BUSINESS COMBINATION

3 Months Ended

Mar. 31, 2016

BUSINESS COMBINATION

BUSINESS COMBINATION

3.BUSINESS COMBINATION

Horizon Acquisition:  On May 29, 2015 (the “Effective Date”), Matson completed its acquisition of Horizon pursuant to which MatNav acquired Horizon’s Alaska operations and assumed all of Horizon’s non-Hawaii assets and liabilities.  Immediately before the completion of the Horizon Acquisition, Horizon sold certain of its subsidiaries to the Pasha Group that: (i) conducted Horizon’s Hawaii operations (including owning the assets used to conduct such Hawaii operations and being responsible for the liabilities related thereto), and (ii) that employed the Horizon employees who conducted its Hawaii operations (the “Pasha Transaction”).  Horizon also completed the termination of its Puerto Rico operations during the first quarter of 2015.  The Alaska operations are recorded within the Ocean Transportation segment of the Company.

On the Effective Date, a subsidiary of the Company merged with Horizon and as a result, the Company acquired 100 percent of Horizon’s outstanding shares and warrants for a cash price of $0.72 per-share.  As a result of the Horizon Acquisition the Company thereby acquired Horizon’s assets and thereby assumed its liabilities including Horizon’s debt (net of proceeds from the Pasha Transaction).  Immediately following the Horizon Acquisition, the Company repaid the assumed debt which included accrued interest and breakage fees, and redeemed all of Horizon’s outstanding warrants.  Total consideration including debt paid and warrants redeemed by the Company is as follows:

(in millions)	Total Consideration
Common shares	$	29.4
Warrants	37.1
Horizon’s debt (including accrued interest and breakage fees)	428.9
Total	$	495.4

Horizon’s assets and liabilities acquired pursuant to the Horizon Acquisition were recorded based on fair value estimates as of the Effective Date, with the remaining unallocated purchase price recorded as goodwill.  The following table summarizes the estimated fair values assigned to Horizon’s assets acquired and liabilities assumed as a result of the Horizon Acquisition as of March 31, 2016 and December 31, 2015:

(in millions)	Total
Cash and cash equivalents	$	0.8
Accounts receivable	31.7
Other current assets	7.2
Deferred tax assets, net	45.6
Property and equipment	170.4
Intangibles - Customer relationships	140.0
Other long-term assets	4.1
Accounts payable	(22.8		)
Accruals and other current liabilities	(32.1		)
Multi-employer withdrawal liabilities	(60.6		)
Capital lease obligations	(1.6		)
Horizon’s debt and warrants	(467.5		)
Total identifiable assets less liabilities	(184.8		)
Total cash paid for common shares	(29.4		)
Goodwill	$	214.2

Such fair value estimates require significant judgment including the valuation of property and equipment, intangible assets, debt and warrants, the assumptions used in calculating the multi-employer withdrawal pension liabilities, and the determination of net deferred tax assets.  The Company’s fair value estimates are subject to revision pending the Company’s final fair value analysis and purchase price calculations.  Consequently, the fair value amounts presented are preliminary and are subject to revision.  Final estimates of fair value, including the estimated fair value of multi-employer withdrawal liability may be significantly different from those reflected in the Company’s Consolidated Financial Statements as of March 31, 2016, and December 31, 2015.

The Company’s Consolidated Statements of Income and Comprehensive Income for the quarter ended March 31, 2016, include operating revenue of $70.7 million, and net income before income taxes of $4.2 million, respectively, from Horizon’s operations.  There were no one-time acquisition related costs incurred post December 31, 2015.

Pro Forma Financial Information (Unaudited):  The following unaudited pro forma financial information presents the combined operating results of the Company, and those of Horizon excluding its Hawaii operations, as if the Horizon Acquisition had been completed at the beginning of each period presented below.  The unaudited pro forma financial information includes the accounting effects of the business combination, including the amortization of intangible assets, depreciation of property and equipment, and interest expense.  The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the result of operations that would have been achieved if the Horizon Acquisition had taken place at the beginning of the periods presented, nor should it be taken as an indication of our future consolidated results of operations.

	(Unaudited)
	Three Months Ended
	March 31,
Pro Forma Combined: (in millions, except per-share amount)	2016		2015
Operating revenue	$	454.2	$	473.4
Net income from continuing operations	$	18.1	$	9.9
Basic Earnings Per Share:	$	0.42	$	0.23
Diluted Earnings Per Share:	$	0.41	$	0.23
Weighted Average Number of Shares Outstanding:
Basic	43.4		43.4
Diluted	43.8		43.9