Matson(MATX) - 2020 Q4 - Annual Report

PART I Business Matson, Inc. is a leading provider of ocean transportation and logistics services, operating through two main segments: Ocean Transportation and Logistics Company Overview Matson, Inc. is a holding company with two primary business segments: Ocean Transportation and Logistics, providing ocean freight services to domestic non-contiguous economies and international expedited routes, alongside asset-light logistics services and a 35% interest in SSA Terminals, LLC - Matson operates through two main segments: Ocean Transportation and Logistics[18] - The Ocean Transportation business (MatNav) serves Hawaii, Alaska, Guam, Micronesia, and operates two premium, expedited services from China to Long Beach, California[19] - The Logistics business (Matson Logistics) is an asset-light model providing transportation brokerage, freight forwarding, warehousing, and supply chain management services[21] - Matson holds a 35% ownership interest in SSA Terminals, LLC (SSAT), a joint venture providing terminal and stevedoring services on the U.S. West Coast[20] Business Description The company's business is detailed through its two segments, Ocean Transportation and Logistics, encompassing various routes, fleet operations, terminal investments, and asset-light services, all while facing diverse competition - In May 2020, Matson launched a new expedited China-Long Beach Express Plus (CLX+) service due to increased market demand[27] - In September 2020, the company launched the Alaska-Asia Express (AAX) service, transporting seafood from Dutch Harbor, Alaska to China[34] - The company has completed a $1,024 million investment in four new vessels as part of its fleet renewal program, with the final vessel, Matsonia, entering service in December 2020[43] - Approximately 62% of Ocean Transportation revenues in 2020 came from the Hawaii and Alaska trades, which are subject to the Jones Act[68] Employees and Labor Relations As of 2020, Matson employed 4,149 people worldwide, with 71% covered by collective bargaining agreements, and is investing in human capital programs to attract and retain a diverse workforce 2020 Employee Headcount | Category | Number of Employees | | :--- | :--- | | Total Worldwide Employees | 4,149 | | International Employees | 128 | | Unionized Employees | 2,953 (71%) | - The company is investing in diversity initiatives, committing $100,000 for new scholarships and over $200,000 to expand its paid internship program to increase diversity in the industry[94][96] - Matson and its joint venture SSAT are members of the Pacific Maritime Association (PMA), which has a collective bargaining agreement with the International Longshore and Warehouse Union (ILWU) extending to July 1, 2022[102] Available Information Matson's financial reports, including Form 10-K, 10-Q, and 8-K, are available free of charge on its website and the SEC's website - Company filings are accessible on the Matson corporate website and the SEC's EDGAR database[105][106] Risk Factors The company faces several material risks, including potential repeal or adverse changes to the Jones Act, operational risks from the COVID-19 pandemic, economic downturns, intense competition, dependency on key vendors, fuel price volatility, labor disruptions, cybersecurity threats, and extensive regulatory compliance - Repeal, substantial amendment, or waiver of the Jones Act could allow foreign-flagged competitors with lower operating costs to enter the Hawaii or Alaska markets, adversely affecting the business[108] - The COVID-19 pandemic has negatively impacted tourism-dependent markets like Hawaii and Guam, but has also increased demand for the company's expedited ocean services from China[111][112] - Fuel is a significant operating expense, and the company's profitability is sensitive to fuel price volatility and its ability to recover costs through fuel-related surcharges. Compliance with IMO 2020 low-sulfur fuel regulations also presents cost and operational risks[122][123] - A significant portion of Matson's employees are unionized. Work stoppages or other labor disruptions, either by its own workforce or in related industries (e.g., longshore labor), could severely impact operations[137][138] - The company is highly dependent on its information technology systems and faces cybersecurity risks. The shipping industry is a frequent target of cyber attacks, which could disrupt operations and lead to financial loss or reputational harm[144] Unresolved Staff Comments There are no unresolved staff comments from the SEC - None[163] Properties Matson leases material terminal facilities for its Ocean Transportation segment in key locations, with primary U.S. West Coast facilities leased by its joint venture, SSAT, and other material properties including warehouses and cross-dock facilities Material Leased Terminal Facilities | Terminal Location | Acreage | | :--- | :--- | | Honolulu, Hawaii | 105 | | Anchorage, Alaska | 38 | | Dutch Harbor, Alaska | 18 | | Kodiak, Alaska | 6 | | Tacoma, Washington | 14 | | Polaris Point, Guam | 30 | Legal Proceedings The company is subject to environmental risks but believes it is in material compliance with environmental laws, and other legal actions are not expected to have a material financial effect - The company believes it is in material compliance with applicable environmental laws and regulations[167] - Other legal actions are not expected to have a material effect on the company's financial condition, results of operations, or cash flows[169] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[170] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Matson's common stock trades on the New York Stock Exchange under the ticker symbol "MATX", with 2,103 shareholders of record as of February 19, 2021, and the company has a history of paying quarterly cash dividends, totaling $0.90 per share in 2020 - Matson's common stock is traded on the NYSE under the symbol MATX[172] Dividends Declared Per Share | Quarter | 2019 | 2020 | | :--- | :--- | :--- | | First | $0.21 | $0.22 | | Second | $0.21 | $0.22 | | Third | $0.22 | $0.23 | | Fourth | $0.22 | $0.23 | | Total | $0.86 | $0.90 | Selected Financial Data This section presents a five-year summary of Matson's key financial data from 2016 to 2020, highlighting a significant increase in profitability in 2020 with total operating revenue of $2,383.3 million, operating income of $280.3 million, net income of $193.1 million, and diluted EPS of $4.44 Selected Financial Data (2018-2020) | (In millions, except per share amounts) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total Operating Revenue | $2,383.3 | $2,203.1 | $2,222.8 | | Ocean Transportation | $1,853.9 | $1,666.6 | $1,641.3 | | Logistics | $529.4 | $536.5 | $581.5 | | Total Operating Income | $280.3 | $129.1 | $163.8 | | Net Income | $193.1 | $82.7 | $109.0 | | Diluted Earnings Per Share | $4.44 | $1.91 | $2.53 | | Total Assets (at year-end) | $2,900.6 | $2,845.4 | $2,430.4 | | Total Debt Obligations (at year-end) | $744.8 | $958.4 | $856.4 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, Matson's financial performance improved significantly, driven by its Ocean Transportation segment's strong demand and higher freight rates in the China service, leading to an 8.2% increase in total operating revenue to $2,383.3 million and a 117.1% surge in operating income to $280.3 million, while also reducing total debt by $198.3 million Consolidated Results: 2020 vs 2019 | (In millions) | 2020 | 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Operating revenue | $2,383.3 | $2,203.1 | $180.2 | 8.2% | | Operating income | $280.3 | $129.1 | $151.2 | 117.1% | | Net income | $193.1 | $82.7 | $110.4 | 133.5% | | Diluted EPS | $4.44 | $1.91 | $2.53 | 132.5% | - Ocean Transportation revenue increased by $187.3 million (11.2%) in 2020, primarily due to higher freight revenue from the China service, including the new CLX+ service[205] - China container volume increased by 85.8% year-over-year, driven by the CLX+ service and higher volume on the original CLX service[203][206] - Total debt decreased by $198.3 million during 2020, with the revolving credit facility balance falling from $379.1 million to $71.8 million[216] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk from its borrowing activities, with $71.8 million in variable-rate debt as of December 31, 2020, and is preparing for the discontinuation of LIBOR, while foreign currency risk is considered not material - The company's primary market risk is from changes in interest rates on its variable-rate debt, which was $71.8 million at year-end 2020[244] - A hypothetical 100 basis point increase in the variable interest rate would have an impact of approximately $0.7 million on 2020 operating results[245] - The company is preparing for the transition away from LIBOR as a benchmark interest rate, which is expected to be discontinued by mid-2023[246] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2020, including Management's Annual Report on Internal Control Over Financial Reporting, the Independent Registered Public Accounting Firm's Report, and the consolidated statements of income, balance sheets, cash flows, and shareholders' equity, along with detailed notes Consolidated Income Statement Highlights (FY 2020) | (In millions) | Amount | | :--- | :--- | | Total Operating Revenue | $2,383.3 | | Total Costs and Expenses | ($2,103.0) | | Operating Income | $280.3 | | Net Income | $193.1 | Consolidated Balance Sheet Highlights (As of Dec 31, 2020) | (In millions) | Amount | | :--- | :--- | | Total Assets | $2,900.6 | | Total Liabilities | $1,939.4 | | Total Shareholders' Equity | $961.2 | Consolidated Cash Flow Highlights (FY 2020) | (In millions) | Amount | | :--- | :--- | | Net cash provided by operating activities | $429.8 | | Net cash used in investing activities | ($177.0) | | Net cash used in financing activities | ($261.5) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with the company's accountants on accounting and financial disclosure - None[445] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2020, with no material changes to internal control over financial reporting during the fourth quarter of 2020 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[446] - Management's annual report on internal control over financial reporting concluded that controls were effective as of December 31, 2020[254][447] Other Information There is no other information to report under this item - None[449] PART III Directors, Executive Officers and Corporate Governance Information regarding the company's directors, executive officers, corporate governance practices, and code of ethics is incorporated by reference from Matson's Proxy Statement for the 2021 Annual Meeting of Shareholders - Information required for this item is incorporated by reference from the company's 2021 Proxy Statement[452][453][454][455] Executive Compensation Information regarding executive and director compensation is incorporated by reference from Matson's Proxy Statement for the 2021 Annual Meeting of Shareholders - Information required for this item is incorporated by reference from the company's 2021 Proxy Statement[456] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides information on the company's equity compensation plans as of December 31, 2020, with further details regarding security ownership incorporated by reference from Matson's 2021 Proxy Statement Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Number of shares to be issued upon exercise (a) | Weighted-average exercise price (b) | Number of shares remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | 793,080 | $20.84 | 1,000,659 | Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from Matson's Proxy Statement for the 2021 Annual Meeting of Shareholders - Information required for this item is incorporated by reference from the company's 2021 Proxy Statement[461] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from Matson's Proxy Statement for the 2021 Annual Meeting of Shareholders - Information required for this item is incorporated by reference from the company's 2021 Proxy Statement[462] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements included in Item 8 and the exhibits filed with the Form 10-K, noting that all financial statement schedules are omitted as they are not applicable or the required information is included elsewhere in the report - The Consolidated Financial Statements are located in Item 8 of this report[465] - All financial statement schedules have been omitted because the conditions requiring them were not met[466] Form 10-K Summary No Form 10-K summary is provided - None[477]