
Cash, Cash Equivalents and Restricted Cash: Cash equivalents consist of highly-liquid investments with original maturities of three months or less. The Company carries these investments at cost, which approximates fair value. Restricted cash relates to amounts that are subject to contractual restrictions and are not readily available. Restricted cash was $2.3 million and $3.9 million at December 31, 2023 and 2022, respectively, and are included in prepaid expenses and other assets in the Consolidated Balance Sheets.
Accounts Receivable, net: Accounts receivable represent amounts due from trade customers arising in the normal course of business. Accounts receivable are shown net of allowance for doubtful accounts receivable in the Consolidated Balance Sheets. Allowance for doubtful accounts receivable is established by management based on estimates of collectability. Estimates of collectability are principally based on an evaluation of the current financial condition of the customer and the potential risks to collection, the customer’s payment history, expected future credit losses and other factors which are regularly monitored by the Company.
Changes in the allowance for doubtful accounts receivable for the three years ended December 31, 2023, 2022 and 2021 were as follows:
Balance at Write-offs Balance at
Year (in millions) Beginning of Year Expense (1) and Other End of Year
Prepaid Expenses and Other Assets: Prepaid expenses and other assets consist of the following at December 31, 2023 and 2022:
As of December 31,
Prepaid Expenses and Other Assets (in millions) 2023 2022
Income tax receivables, net $ 125.2 $ 170.8
Prepaid fuel 22.5 26.3
Prepaid insurance and insurance related receivables 19.3 17.4
Restricted cash - vessel construction obligations 2.3 3.9
Income tax receivables primarily include a federal income tax refund related to the Company’s 2021 federal tax return of approximately $118.6 million, overpayments of federal and state taxes paid during the year ended December 31, 2023, and other income tax receivables.
Deferred Loan Fees: The Company records deferred loan fees, excluding those related to the revolving credit facility, as a reduction to Total Debt in the Company’s Consolidated Balance Sheets in accordance with Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). These costs are being amortized over the life of the related debt using the effective interest method (see Note 8).
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Deferred loan fees related to the Company’s revolving credit facility are recorded in other long-term assets in the Company’s Consolidated Balance Sheets and are amortized using the straight-line method, as the difference between that method and the use of the effective interest method is not material.
Other Long-Term Assets: Other long-term assets consist of the following at December 31, 2023 and 2022:
As of December 31,
Other Long-Term Assets (in millions) 2023 2022
Vessel and equipment spare parts $ 14.2 $ 13.2
Pension plan assets 34.8 18.9
Insurance related receivables 10.2 12.1
Other 7.2 9.4