10-Q 1 matx-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                   

Commission file number 001-34187

Matson, Inc.

(Exact name of registrant as specified in its charter)

Hawaii

99-0032630

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1411 Sand Island Parkway

Honolulu, HI

(Address of principal executive offices)

96819

(Zip Code)

(808) 848-1211

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, without par value

MATX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Number of shares of common stock outstanding as of March 31, 2024: 34,168,153

MATSON, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

  

Page

Part I—FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Statements of Income and Comprehensive Income

1

Condensed Consolidated Balance Sheets

2

Condensed Consolidated Statements of Cash Flows

3

Condensed Consolidated Statements of Shareholders’ Equity

4

Notes to the Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

Part II—OTHER INFORMATION

23

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

Signatures

26

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

Three Months Ended

March 31, 

(In millions, except per share amounts)

    

2024

    

2023

Operating Revenue:

Ocean Transportation

$

579.0

$

551.0

Logistics

 

143.1

 

153.8

Total Operating Revenue

 

722.1

 

704.8

Costs and Expenses:

Operating costs

 

(612.2)

 

(597.5)

Income (Loss) from SSAT

 

0.4

 

(1.8)

Selling, general and administrative

 

(73.4)

 

(66.8)

Total Costs and Expenses

 

(685.2)

 

(666.1)

Operating Income

 

36.9

 

38.7

Interest income

8.8

8.2

Interest expense

 

(2.2)

 

(4.5)

Other income (expense), net

 

1.8

 

1.8

Income before Taxes

 

45.3

 

44.2

Income taxes

 

(9.2)

 

(10.2)

Net Income

$

36.1

$

34.0

Other Comprehensive Income (Loss), Net of Income Taxes:

Net Income

$

36.1

$

34.0

Other Comprehensive Income (Loss):

Net change in pension and post-retirement liabilities

(0.8)

(0.8)

Other adjustments

 

(0.8)

 

1.4

Total Other Comprehensive Income (Loss), Net of Income Taxes

 

(1.6)

 

0.6

Comprehensive Income

$

34.5

$

34.6

Basic Earnings Per Share

$

1.05

$

0.94

Diluted Earnings Per Share

$

1.04

$

0.94

Weighted Average Number of Shares Outstanding:

Basic

 

34.4

 

36.1

Diluted

 

34.6

 

36.3

See Notes to Condensed Consolidated Financial Statements.

1

MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

March 31, 

December 31, 

(In millions)

    

2024

    

2023

ASSETS

Current Assets:

Cash and cash equivalents

$

25.9

$

134.0

Accounts receivable, net of allowance for credit losses of $10.5 million and $9.9 million, respectively

 

302.8

 

279.4

Prepaid expenses and other assets

 

183.3

 

188.9

Total current assets

 

512.0

 

602.3

Long-term Assets:

Investment in SSAT

 

85.2

 

85.5

Property and equipment, net

 

2,115.7

 

2,089.9

Operating lease right of use assets

274.9

289.6

Goodwill

 

327.8

 

327.8

Intangible assets, net

172.5

176.4

Capital Construction Fund

606.8

599.4

Deferred dry-docking costs, net

57.0

57.3

Other long-term assets

 

68.0

 

66.4

Total long-term assets

3,707.9

3,692.3

Total Assets

$

4,219.9

$

4,294.6

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Current portion of debt

$

39.7

$

39.7

Accounts payable and accruals

 

277.5

 

277.9

Operating lease liabilities

131.7

136.7

Other liabilities

 

81.6

 

108.0

Total current liabilities

 

530.5

 

562.3

Long-term Liabilities:

Long-term debt, net of deferred loan fees

 

379.4

 

389.3

Long-term operating lease liabilities

148.9

159.3

Deferred income taxes

 

674.8

 

669.3

Other long-term liabilities

112.5

113.7

Total long-term liabilities

 

1,315.6

 

1,331.6

Commitments and Contingencies (see Note 15)

Shareholders’ Equity:

Common stock

 

25.6

 

25.8

Additional paid in capital

 

280.2

 

293.4

Accumulated other comprehensive loss, net

 

(9.8)

 

(8.2)

Retained earnings

 

2,077.8

 

2,089.7

Total shareholders’ equity

 

2,373.8

 

2,400.7

Total Liabilities and Shareholders’ Equity

$

4,219.9

$

4,294.6

See Notes to Condensed Consolidated Financial Statements.

2

MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended March 31, 

(In millions)

    

2024

    

2023

    

Cash Flows From Operating Activities:

Net income

$

36.1

$

34.0

Reconciling adjustments:

Depreciation and amortization

 

37.6

 

35.8

Amortization of operating lease right of use assets

33.9

39.6

Deferred income taxes

 

2.3

 

(1.4)

Share-based compensation expense

 

5.7

 

4.6

(Income) loss from SSAT

 

(0.4)

 

1.8

Distributions from SSAT

14.0

Other

(2.1)

(0.1)

Changes in assets and liabilities:

Accounts receivable, net

 

(23.7)

 

(14.5)

Deferred dry-docking payments

 

(5.2)

 

(2.4)

Deferred dry-docking amortization

 

6.8

 

6.2

Prepaid expenses and other assets

 

2.4

 

45.7

Accounts payable, accruals and other liabilities

 

(34.3)

 

(8.4)

Operating lease liabilities

(34.6)

(39.4)

Other long-term liabilities

 

(1.9)

 

(4.8)

Net cash provided by operating activities

 

36.6

 

96.7

Cash Flows From Investing Activities:

Capitalized vessel construction expenditures

(1.1)

(0.4)

Capital expenditures (excluding vessel construction expenditures)

 

(54.2)

 

(35.5)

Proceeds from disposal of property and equipment, net

 

2.3

0.3

Payment for intangible asset acquisition

(12.4)

Cash deposits and interest into the Capital Construction Fund, net

 

(6.0)

 

(105.5)

Net cash used in investing activities

 

(59.0)

 

(153.5)

Cash Flows From Financing Activities:

Repayments of debt

 

(10.1)

 

(40.8)

Dividends paid

(11.1)

 

(11.3)

Repurchase of Matson common stock

(47.3)

 

(40.0)

Tax withholding related to net share settlements of restricted stock units

(17.2)

(12.4)

Net cash used in financing activities

 

(85.7)

 

(104.5)

Net Decrease in Cash, Cash Equivalents and Restricted Cash

 

(108.1)

 

(161.3)

Cash and Cash Equivalents, and Restricted Cash, Beginning of the Period

 

136.3

 

253.7

Cash and Cash Equivalents, and Restricted Cash, End of the Period

$

28.2

$

92.4

Reconciliation of Cash, Cash Equivalents and Restricted Cash, End of the Period:

Cash and Cash Equivalents

$

25.9

$

88.5

Restricted Cash

2.3

3.9

Total Cash and Cash Equivalents, and Restricted Cash, End of the Period

$

28.2

$

92.4

Supplemental Cash Flow Information:

Interest paid, net of capitalized interest

$

0.5

$

5.0

Income tax payments (refunds), net

$

1.1

$

(30.3)

Non-cash Information:

Capital expenditures included in accounts payable, accruals and other liabilities

$

16.0

$

5.1

Non-cash payment for intangible asset acquisition

$

$

4.1

See Notes to Condensed Consolidated Financial Statements.

3

MATSON, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

Accumulated

Common Stock

Additional

Other

Stated

Paid In

Comprehensive

   Retained   

(In millions, except per share amounts)

    

Shares

    

Value

    

Capital

    

Income (Loss)

    

Earnings

    

      Total      

Balance at December 31, 2023

 

34.4

$

25.8

 

$

293.4

$

(8.2)

$

2,089.7

$

2,400.7

Net income

 

 

 

 

 

 

36.1

 

36.1

Other comprehensive income (loss), net of tax

 

 

 

 

 

(1.6)

 

 

(1.6)

Share-based compensation

 

 

 

 

5.7

 

 

 

5.7

Shares issued, net of shares withheld for employee taxes

 

0.2

0.1

 

 

(17.3)

 

 

 

(17.2)

Shares repurchased

 

(0.4)

(0.3)

(1.6)

(47.0)

(48.9)

Equity interest in SSAT (See Note 4)

10.1

10.1

Dividends ($0.32 per share)

 

 

 

 

 

 

(11.1)

 

(11.1)

Balance at March 31, 2024

 

34.2

$

25.6

 

$

280.2

$

(9.8)

$

2,077.8

$

2,373.8

Accumulated

Common Stock

Additional

Other

Stated

Paid In

Comprehensive

   Retained   

(In millions, except per share amounts)

    

Shares

    

Value

    

Capital

    

Income (Loss)

    

Earnings

    

      Total      

Balance at December 31, 2022

 

36.3

$

27.2

 

$

290.4

$

(6.9)

$

1,986.2

$

2,296.9

Net income

 

 

 

 

 

 

34.0

 

34.0

Other comprehensive income (loss), net of tax

 

 

 

 

 

0.6

 

 

0.6

Share-based compensation

 

 

 

 

4.6

 

 

 

4.6

Shares issued, net of shares withheld for employee taxes

 

0.3

0.2

 

 

(12.6)

 

 

 

(12.4)

Shares repurchased

 

(0.7)

(0.5)

(2.7)

(38.9)

(42.1)

Dividends ($0.31 per share)

 

 

 

 

 

 

(11.3)

 

(11.3)

Balance at March 31, 2023

 

35.9

$

26.9

 

$

279.7

$

(6.3)

$

1,970.0

$

2,270.3

See Notes to Condensed Consolidated Financial Statements.

4

MATSON, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANICAL STATEMENTS

(Unaudited)

1.          DESCRIPTION OF THE BUSINESS

Matson, Inc., a holding company incorporated in the State of Hawaii, and its subsidiaries (“Matson” or the “Company”), is a leading provider of ocean transportation and logistics services. The Company consists of 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 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 an ocean carrier 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 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 extends the geographic reach of Matson’s transportation network throughout North America and Asia, and is an asset-light business that provides a variety of logistics services to its customers including: (i) multimodal transportation brokerage of domestic and international rail intermodal services, long-haul and regional highway trucking services, specialized hauling, flat-bed and project services, less-than-truckload services, and expedited freight services (collectively, “Transportation Brokerage” services); (ii) less-than-container load (“LCL”) consolidation and freight forwarding services (collectively, “Freight Forwarding” services); (iii) warehousing, trans-loading, value-added packaging and distribution services (collectively, “Warehousing” services); and (iv) supply chain management, non-vessel operating common carrier (“NVOCC”) freight forwarding and other services.

2.          GENERAL AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The Condensed Consolidated Financial Statements are unaudited, and include the accounts of Matson, Inc. and all wholly-owned subsidiaries, after elimination of intercompany amounts and transactions. Significant investments in businesses, partnerships, and limited liability companies in which the Company does not have a controlling financial interest, but has the ability to exercise significant influence, are accounted for under the equity method. The Company accounts for its investment in SSAT using the equity method of accounting.

Due to the nature of the Company’s operations, the results for interim periods are not necessarily indicative of results to be expected for the year. These Condensed Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim periods, and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements.

The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2024.

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Fiscal Period: The period end for Matson covered by this report is March 31, 2024. The period end for MatNav and its subsidiaries covered by this report is March 29, 2024.

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, 2023.

Use of Estimates: The preparation of the interim Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported. Estimates and assumptions are used for but not limited to: impairment of investments; impairment of long-lived assets, intangible assets and goodwill; capitalized interest; allowance for doubtful accounts and other receivables; legal contingencies; insurance reserves and other related liabilities; 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.

Prepaid Expenses and Other Assets: Prepaid expenses and other assets consisted of the following at March 31, 2024 and December 31, 2023:

March 31, 

December 31, 

 

Prepaid Expenses and Other Assets (in millions)

    

2024

    

2023

 

Income tax receivables, net

$

119.7

$

125.2

Prepaid fuel

 

26.0

 

22.5

Prepaid insurance and insurance related receivables

 

16.9

 

19.3

Restricted cash - vessel construction obligations

2.3

2.3

Other

 

18.4

 

19.6

Total

$

183.3

$

188.9

Income tax receivables primarily include a federal income tax refund related to the Company’s 2021 federal tax return of $118.6 million and other income tax receivables. On April 19, 2024, the Company received the federal income tax refund of $118.6 million and interest of $10.2 million earned on the federal income tax refund.

Capital Construction Fund Investments: Capital Construction Fund (“CCF”) investments are held in fixed-rate U.S. Treasuries with various maturity dates of up to three years. These held-to-maturity debt securities are initially recognized at cost and subsequently measured at accreted cost, less any expected credit losses. The accreted cost is adjusted for accretion of discounts to maturity. The Company has classified these securities as held-to-maturity as the Company has the intent and ability to hold such securities until maturity.

Recognition of Revenues and Expenses: Revenue in the Company’s Condensed Consolidated Financial Statements is presented net of elimination of intercompany transactions. The following is a description of the Company’s principal revenue generating activities by segment, and the Company’s revenue recognition policy for each activity for the periods presented:

March 31, 

Ocean Transportation (in millions) (1)

2024

    

2023

Ocean Transportation services

$

565.8

$

539.5

Terminal and other related services

8.7

6.9

Fuel sales

2.9

2.9

Vessel management and related services

1.6

1.7

Total

$

579.0

$

551.0

(1)Ocean Transportation revenue transactions are primarily denominated in U.S. dollars except for less than 3 percent of Ocean Transportation services 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 selling, general and administrative expenses, are charged to operating costs as incurred.
Terminal and other related services revenue is recognized as the services are performed. Related costs are recognized as incurred.

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Fuel sales revenue and related costs are recognized when the Company has completed delivery of the product to the customer in accordance with the terms and conditions of the contract.
Vessel management and related services revenue is recognized in proportion to the services completed. Related costs are recognized as incurred.

March 31, 

Logistics (in millions) (1)

2024

2023

Transportation Brokerage and Freight Forwarding services

$

127.4

$

137.7

Warehousing and distribution services

9.1

9.6

Supply chain management and other services

 

6.6

 

6.5

Total

$

143.1

$

153.8

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

Transportation Brokerage and Freight Forwarding services revenue consists of amounts billed to customers for services provided. The primary costs include third-party purchased transportation services, agent commissions, labor and equipment. Revenue and the related purchased third-party transportation costs are recognized over the duration of a delivery based upon the relative transit time completed in each reporting period. Labor, agent commissions, and other operating costs are expensed as incurred. The Company reports revenue on a gross basis as the Company serves as the principal in these transactions because it is responsible for fulfilling the contractual arrangements with the customer and has latitude in establishing prices.
Warehousing and distribution services revenue consist of amounts billed to customers for storage, handling, and value-added packaging of customer merchandise. Storage revenue is recognized in the month the service is provided to the customer. Storage related costs are recognized as incurred. Other warehousing and distribution services revenue and related costs are recognized in proportion to the services performed.
Supply chain management and other services revenue, and related costs are recognized in proportion to the services performed.

The Company generally invoices its customers at the commencement of the voyage or the transportation service being provided, or as other services are being performed. Revenue is deferred when services are invoiced in advance to the customer. The Company’s receivables are classified as short-term as collection terms are for periods of less than one year. The Company expenses sales commissions and contract acquisition costs as incurred because the amounts are generally immaterial. These expenses are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income.

Capitalized Interest: The Company capitalizes interest costs during the period the qualified assets are being readied for their intended use. The Company determined that the vessel construction costs are considered qualifying assets for the purposes of capitalizing interest on these assets. The amount of capitalized interest is calculated based on the amount of expenditures incurred related to the construction of these vessels using a weighted average interest rate. The weighted average interest rate is determined using the Company’s average borrowings outstanding during the period. Capitalized interest is included in vessel construction in progress in property and equipment in the Company’s Condensed Consolidated Balance Sheets (see Note 5). During the three months ended March 31, 2024 and 2023, the Company capitalized $0.8 million and $0.4 million of interest related to the construction of new vessels, respectively.

Dividends: The Company’s first quarter 2024 cash dividend of $0.32 per share was paid on March 7, 2024. On April 25, 2024, the Company’s Board of Directors declared a cash dividend of $0.32 per share payable on June 6, 2024 to shareholders of record on May 9, 2024.

Repurchase of Shares: During the three months ended March 31, 2024, the Company repurchased approximately 0.4 million shares for a total cost of $48.9 million. As of March 31, 2024, the maximum number of remaining shares that may be repurchased under the Company’s share repurchase program was approximately 2.0 million shares.

New Accounting Pronouncements: In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires disclosure of incremental segment information on an annual and interim basis. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the

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financial statements. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2023-07 but does not expect it will have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. The Company is currently evaluating the effects of adoption ASU 2023-09 but does not expect it to have a material impact on the Company’s consolidated 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 chief operating decision maker is its Chief Executive Officer.

The Company consists of two reportable segments, Ocean Transportation and Logistics, which are further described in Note 1. Reportable segments are measured based on operating income. In arrangements where the customer purchases ocean transportation and logistics services, the revenues are allocated to each reportable segment based upon the contractual amounts for each type of service. The Company’s SSAT segment has been aggregated into the Company’s Ocean Transportation segment due to the operations of SSAT being an integral part of the Company’s Ocean Transportation business.

The Company’s Ocean Transportation segment provides ocean transportation services to the Logistics segment, and the Logistics segment provides logistics services to the Ocean Transportation segment in certain transactions. Accordingly, inter-segment revenue of $46.6 million and $40.1 million for the three months ended March 31, 2024 and 2023, respectively, have been eliminated from operating revenues in the table below.

Reportable segment financial information for the three months ended March 31, 2024 and 2023 are as follows:

Three Months Ended

March 31, 

(In millions)

    

2024

    

2023

Operating Revenue:

Ocean Transportation (1)

$

579.0

$

551.0

Logistics (2)

 

143.1

 

153.8

Total Operating Revenue

$

722.1

$

704.8

Operating Income:

Ocean Transportation (3)

$

27.6

$

27.8

Logistics

 

9.3

 

10.9

Total Operating Income

 

36.9

 

38.7

Interest income

8.8

8.2

Interest expense

 

(2.2)

 

(4.5)

Other income (expense), net

 

1.8

 

1.8

Income before Taxes

 

45.3

 

44.2

Income taxes

 

(9.2)

 

(10.2)

Net Income

$

36.1

$

34.0

(1)Ocean Transportation operating revenue excludes inter-segment revenue of $19.7 million and $16.1 million for the three months ended March 31, 2024 and 2023, respectively.
(2)Logistics operating revenue excludes inter-segment revenue of $26.9 million and $24.0 million for the three months ended March 31, 2024 and 2023, respectively.
(3)Ocean Transportation segment information includes $0.4 million and $(1.8) million of net income (loss) from the Company’s equity investment in SSAT for the three months ended March 31, 2024 and 2023, respectively.

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4.          INVESTMENT IN SSAT

The Company’s investment in SSAT is described in Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Condensed income statement information for SSAT for the three months ended March 31, 2024 and 2023 consisted of the following:

Three Months Ended

March 31, 

(In millions)

2024

    

2023

Operating revenue

$

270.3

$

230.8

Operating costs and expenses

(278.4)

(235.9)

Operating loss

(8.1)

(5.1)

Net Loss (1)

$

(3.8)

$

(4.8)

Company Share of SSAT’s Net Income (Loss) (2)

$

0.4

$

(1.8)

(1)Includes earnings and losses from equity method investment held by SSAT less earnings and losses allocated to non-controlling interests.
(2)The Company records its share of net income (loss) from SSAT in costs and expenses in the Condensed Consolidated Statement of Income and Comprehensive Income due to the nature of SSAT’s operations.

The Company’s investment in SSAT was $85.2 million and $85.5 million at March 31, 2024 and December 31, 2023, respectively.

On March 1, 2024, SSAT completed the sale of 25 percent of its equity interest in SSA Terminals (Seattle Terminals), LLC (“SSAT ST”) to a third-party company. After the completion of this transaction, SSAT retains a 50 percent controlling interest in SSAT ST, while the third-party company increased its non-controlling interest to 50 percent in SSAT ST. As a result of this transaction, the Company recorded an increase in its investment in SSAT of approximately $13.2 million and increase in deferred income taxes of $3.1 million, and a corresponding increase in retained earnings of $10.1 million.

5.          PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 2024 and December 31, 2023 consisted of the following:

March 31, 

December 31, 

(In millions)

    

2024

    

2023

Cost:

Vessels

$

2,329.3

$

2,323.4

Containers and equipment

859.5

845.0

Terminal facilities and other property

148.9

148.0

New vessel construction in progress

104.3

103.1

Other construction in progress

93.9

67.7

Total Property and Equipment

3,535.9

3,487.2

Less: Accumulated Depreciation

(1,420.2)

(1,397.3)

Total Property and Equipment, net

$

2,115.7

$

2,089.9

New vessel construction in progress at March 31, 2024 and December 31, 2023 includes milestone progress payments, capitalized interest and other costs related to the construction of three new Jones Act vessels.

6.          GOODWILL AND INTANGIBLES

Goodwill by segment as of March 31, 2024 and December 31, 2023 consisted of the following:

Ocean

 

(In millions)

    

Transportation

    

Logistics

    

Total

 

Goodwill

$

222.6

$

105.2

$

327.8

9

Intangible assets as of March 31, 2024 and December 31, 2023 consisted of the following:

March 31, 

December 31, 

(In millions)

    

2024

    

2023

Customer Relationships:

Ocean Transportation

$

140.6

$

140.6

Logistics

109.7

110.4

Total

250.3

251.0

Less: Accumulated Amortization

(105.1)

(101.9)

Total Customer Relationships, net

145.2

149.1

Trade name – Logistics

27.3

27.3

Total Intangible Assets, net

$

172.5

$

176.4

On February 27, 2023, the Company completed an asset acquisition consisting of Logistics customer relationship intangible assets for $16.5 million, which are being amortized over seven years.

The Company evaluates its goodwill and intangible assets 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. The Company considered the general economic and market conditions and its impact on the performance of each of the Company’s reporting units. Based on the Company’s assessment of its market capitalization, future forecasts and the amount of excess of fair value over the carrying value of the reporting units in the 2023 annual impairment tests, the Company concluded that an impairment triggering event did not occur during the three months ended March 31, 2024.

The Company will monitor events and changes in circumstances that could negatively impact the key assumptions used in determining the fair value, including the amount and timing of estimated future cash flows generated by the reporting units, long-term growth and discount rates, comparable company market valuations, and industry and economic trends. It is possible that future changes in such circumstances, including future changes in the assumptions and estimates used in assessing the fair value of the reporting unit, could require the Company to record a non-cash impairment charge.

7.          CAPITAL CONSTRUCTION FUND

The 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, 2023. A summary of the activities within the CCF cash and cash equivalents, and investments account for the three months ended March 31, 2024 and 2023 consisted of the following:

Three Months Ended

March 31, 

(In millions)

    

2024

    

2023

CCF Cash and Cash Equivalents:

CCF cash and cash equivalents balance at beginning of period

$

599.4

$

518.2

Cash deposits into the CCF

100.0

Cash paid for purchase of U.S. Treasury debt securities and accrued interest

(449.8)

Interest earned on deposits and investments, net

5.1

5.5

Total CCF cash and cash equivalents balance at end of period

154.7

623.7

CCF Investments:

CCF investments balance at beginning of period

Purchase of U.S. Treasury debt securities

448.1

Accretion of investments

1.9

Total CCF investments balance at end of period

450.0

Accrued interest earned on Cash and Cash Equivalents, and Investments at end of period:

2.1

Total CCF cash and cash equivalents, and investments balance at end of period

$

606.8

$

623.7

CCF Cash and Cash Equivalents: Cash on deposit in the CCF cash and cash equivalents account is invested in a short-term U.S. Treasury obligations fund with daily liquidity. At March 31, 2024, short-term securities held within this account had a weighted average life of 77 days. The Company had $154.7 million and $599.4 million on deposit in the CCF cash and cash equivalents account as of March 31, 2024 and December 31, 2023, respectively.

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CCF Investments: In February 2024, the Company purchased approximately $448.1 million of fixed-rate U.S. Treasuries with accrued interest of $1.7 million using CCF cash. The fixed-rate debt securities were purchased at a discount and have various maturity dates of up to 3 years. The cost of investments is adjusted for accretion of the discount until the securities mature. Such accretion is included in interest income in the Condensed Consolidated Statements of Income and Comprehensive Income. As of March 31, 2024, the Company had $450.0 million in held-to-maturity debt securities in the CCF investments account.

As of March 31, 2024, CCF investments maturities are as follows:

As of

March 31, 2024

Year (in millions)

    

Cost

Fair Value

Remainder of 2024

$

47.0

$

46.9

2025

 

186.3

 

185.7

2026

 

164.5

 

163.6

2027

 

52.2

 

51.9

Total CCF investments

$

450.0

$

448.1

CCF cash and cash equivalents, and investments are classified as a long-term asset on the Company’s Condensed Consolidated Balance Sheets as the Company intends to use withdrawals to fund qualified milestone progress payments for the construction of three new Jones Act vessels.

CCF Assigned Accounts Receivable: Activities within the CCF assigned accounts receivable account for the three months ended March 31, 2024 and 2023 consisted of the following:

Three Months Ended

March 31, 

(In millions)

    

2024

    

2023

CCF assigned accounts receivable balance at beginning of period

$

218.1

$

9.9

Assigned accounts receivable

200.0

Interest earned on assigned accounts receivable

3.2

CCF assigned accounts receivable balance at end of period

$

221.3

$

209.9

During the three months ended March 31, 2023, the Company pledged $200.0 million of accounts receivable into the CCF. The Company did not pledge any accounts receivable into the CCF during the three months ended March 31, 2024. As of March 31, 2024 and December 31, 2023, eligible accounts receivable of $221.3 million and $218.1 million were assigned to the 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.

8.          DEBT

As of March 31, 2024 and December 31, 2023, the Company’s debt consisted of the following:

March 31, 

December 31, 

(In millions)

    

2024

    

2023

Private Placement Term Loans:

3.37 %, payable through 2027

$

46.2

$

46.2

3.14 %, payable through 2031

107.3

114.4

Title XI Debt:

1.22 %, payable through 2043

158.2

158.2

1.35 %, payable through 2044

118.8

121.8

Total Debt

 

430.5

 

440.6

Less: Current portion

 

(39.7)

 

(39.7)

Total Long-term Debt

390.8

400.9

Less: Deferred loan fees

(11.4)

 

(11.6)

Total Long-term Debt, net of deferred loan fees

$

379.4

$

389.3

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Except as described below, the Company’s debt is described in Note 8 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Revolving Credit Facility: The Company’s revolving credit facility has committed available borrowing of up to $650 million and matures on March 31, 2026. As of March 31, 2024, the Company had $644.2 million of remaining borrowing availability under the revolving credit facility. The Company used $5.8 million of the revolving credit facility for letters of credit outstanding as of March 31, 2024. There were no outstanding borrowings under the revolving credit facility as of March 31, 2024 and December 31, 2023.

Title XI Bonds: On January 27, 2023, the Company prepaid $14.3 million of outstanding principal on the 5.27 percent Title XI Bond representing all of the remaining outstanding principal for this bond. On March 3, 2023, the Company also prepaid $12.1 million of outstanding principal on the 5.34 percent Title XI Bond representing all of the outstanding principal for this bond.

Debt Security and Guarantees: All of the debt of the Company and MatNav, including related guarantees, as of March 31, 2024 was unsecured, except for the Title XI debt.

Debt Maturities: As of March 31, 2024, debt maturities during the next five years and thereafter are as follows:

As of

Year (in millions)

    

March 31, 2024

Remainder of 2024

$

29.6

2025

 

39.7

2026

 

39.7

2027

 

39.7

2028

 

28.2

Thereafter

 

253.6

Total Debt

$

430.5

9.          LEASES

The Company’s leases 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, 2023.

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, 2024 and 2023 consisted of the following:

Three Months Ended

March 31, 

(In millions)

    

2024

2023

Operating lease cost

$

35.9

$

41.8

Short-term lease cost

 

2.0

 

0.2

Variable lease cost

 

0.2

 

0.2

Total lease cost

$

38.1

$

42.2

12

Maturities of operating lease liabilities at March 31, 2024 are as follows:

    

As of

Year (in millions)

    

March 31, 2024

Remainder of 2024

$

109.9

2025

 

85.4

2026

 

36.6

2027

 

19.8

2028

 

10.7

Thereafter

 

52.1

Total lease payments

314.5

Less: Interest

(33.9)

Present value of operating lease liabilities

280.6

Less: Short-term portion

(131.7)

Long-term operating lease liabilities

$

148.9

10.          ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2024 consisted of the following:

Accumulated

Post-

Non-

Other

Pension

Retirement

Qualified

Comprehensive

(In millions)

    

Benefits