Matson, Inc.
Q3 2014 Earnings Call Transcript

Published: 10 Nov 2014

[Operator:]

Welcome to the Matson third quarter 2014 financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator instructions) I would now like to introduce your host for today’s conference Jerome Holland, Director Investor Relations.

[Jerome Holland:]

Aloha, and welcome to our third quarter 2014 earnings conference call. Matt Cox, President and Chief Executive Officer, and Joel M. Wine, Senior Vice President and Financial Officer are joining the call today. Slides from this presentation are available for download at our website www.Matson.com under the investor relations’ tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections, or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. These risk factors are described in our press release and are more fully detailed under the caption risk factors on pages eight to 14 of our 2013 Form 10K filed on February 28, 2014 and in our subsequent filings with the SEC. Please also note that the date of this conference call is November 6, 2014 and any forward-looking statements that we make today, are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. Also, references made to certain non-GAAP numbers in this presentation, a reconciliation to GAAP numbers, and description of the calculation methodologies is provided in the addendum. With that, I’ll turn the call over to Matt.

[Matthew J. Cox:]

Matson had a strong third quarter as the Hawaii economy is showing increased economic vitality, and we’re earning our share of this growth. In the third quarter, as compared to the prior year, we carried nearly 4% more containers to and from Hawaii. We also benefited from the timing of fuel surcharge recoveries. As you may recall, our first half results were adversely impacted by the timing of lower fuel surcharge recoveries, and as expected, we have made good progress in this recent quarter catching up. We’re also encouraged by higher freight rates in all of our major trades, a reflection of both improved market conditions and the unique value proposition we offer

[Joel M. Wine:]

As shown on Slide 12, Matson’s consolidated operating income for the quarter was $45 million, as compared to $27 million for the third quarter of 2013. Ocean transportation operating income increased by $17.1 million during the third quarter of 2014, compared with the third quarter 2013. This large increase can be attributed primarily to the timing of fuel surcharge recoveries, improved results at SSAT, higher container volume in Hawaii, and higher freight yields across all major trade lanes, partially offset by higher terminal handling expenses. For the quarter, the company also incurred $2.1 million in penalties, legal, and other expenses related to the molasses released into Honolulu Harbor in September of 2013, versus $1.3 million of molasses related expenses in the third quarter last year. Also as a reminder, the third quarter 2013 financial results were adversely impacted by several unfavorable items including an arbitration decision of $3.8 million and a $2.2 million tax allocation. Lastly, logistics operating income increased by $.7 million during the third quarter 2014, compared to the 2013 for the reasons Matt cited a moment ago. The next Slide 13 shows our year-to-date results. For the first nine months of 2014, consolidated operating income was $90.6 million, an increase of $8.2 million from 2013. Both ocean transportation and logistics showed year-over-year improvement by 8.3% and 41.5% respectively. The increase at ocean transportation can be attributed primarily to higher freight yields across all major trade lanes, lower outside transportation costs, and improved results at SSAT, which were partially offset by increased terminal handling costs. Also, improving year-over-year comparisons was the $6 million in unfavorable items from the third quarter last year, previously mentioned. Stripping these items out, ocean transportation operating income was essentially flat year-over-year. Logistics posted solid operating income results of $5.8 million for the first nine months of the year, driven by warehouse operating improvements, increased highway volume, and a favorable litigation settlement partially offset by lower [intermodal] yield. Slide 14 depicts the condensed statement of income for the third quarter compared to the same period from last year. As you will note, total revenue increased by 6.5% on a year-to-year basis, while our operating costs increased 2.9%. Net income improved by 25% driven by strong operating performance and the absence of unfavorable items, offset somewhat by higher interest expense and a higher effective tax rate. Recall that in the third quarter of 2013, our effective tax rate was skewed lower than normal due to the tax allocation item I mentioned earlier. Conversely, during the third quarter of 2014, the company recorded a non-cash charge of $2.8 million that reduced previously recognized deferred tax assets, which increased our effective tax rate for the quarter to 47%. Due to this non-cash charge during the third quarter, we expect our annual effective tax rate for the full year of 2014 to approximate 43%, which is higher than our normal rate of approximatively 38%. Lastly, we also generated nearly $178 million of LTM EBITDA, which highlights the stability of our cash flow generation. With this strong operating performance, our balance sheet continues to be in very good shape. Turning to Slide 15, you will note that our total debt at the end of the third quarter was $377.5 million and our net debt to LTM EBITDA ratio remains very strong at only .8 times. We continue to have excellent liquidity with $230.9 million of cash and cash equivalents as of September 30th. In the past quarter, we also contributed $65.5 million to the CCF fund, of which $27.5 million was in the form of cash and the remainder was in receivables. Slide 16 shows the summary of how our cash flows have been deployed in the past 12 months, and excludes the additional $100 million of cash raised from the new debt issuance in January if this year. This chart demonstrates the balanced manner in which we continued to deploy the company’s cash flow. With that, let me now turn to Slide 17 to provide our outlook for the fourth quarter of 2014. First, I would remind you that our outlook excludes any molasses release impact, because such future potential impacts are presently unknown, and that our 2014 outlook is being provided relative to 2013 operating income, excluding the litigation charge taken in the fourth quarter 2013. For the fourth quarter, we expect ocean transportation operating income to be higher than the 2013 level of $26 million, excluding the litigation charge, driven by a modest increase in Hawaiian and Guam volume, higher volume and freight rates in China, and modest profit at SSAT. We expect to operate a core nine ship fleet for the quarter and also expect a benefit from improvement in our South Pacific Trade lane. For logistics, we expect the fourth quarter operating account to modestly exceed the 2013 level of $1.9 million, driven by continued volume growth, expense control, and improvements in warehouse operations. I will now turn the call back over to Matt for final comments.

[Matthew J. Cox:]

We had a very solid quarter and expect to build on this momentum for the fourth quarter. Our Hawaii volume rebounded in line with increased construction activity, our Guam volume is holding steady, and our China service continues to differentiate itself through a superior service offering, resulting in heightened demand that leads to higher rates and full capacity. I’m equally pleased by the turnaround at SSAT, which was a year in the making after our investments at Oakland, and other terminals. Logistics has also strengthened measurably, particularly in its own turnaround efforts in its warehouse operation. The product of all this hard work is a solid balance sheet and sustained cash generation. We’ll continue to use this foundation to reach higher. We’ll fund our fleet renewal program and pursue growth initiatives, all while maintaining a strong dividend. With that, I will turn the call back to the operator, to ask for your questions.

[Operator:]

(Operator instructions) Your first question comes from the line of Jack Atkins − Stephens, Inc.

[Jack Atkins:]

I guess to start out with, I know that you choose your words very carefully in both the press release and your prepared remarks, but I was wondering if we could maybe just kind of talk about your expectation for the fourth quarter with ocean transportation property income? You said you expect it to be up year-over-year, I know typically you guys like to put some qualifiers around such as modestly, moderately, things like that. Is there any way that you can help us frame up, just so that we’re all on the same page, to what degree you expect ocean transportation operating income to increase year-over-year?

[Matthew J. Cox:]

Well, Jack we didn’t put any qualifiers or anything around it, we just expect it to be up this year versus last year. We do have good momentum and some of the items Matt mentioned about our Hawaii business and volumes increase, but overall, we just expect it to be higher than the $26 million last year, we’re not commenting any further.

[Jack Atkins − Stephens:]

There’s a couple other questions, then I’ll turn it over, but on the Hawaii volumes nice growth there, did you guys see much at all the benefits from the storms that hit Hawaii in the quarter in terms of additional – both the east bound and west bound volume?

[Matthew J. Cox:]

We did month-over-month, but within the quarter we didn’t see an impact. We saw some stocking of basic supplies in advance of the storm’s advance to the islands. We saw a little bit of a lull, but between those two that fell into this quarter, we saw no measurable impact either direction. As you know, the damage was relatively limited to the big island, and so we didn’t see a significant amount of supply into the island as a result.

[Jack Atkins − Stephens:]

Then, as far as the SSA joint venture contribution, I’m glad to see that take a nice step up sequentially and year-over-year, but do you feel like – granted we’ve got some near term issues with the labor issues on the west coast porch, but do you feel like that joint venture has turned a corner in terms of its profit contribution, that we should get back to sort of historical levels which is on that $3 million a quarter type product rate? Is that the right way to think about that normalized going forward?

[Matthew J. Cox:]

Yes, we’ll comment more in the year-end call about our view about the results for next year on the January year-end call, but I would say that we do expect continued improvements in this unit. To what extent, well I think we’ll be better able to better handicap when we give our year-end call, but we are encouraged by the momentum of that unit.

[Jack Atkins − Stephens:]

Then last question for me, you referenced how you guys aren’t seeing the same type of congestion at your terminals in LA and Long Beach, because of your dedicated terminal capacity, but do you think that is going to help you guys maybe get an even better premium to the trans pacific rate in the fourth quarter, just given that you’re not seeing the same type of congestion issue there?

[Matthew J. Cox:]

Yes, very much so. We don’t get specific for competitive reasons, but the premium grew in a very healthy fashion and has over the last couple of years, including this year and despite an overall flattish freight rate environment in general, we’re saying we’re seeing higher rates year-over-year and expect that to continue into the fourth quarter. So, the premium has grown given the fact that we continue to do well, and the rest of the services options continue to be mediocre or get worse.

[Operator:]

Your next question comes from the line Benjamin Nolan – Stifel.

[Benjamin Nolan:]

I guess my first question relates to something that’s been pretty topical in the past month and a half or so, we’ve seen oil prices come off a lot including [inaudible] prices, bunker fuel prices is way down. I mean obviously, you guys have the fuel surcharges, but can you maybe walk me through some of the different facets that are maybe impacted as a function of the lower fuel prices, and how that might impact you guys going forward?

[Matthew J. Cox:]

You rightly point out that we have a fuel surcharge mechanism. Matson did announce recently the reduction of its fuel surcharge, and as you know, our objective is to recover 100% of our fuel in both the Hawaii and Guam trades, and on an annual basis we’ve been fairly successful. We’ve been successful in doing it, although you’ll note there are times when we got a little bit ahead and behind in one quarter or another, but on an annual basis we’ve been very effective in being able to recover that. The benefit, of course to lower fuel surcharges in the Hawaiian Guam trades is, it gives our customers a break, and so that’s terrific from that perspective. But again, it’s not a mover of our profit. Now in the China trade and some of the Micronesia trades, in the South Pacific trade, some of our smaller trades, some of the fuel surcharges are not as effective so on the margin, we do benefit a little bit. Frankly, the cargo volumes are relatively small so it’s not a huge needle mover, but it is welcome nonetheless. That’s the way I’d answer that question.

[Benjamin Nolan:]

So maybe mildly positive, but you’re generally a non-issue is how you’d structure that I suppose, right?

[Matthew J. Cox:]

Yes.

[Benjamin Nolan:]

I guess my next question is, it seems like every quarter the logistics gross margins are getting better and can you maybe break down for me, how much of it you would attribute to your own efforts in terms of cost controls and everything else, as opposed to from an industrywide perspective, are we starting to see a little bit more profit being dropped to the bottom line industrywide?

[Matthew J. Cox:]

The way that we think about it, there are really three primary segments within logistics. We don’t report on the [point] specifics. It’s our warehouse business, it’s our truck brokerage business, and then our rail brokerage business. I think what we have seen − our experience has been that we have seen strong growth and expansion in our truck business, both the truck brokerage, both volume and margin, we’ve seen improvements. We’ve seen terrific improvements in our warehouse operations, as we’ve continued to match the underlying warehouse demand with the capacity and to implement various profit improvements, and specific customer targeted improvements. Then, we would say that we’ve seen increases despite the overhang in the domestic rail, where we’ve seen margins continue to be under pressure, and you see a lot of the other names in this space report difficult comps who are primarily focused on the intermodal brokerage segment. I would say though, just on that point, that we have seen just recently, a little bit more traction, which we’re encouraged about. We’re not ready to call it a marker turn, but we’ve seen anecdotal evidence of customers sending out RFPs. Let’s say an existing customer sends out an RFP we’re not awarded because somebody undercuts, and we find that customer coming back to us because the lower bidder wasn’t able to provide equipment. So we’re starting to see a slowdown in some of the RFP activity, which we see as good, and that could ease the margin pressure, although it’s unclear whether we’re just in a seasonal busy period, but at least we’re seeing some slowdown in that activity. The way I would characterize it is, we’ve seen improvements in two of our segments, and overall improvements, despite a weaker intermodal rail segment.

[Benjamin Nolan:]

I suppose lastly, when thinking of where you guys are from a cash basis and I know you still have the new building commitments, but still generating a lot of cash flow. Has here been any changes in how you’re thinking of the deployment of your capital going forward, any broadly speaking, any new initiatives you’re beginning to consider, or anything of that sort?

[Joel M. Wine:]

The one thing we said on cash deployment, is we do think over time we’re open minded to share buyback activity so that’s the one – we’ve said from a corporate finance point of view, that’s one thing we can add to our tool kit. No expectation for any kind of immediate or timetable to do that, we’ll look at our cash flows and overall investment needs over the long haul, but that’s something that we’re certainly open minded to as a company that we have not done in the past, but we’re not making any announcements, or not saying anything new about that today. But that is something that we would consider as part of our corporate finance shareholder value toolkit.

[Operator:]

Your next question comes from the line of Stephen O’Hara − Sidoti & Company, LLC

[Stephen O’Hara − Sidoti & Company:]

I’m just curious about the commentary on construction and demand improving, and I was curious if you were saying that the improvement in demand was due to current construction, or you’re starting to maybe see a little bit − it seemed like you hear [inaudible] little more, like 2015 − like I think you said, it’s kind of pushed to the right. Were you starting to see that impact now, and then maybe you’d expect to see an even bigger impact when things start to ramp up with the interior build out?

[Matthew J. Cox:]

I think we a little surprised by the lull in the first half of the year, and you heard us say that. We saw the market growth begin with our second quarter results and it’s been strengthened in the third quarter, and we’re encouraged by that, that’s what we expected to see and now we’re seeing it, so that’s positive. Without looking at the trajectory of whether it further escalates from here, I think what it says is we believe we’re in a period of sustained growth. Exactly what − I think again, we’ll have a better view of where we think 2015 is going to take us, but we’re firing on more cylinders now. So, I think what you’re going to see are projects that are finishing off, you’ll see new projects that are underway, a bit of broken ground in various stages, you’ll see ongoing construction of the light rail, and I think all of that creates an environment where we’ll see market growth and so we expect that to occur certainly through this year, and probably consistent with the data that UHERO is projecting. So, it’s a little of both.

[Stephen O’Hara − Sidoti & Company:]

I guess most of the construction, at least on the residential side or, on the residential side is I think supposed to be more of the high rise variety? Do you maybe have any estimate of when the single family home development could begin, because I think that would be a much bigger driver of volume than the high rises, is that correct, I’m just curious of what your thought there are?

[Matthew J. Cox:]

Yes, I think you’re right about that. I think we certainly – if you look at the projects that are in front of us that are announced, you’ll see much of it is high rise condominium units. In Kakaako, the area in urban Honolulu core, is one where we’ve seen relatively sizeable numbers of announcements for construction. I think in this phase of the cycle, most of our volume growth is going to be on condominium building and on the light rail. I do think further out in the cycle, we will see single family home construction on Oahu, primary home construction on Oahu, take off next and probably lastly in the cycle is neighbor island, sort of luxury residential homes. That will be the last in the cycle. Hopefully, it’s a multiyear kind of play, but we haven’t seen significant single family home announcements at this point in the cycle.

[Stephen O’Hara − Sidoti & Company:]

That’s fairly typical though right, the high-rise comes first and then, Oahu or single family, and then it spreads to the outer islands?

[Matthew J. Cox:]

Yes, that’s how traditional− the historical cycles have worked. But, what we’re primarily focused on is the stuff we’re commenting on, is the stuff that’s right in front of us, which is the condominium in Honolulu at this point.

[Operator:]

Your next question comes from the line of Kevin Sterling – BB&T Capital Markets.

[Kevin Sterling:]

Let me expand, I think Jack was touching on this about the congestion issue in the west coast and you highlighted your premium service and how you’re getting pricing. Maybe from the volume side, I want to look at that angle, are you picking up new business, maybe expanding business with existing customers? Customers coming to you and being like, “Look, we’re fed up with the service we’re getting, we’re just coming to you for some new business opportunities”?

[Matthew J. Cox:]

As you know Kevin, we’ve have been capacity constrained and so aside from maybe two or three weeks a year, our ship is essentially full. So what we have done over time, and as I mentioned earlier, our premium relative to spot rates in the market has continued to expand, and so what we find is we every week have more customers who would like to take a booking and ride on the Matson’s vessel that we have slots for. So we go through a process of looking at trade offs between customers that will get a year round support, and ideally those are customers who are willing to pay more, who’s option is perhaps is to air freight, and reflect that in trying to optimize and get the highest freight rates that we possibly can, understanding the value of long term relationships and customers that give us cargo all year-round. So if there’s a customer that comes to us who’s never used us before, and will likely only use us for the peak period, we may put that customer further down the list than a customer who would be willing to book essentially all year round, or mostly all year round. Those are the trade offs that we go through, but that has resulted in an expansion of our average freight rates, and in the margin relative to the rest of the market.

[Kevin Sterling:]

So are you seeing, maybe this time of the year, more inquiries than you have in years past?

[Matthew J. Cox:]

I think probably the answer is yes. In fact, what often happens is customers who give us five containers a week let’s say during the slack season, are looking to move 25 containers a week during the peak, and often what we’ll do is say, “If you book with five in the slack season, we’re only going to give you five slots, or we might give you six or seven slots in the peak.” So it can be new customers, we’re getting more inquiries, but often it’s our existing customers that are looking for more capacity than we can give them, and they’re forced to use other carriers, or alternate means to get their product to their end markets.

[Kevin Sterling:]

I know I asked you this question the last quarter, when does it get to the point where you consider a second string? We’re probably not there yet, but if you continue to get these customer inquiries, does it get to a point where it becomes maybe a little bit more of a consideration than it had been in years past?

[Matthew J. Cox:]

Yes, we evaluate that. You might remember we took a stab at that using non-US flag vessels into Southern China or CLX-2 service, and the market timing was poor and we discontinued that service. Part of the difficulty is in order to do it the way we’ve done it today, we’d need to acquire five Jones Act ships that would allow us to carry cargo full from the west coast to Hawaii and Guam, and then load up in the other direction. It if you just started a service with non-US flag vessels and fill up in one direction, let’s say from China back to the US, you can’t make money doing that because there’s essentially no cargo from the west coast to Asia, and that’s why many of the international carriers are losing money, because it’s a one way trade. So it would require a substantial investment in five new Jones Act ships in order to replicate our service.

[Kevin Sterling:]

Keeping on kind of the eastbound trade for a moment, I was hoping to get your thoughts regarding the TSA’s recommendations for its carriers to move away from GRI’s and into more contractual rate minimums, with certain bunker surcharges next year. I guess one, how has the reception been for shippers, and two, if the TSA is successful in achieving this, do you think it will bring some stability to the eastbound China trade, or given the current capacity situation do you think will continue to see more volatility until the trade lane normalizes?

[Matthew J. Cox:]

Those are good questions. I think ultimately the TSA has struggled with their historic approach and, so trying a different approach is not a bad idea. But, I think fundamentally it’s going to come down to supply and demand. If we see supply growth that exceeds demand growth, or at an absolute level, I think the TSA carriers are going to find themselves continuing to struggle with getting any kind of increase. With all this new capacity coming online, and the reshuffling of alliances, we’ll see if the carriers as they reformulate themselves, can be more disciplined in their deployment of capacity. I think that will be the answer to the question on whether they’ll be able to get the rates up, rather than one particular TSA strategy or another.

[Kevin Sterling:]

If there is a change in strategy, what are your views as to how it impacts you guys, or are you neutral?

[Matthew J. Cox:]

I think generally we’d like to see higher rates in the market. We generally see ourselves as earning a premium to the market, whatever the market is and we’re not immune from the market cycles, so I would say we generally welcome a more orderly market and with freight rates that are higher. Now having said that, in some ways as our margin expands on our line of business, we become less subject to the freight rates, but the underling freight rates in the market are still a driver to our profitability, and we would welcome more capacity management and higher freight rates. That would be − we would benefit from that.

[Kevin Sterling:]

One last question here, and it’s probably for Joel. Joel, I know you touched on the tax rate being higher last quarter and high again this quarter, you explained that, any impact to the tax rate going forward, or should we see normalized Q4?

[Joel M. Wine:]

We would expect it to normalize, there’s nothing in our outlook calling it be different. But then for the whole year, when you look at the 47% for this quarter, the whole year we expect to come in at 43%, but if you just look at going forward, it should be back to our normal rate.

[Operator:]

Your next question comes from John R. Mims − FBR Capital Markets & Co.

[John R. Mims − FBR Capital Markets & Co:]

Can you break out, and I know there’s only so many numbers that you can throw out, but what the revenue growth would have been without the recovery of fuel surcharge?

[Matthew J. Cox:]

No, we don’t comment on that John.

[John R. Mims − FBR Capital Markets & Co:]

Where I’m trying to go with this is as a percent of revenue, operating costs were down 300 basis points or so, but I want to try to figure out what the incremental decline in automobiles has had on the negative side, on an incremental cost basis, right? Because the ships are running anyway, but you have 20% fewer cars on there, but your operating expense as a percentage was down because the revenue was up because of fuel. So, from a modelling standpoint is there any direction you can give as far as what to think in term of run rate there, like where that should normalize out?

[Matthew J. Cox:]

I can address part of that question as it relates to the automobiles in the movements. Basically, we noted, we saw a reduction in auto volume, and you’ll also note that we said that it didn’t impact our operating profiting materially for the quarter. The reason for that is, just by way of background, Matson carries cars in effectively two ways. One is for those vessels which have fixed garages, we roll them on and roll them off the vessel on scheduled deployments. The other way we move cars are in specially designed auto frames where cars are driven onto a frame structure and then lifted on and put into a container slot and then unstuffed from that auto frame. When you look at where auto manufacturer prices are – so, it’s cheaper for us to move it in roll on roll off than to put them in auto frames. If you look at the types of customers we have, we have auto manufacturers, we have military vehicles, we have privately owned vehicles, so we have an array of different types of customers, but the lowest freight rate cars are those from the manufacturers and the highest method of carrying them is in auto frames. When we lose cars, and in this case we did from auto manufacturers, and we are able to avoid putting cars in frames, then what it means is there’s virtually no reduction in our operating profit associated with losing those cars. If you follow the logic there. So that’s why we can say, we won’t quite call them profitless cars, but they’re very low margin cars, and we’ve made a conscious decision to – it was time to try to seek a meaningful increase or to part ways with some of those auto manufacturers and that’s in fact what we did.

[John R. Mims − FBR Capital Markets & Co:]

So, those frames are going in the container slots, so that’s freeing up more container space?

[Matthew J. Cox:]

That’s correct. Yes, that allows us to stay in a nine ship fleet longer without having to deploy a tenth ship, so there’s a second benefit right there.

[John R. Mims − FBR Capital Markets & Co:]

Where is utilization trending now and what would it need to hit before you’d pull out the tenth ship?

[Matthew J. Cox:]

We’re about 95% utilization I would say, maybe a little bit higher and we did say we expect to stay in a nine ship fleet for the rest of the year. Typically, we see as we get into the fourth quarter, volumes begin to slacken, the third quarter is our busiest, then things slacken a bit. Of course, we are seeing some market growth, which is very welcome and that’s we think, going to be sustained into the fourth quarter as Joel mentioned in his comments. We’re going to be watching it closely. We’ll have a better view of that when we do our year-end earnings call with respect to what our view for 2015 will be. We will note also that one of our competitors is deploying an additional ship sometime in early 2015, and we’re going to just have to look at what impact that will be, when it will be deployed, how fast the market is growing, and then determine whether a tenth ship is necessary. That’s all going to be factored into our discussion in the year end call.

[John R. Mims − FBR Capital Markets & Co:]

Let me ask you just on that, on the seasonality of rates and as it applies to your premium in the CLX business, how fluid is that because you’ve given dollar ranges, we get [inaudible] 400 to 800 if I recall it, it may be a little wide, but a premium over the SCFI rates, just making up numbers here, let’s say current rates are $2,000, and when you hit the seasonally slow period let’s say it drops to $900, and if your premium was $500, so you were making $2,500. If that index rate drops $100, do you see more stability in your rates so your premium would go to $600, or would the premium stay intact and you, in that example, make $2400?

[Matthew J. Cox:]

I think what I would say is we are far – we see far less volatility than the Shanghai Containerized Freight Index. I would also say that it’s true that the premium within a year tends to expand as well. So, during the peak season we will see the premium drift up, as the market will allow for that to occur, and the alternatively, when we get into slack season, and especially when we get into those few weeks post lunar New Year, the premium itself can narrow substantially. But in general, our base freight rates are a lot less volatile, acknowledging that there is a seasonality to the premium as well.

[John R. Mims − FBR Capital Markets & Co:]

Just one last one and I’ll turn it back over, the Yen versus the dollar is now at probably six year lows, what impact does that have on, I guess two things, Hawaiian tourism from the Japanese community, but also what the flow through to container demand is, if you have a reduction in buying power of the Japanese tourists?

[Matthew J. Cox:]

I think clearly we see a link between the Yen and the Japanese visitors, that’s clear that’s there. If you were to look at the hotel industries and the visitor counts, you would definitively see an impact. The tourists in general, is not a significant driver to Matson’s container volumes. If you look at what a typical consumer or vacationer would use, it just doesn’t turn into a lot of volume. That’s why early in the economic cycle in Hawaii, we saw terrific increases in visitor arrivals, and visitor spend, and hotel occupancies, and many of the businesses in Hawaii were doing really well in the economy, but we weren’t seeing the volume growth. It’s not a significant driver for us, it’s really construction that moves the needle for us, and so the Yen is not a significant driver to Matson’s business.

[Operator:]

Your last question comes from Stephen O’Hara − Sidoti & Company, LLC.

[Stephen O’Hara − Sidoti & Company:]

I just had one last question, just about the taxes, in terms of the cash taxes, you don’t really pay much cash taxes right, is that correct?

[Joel M. Wine:]

No, no, we do. I think last year we paid over $20 million in cash taxes.

[Stephen O’Hara − Sidoti & Company:]

But in terms of the − I thought there was some benefit from making a deposit into the CCF, should we expect to see that this year as well?

[Joel M. Wine:]

It won’t be as large. Last year we had a much larger – as we initiated the program, a much larger effect on a cash flow from operations perspective that we called out, but there will continue to be a benefit this year, and in future years when we deposit into the CCF, because we get a tax shield for those deposits. What we’ve talked about there is, effectively our strategy is to deposit into that CCF and produce tax shields to get us down to where the level of alternative minimum payment tax, and after that, we’re going to be subject to AMT and so it doesn’t make sense to do additional deposits in the CCF. We’re essentially going to be an AMT payer, which means you’re paying cash taxes you’re just not paying at the full 38% and that’s why the deferred tax liabilities on our balance sheet grow during this part of the cycle.

[Operator:]

I’m not showing any further questions at this time. I’d like to turn the call back over to Matt Cox for closing remarks.

[Matthew J. Cox:]

Thanks very much for your interest, we look forward to catching up with you the year end, Aloha.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a good day.