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SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended
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Jun. 30, 2018
SIGNIFICANT ACCOUNTING POLICIES |
SIGNIFICANT ACCOUNTING POLICIES | 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The Condensed Consolidated Financial Statements are unaudited, and include the accounts of Matson and all wholly-owned subsidiaries, after elimination of significant intercompany amounts and transactions. Significant investments in businesses, partnerships, and limited liability companies in which the Company does not have a controlling financial interest, but has the ability to exercise significant influence, are accounted for under the equity method. A controlling financial interest is one in which the Company has a majority voting interest or one in which the Company is the primary beneficiary of a variable interest entity. The Company accounts for its investment in the Terminal Joint Venture using the equity method of accounting. Due to the nature of the Company’s operations, the results for interim periods are not necessarily indicative of results to be expected for the year. These Condensed Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim periods, and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2018. Fiscal Period: The period end for Matson covered by this report is June 30, 2018. The period end for MatNav and its subsidiaries covered by this report occurred on the last Friday in June, or June 29, 2018, for the second quarter 2018. Significant Accounting Policies: The Company’s significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. 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:
|  | Three Months Ended |  | Six Months Ended |
|  | June 30, |  | June 30, |
Ocean Transportation (in millions) (1) |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Ocean transportation services |  | $ | 401.2 |  | $ | 388.2 |  | $ | 775.9 |  | $ | 753.2 |
Terminal and other related services |  |  | 0.5 |  |  | 0.8 |  |  | 1.3 |  |  | 1.6 |
Fuel sales |  |  | 3.1 |  |  | 2.0 |  |  | 5.2 |  |  | 4.5 |
Ship management services |  |  | 1.8 |  |  | 1.7 |  |  | 3.5 |  |  | 3.4 |
Total |  | $ | 406.6 |  | $ | 392.7 |  | $ | 785.9 |  | $ | 762.7 |
| (1) |  | Ocean Transportation revenue transactions are primarily denominated in U.S. dollars except for approximately 3 percent of Ocean Transportation revenues and fuel sales which are denominated in foreign currencies.
| § |  | Ocean Transportation services revenue is recognized ratably over the duration of a voyage based on the relative transit time completed in each reporting period. Vessel operating costs and other ocean transportation operating costs, such as terminal operating overhead and general and administrative expenses, are charged to operating costs as incurred.
| § |  | Terminal and other related service revenues to third parties are recognized as the services are performed.
| § |  | Fuel sales revenue is recognized when the Company has completed delivery of the product to the customer in accordance with the terms and conditions of the contract.
| § |  | Ship management services revenue and related costs are recognized in proportion to the services completed.
|  | Three Months Ended |  | Six Months Ended |
|  | June 30, |  | June 30, |
Logistics (in millions) (1) |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Transportation brokerage and freight forwarding services |  | $ | 136.4 |  | $ | 106.9 |  | $ | 255.6 |  | $ | 199.2 |
Warehouse and distribution services |  |  | 7.8 |  |  | 7.3 |  |  | 15.2 |  |  | 14.5 |
Supply chain management and other services |  |  | 6.3 |  |  | 5.6 |  |  | 11.8 |  |  | 10.5 |
Total |  | $ | 150.5 |  | $ | 119.8 |  | $ | 282.6 |  | $ | 224.2 |
| (1) |  | Logistics revenue transactions are primarily denominated in U.S. dollars except for approximately 3 percent of transportation brokerage and freight forwarding services revenue, and supply chain management and other services revenue categories are denominated in foreign currencies.
| § |  | Logistics 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, labor and equipment costs. Revenue and the related purchased third-party transportation costs are recognized over the duration of a delivery based upon the relative transit time completed in each reporting period. Labor and other operating costs are expensed as incurred. The Company reports revenue on a gross basis as the Company serves as the principal in these transactions because it is responsible for fulfilling the contractual arrangements with the customer and has latitude in establishing prices.
| § |  | Logistics warehousing and distribution services revenue consists 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 expenses are recognized as incurred. Other warehousing and distribution services revenue and expense 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 paid in advance by 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 administration expenses in the Condensed Consolidated Statements of Income and Comprehensive Income. Capital Construction Fund: The Company’s Capital Construction Fund (“CCF”) is described in Note 7 to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. As of June 30, 2018 and December 31, 2017, the following amounts related to the Company’s CCF:
|  | June 30, |  | December 31, |
(In millions) |  | 2018 |  | 2017 |
Capital Construction Fund: |  |  |  |  |  |  |
Cash on deposit |  | $ | — |  | $ | 0.9 |
Assigned accounts receivables |  | $ | 124.7 |  | $ | 134.8 |
Cash on deposit in the CCF is held in a money market account and classified as long-term assets in the Company’s Condensed Consolidated Balance Sheets, as the Company intends to use qualified cash withdrawals to fund long-term investment in the construction of new vessels. During the six months ended June 30, 2018 and 2017, the Company deposited $198.3 million and $12.2 million into the CCF, respectively, and made qualifying cash withdrawals of $199.2 million and $43.4 million from the CCF, respectively. Eligible accounts receivable that are assigned into the CCF are classified as part of accounts receivable in the Condensed Consolidated Financial Statements due to the nature of the assignment. Investment in Terminal Joint Venture: The Company’s investment in the Terminal Joint Venture was $94.4 million and $93.2 million at June 30, 2018 and December 31, 2017, respectively. Condensed income statement information (unaudited) for the Terminal Joint Venture for the three and six months ended June 30, 2018 and 2017 consisted of the following:
|  | Three Months Ended |  | Six Months Ended |
|  | June 30, |  | June 30, |
Condensed Statements of Operating Income and Net Income (unaudited) (in millions) |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Operating revenue |  | $ | 266.1 |  | $ | 214.1 |  | $ | 517.0 |  | $ | 410.8 |
Operating costs and expenses |  |  | (240.4) |  |  | (194.0) |  |  | (460.1) |  |  | (378.0) |
Operating income |  |  | 25.7 |  |  | 20.1 |  |  | 56.9 |  |  | 32.8 |
Net Income (1) |  |  | 24.3 |  |  | 19.5 |  |  | 55.0 |  |  | 33.8 |
Company Share of Net Income |  | $ | 9.1 |  | $ | 6.9 |  | $ | 19.6 |  | $ | 11.8 |
| (1) |  | Includes earnings from equity method investments held by the Terminal Joint Venture less earnings allocated to non-controlling interests.
Income Taxes: In connection with the Tax Cuts and Jobs Act that was signed into law on December 22, 2017 (the “Tax Act”), the Company recorded a non-cash tax adjustment that decreased income tax expense by $0.2 million for the three months ended June 30, 2018, and increased income tax expense by $3.1 million for the six months ended June 30, 2018. These adjustments were due to the application of an estimated 6.2 percent sequestration on alternative minimum tax (AMT) refunds for the years 2018 to 2021, and were based on new guidance issued by the Internal Revenue Service and emerging interpretations of the Tax Act. The Company continues to assess the impact of the Tax Act and any related interpretations, when issued, on the Company’s income tax estimates. These and other factors could materially affect the Company’s financial condition or its future operating results. Contingencies: Environmental Matters: The Company’s Ocean Transportation business has certain risks that could result in expenditures for environmental remediation. The Company believes that based on all information available to it, the Company is currently in compliance, in all material respects, with applicable environmental laws and regulations. Other Matters: The Company and its subsidiaries are parties to, or may be contingently liable in connection with other legal actions arising in the normal course of their businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on the Company’s financial condition, results of operations, or cash flows. New Accounting Pronouncements: Revenues from Contracts with Customers (Topic 606) (“ASU 2014-09”): The Company adopted ASU 2014-09 during the three months ended March 31, 2018 using the modified retrospective method. This method allowed the Company to recognize the cumulative effect of initially applying ASU 2014-09 as an adjustment to retained earnings as of December 31, 2017. Prior to adopting ASU 2014-09, the Company performed a review of its revenue contracts and evaluated the Company’s current accounting policies and procedures for recognizing revenues in the Company’s Consolidated Financial Statements, and compared these to the new requirements of ASU 2014-09. In addition, the Company identified the performance obligations and consideration applicable under each contract. Based upon this evaluation, the Company determined that the impact of adopting ASU 2014-09 was immaterial because the analysis of the Company’s contracts under ASU 2014-09 supports the recognition of revenue over time as the service is performed, which is consistent with the Company’s current revenue recognition accounting policy. The majority of the Company’s contracts require the Company to provide ocean and logistics transportation services to its customers. Such services are provided by the Company over a period of time, generally, when cargo is being delivered from source to destination point, or as the service is being performed. Therefore, performance obligations are completed in a short period of time due to the nature of the services provided by the Company. Under the new standard, revenues from the majority of the Company’s contracts will continue to be recognized over time as the customer simultaneously receives and consumes the benefit of these services as described in ASU 2014-09. In addition, the identification of performance obligations and related consideration under the new standard is not materially different from our current accounting treatment. Income Statement – Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”): ASU 2018-02 allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for the remeasurement tax effects resulting from the Tax Act. The Company elected to adopt early ASU 2018-02 during the three months ended March 31, 2018, and recorded a reclassification adjustment of $6.0 million between accumulated other comprehensive income (loss) and retained earnings (see Note 7). Compensation – Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Benefit Cost (“ASU 2017-07”): ASU 2017-07 requires employers that sponsor defined benefit pension and post-retirement plans to present the service cost component of net benefit cost in the same income statement line item as other employee compensation costs arising from services rendered, and that only the service cost component will be eligible for capitalization. The other components of the net periodic benefit cost must be presented separately from the line item that includes the service cost component and outside of the income from operations subtotal. The Company adopted ASU 2017-07 during the three months ended March 31, 2018. To conform prior period amounts to current period presentation as required by ASU 2017-07, the Company recorded retrospective adjustments and reclassified $1.1 million and $1.9 million of expenses from operating costs to other income (expense) in the Condensed Consolidated Statement of Income and Comprehensive Income for the three and six months ended June 30, 2017, respectively. There was no change to income before income taxes for all periods presented as a result of adopting ASU 2017-07. Leases (Topic 842) (“ASU 2016-02”): ASU 2016-02 requires lessees to record most leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments, and a right-of-use asset for the underlying leased asset for the period of the lease term. The new standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. The Company is in the process of evaluating the implementation of this guidance.

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- Definition The entire disclosure for the general note to the financial statements for the reporting entity which may include, descriptions of the basis of presentation, business description, significant accounting policies, consolidations, reclassifications, new pronouncements not yet adopted and changes in accounting principles. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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