Horizon Lines Reports First-Quarter Financial Results Volume and EBITDA Improve Modestly From Year Ago

CHARLOTTE, N.C., May 9, 2012 /PRNewswire/ -- Horizon Lines, Inc. (OTCQB: HRZL) today reported financial results for the fiscal first quarter ended March 25, 2012.

Financial results are presented on a continuing operations basis, excluding the discontinued trans-Pacific FSX service and logistics operations. Per-share amounts reflect a 1-for-25 reverse stock split, effective December 7, 2011.

GAAP and Non-GAAP Results from Continuing Operations

Quarters Ended

(in millions, except per share data)*

3/25/2012


3/27/2011





GAAP:




Operating revenue

$                 263.4


$                    240.7

Net loss

$                 (26.8)


$                    (20.2)

Net loss per basic and diluted share 

$                 (8.58)


$                  (16.43)





Non-GAAP:*




EBITDA

$                      5.6


$                         5.0

Adjusted EBITDA

$                    10.9


$                       10.6

Adjusted net loss

$                  (21.0)


$                     (15.8)

Adjusted net loss per basic and diluted share

$                  (6.74)


$                   (12.83)

* See attached schedules for reconciliation of reported 2012 and 2011 first-quarter GAAP results to Non-GAAP results.

"Horizon Lines generated slightly improved revenue container volume and higher EBITDA and adjusted EBITDA in the first quarter relative to a year ago, despite challenges that included severe winter weather in Alaska, higher fuel prices and increased expenses," said Stephen H. Fraser, interim President and Chief Executive Officer. "Hawaii's performance improved significantly on solid customer support and an improving economy.  Alaska's results were also better despite record cold and snowfall, which had a significant, adverse impact on customer demand and operations. Alaska was buoyed in part by domestic southbound volume that was driven by a strong seafood market.  Earnings declined in Puerto Rico from the same period a year ago, due to continued slow business conditions and vessel service disruptions.

"In 2012, we are making significant investments in our Jones Act fleet with the dry-docking of three of our Puerto Rico vessels in Asia," Mr. Fraser said.  "Although dry-docking our vessels in Asia will add considerable transit expense in 2012, it will also facilitate extensive maintenance and high-quality enhancements that are instrumental in helping maintain service integrity in the Puerto Rico market."

First-Quarter 2012 Financial Highlights

  • Volume, Rate & Fuel Cost – Container volume for the 2012 first quarter totaled 57,086 revenue loads, up 0.4% from 56,841 loads for the same period a year ago. Unit revenue per container totaled $4,257 in the 2012 first quarter, compared with $3,896 a year ago.  First-quarter unit revenue per container, net of fuel surcharges, was $3,225, up 1.0% from $3,192 a year ago.  Bunker fuel costs averaged $693 per metric ton in the first quarter, 26.5% above the average price of $548 per ton in the same quarter a year ago.
  • Operating Revenue – First-quarter operating revenue from continuing operations increased 9.4% to $263.4 million from $240.7 million a year ago.  The factors driving the $22.7 million revenue improvement were: an $18.9 million increase in fuel surcharges; growth of $1.7 million in revenue container rates; a $1.3 million rise in other non-transportation services revenue; and a $0.8 million gain in volume.  
  • Operating Loss – The GAAP operating loss from continuing operations for the first quarter totaled $6.1 million, compared with an operating loss of $9.4 million a year ago.  The 2012 first-quarter GAAP operating loss includes a $1.1 million charge for severance expenses, $0.8 million in antitrust-related legal expenses, and $0.7 million in refinancing costs.  The 2011 first-quarter GAAP operating loss includes a $2.8 million charge related to severance expenses and $2.2 million in antitrust-related legal expenses.  Adjusting for these items, the first-quarter 2012 adjusted operating loss from continuing operations totaled $3.5 million, compared with an adjusted operating loss of $4.4 million a year ago.  First-quarter 2012 operating results benefited from improved partial recovery of increased fuel costs, higher earnings from transportation services contracts, and slightly better volumes.  The positive factors were partially offset by costs associated with vessel-related service disruptions, variable expense increases that exceeded the container rate improvements, and higher overhead costs.
  • EBITDA – EBITDA from continuing operations totaled $5.6 million for the 2012 first quarter, compared with $5.0 million for the same period a year ago.  Adjusted EBITDA from continuing operations for the first quarter of 2012 was $10.9 million, an increase of 2.8% from $10.6 million for 2011.  EBITDA and adjusted EBITDA for the 2012 and 2011 first quarters were impacted by the same factors affecting operating loss.  Additionally, 2012 adjusted EBITDA reflects the exclusion of a $13.7 million non-cash loss on marking the conversion feature in the company's convertible debt to fair value, partially offset by the elimination of a non-cash $10.3 million net gain resulting from the conversion of debt into equity. First-quarter 2011 adjusted EBITDA also excluded a charge of $0.6 million related to a loss on the modification of debt.
  • Net Loss – On a GAAP basis, the first-quarter net loss from continuing operations totaled $26.8 million, or $8.58 per share, compared with a 2011 first-quarter net loss from continuing operations of $20.2 million, or $16.43­­­ per share. On an adjusted basis, the first-quarter net loss from continuing operations totaled $21.0 million, or $6.74 per share, compared with an adjusted net loss of $15.8 million, or $12.83 per share, a year ago.  The 2012 and 2011 first-quarter net losses reflect the same items impacting adjusted EBITDA in each period.  Additionally, the net loss for both periods reflects non-cash accretion of payments associated with antitrust-related legal settlements, and the tax impact on the adjustments.  
  • Shares Outstanding – The company had a weighted daily average of 3.1 million basic and fully diluted shares outstanding for the first quarter of 2012, compared with 1.2 million basic and fully diluted shares outstanding for the first quarter a year ago.  Shares outstanding reflect a 1-for-25 reverse stock split approved at a special meeting of stockholders on December 2, 2011, and made effective on December 7, 2011.  
  • Liquidity, Credit Facility Compliance & Debt Structure – Based on accounts receivable outstanding as of March 25, 2012, the company had total liquidity of $50.9 million, consisting of $24.9 million in cash and $26.0 million of asset-based loan ("ABL") borrowing availability. Funded debt outstanding totaled $592.7 million, consisting of: $225.0 million of 11.00% first-lien senior secured notes due October 15, 2016; $100.0 million of second-lien senior secured notes due October 15, 2016, bearing interest at 13.00% if paid in cash, 14.00% if paid 50% in cash and 50% in kind, and 15.00% if paid in kind with additional second-lien secured notes; $228.4 million of 6.00% convertible secured notes due April 15, 2017; and $30.0 million drawn on the ABL facility, bearing interest at a weighted average of 3.73%.  Also remaining outstanding were $2.2 million of 4.25% convertible notes due August 15, 2012, and a $7.1 million capital lease.  The company's weighted average interest rate for funded debt was 9.01%.  Availability under the ABL facility is based on a percentage of eligible accounts receivable and customary reserves, with a maximum of $100.0 million.  Letters of credit issued against the ABL facility totaled $19.6 million at March 25, 2012. 

Please see attached schedules for the reconciliation of first-quarter 2012 and 2011 reported GAAP results and Non-GAAP adjusted results.

Completion of Financial Restructuring

On April 9, 2012, the company entered into transactions with noteholders representing approximately 99% of the outstanding $228.4 million of the 6.00% Series A and Series B convertible senior secured notes to substantially deleverage the balance sheet by converting the notes into common stock and warrants. At the same time, the company agreed with Ship Finance International Limited ("SFL") and certain of its subsidiaries to terminate the company's vessel charter obligations related to its discontinued trans-Pacific service in exchange for the issuance of $40.0 million of debt, plus warrants to purchase 9.25 million shares of the company's common stock.  These simultaneous transactions resulted in a net debt reduction of approximately $188.4 million and the elimination of $32.0 million in annual vessel charter obligations through 2018, and $4.8 million in 2019, as well as associated vessel lay-up costs of $3.0 million per year, assuming the five vessels were to remain inactive.

As a result of the conversion of the Series A and Series B notes, the company expects to record a non-cash loss on the conversion of approximately $185.4 million during the second quarter of 2012.  In connection with the termination of the vessel lease obligations with SFL, the company also expects to record a second-quarter charge of $19.0 million, which will be recorded as part of discontinued operations.

Outlook

The company continues to project that 2012 container volumes will increase modestly, in the 1% to 2% range, and that container rates, net of fuel surcharges, will rise slightly from 2011 levels.  Fuel prices for 2012 are currently projected in the $725-$730 per-ton range, excluding additional costs for low sulfur fuel that will be required in the Alaska tradelane, effective August 1, 2012. 

Use of Non-GAAP Measures

Horizon Lines reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). The company also believes that the presentation of certain non-GAAP measures, i.e., EBITDA and results excluding certain costs and expenses, provides useful information for the understanding of its ongoing operations and enables investors to focus on period-over-period operating performance without the impact of significant special items. The company further feels these non-GAAP measures enhance the user's overall understanding of the company's current financial performance relative to past performance and provide a better baseline for modeling future earnings expectations. Non-GAAP measures are reconciled in the financial tables accompanying this news release. The company cautions that non-GAAP measures should be considered in addition to, but not as a substitute for, the company's reported GAAP results. 

About Horizon Lines

Horizon Lines, Inc. is one of the nation's leading domestic ocean shipping companies and the only ocean cargo carrier serving all three noncontiguous domestic markets of Alaska, Hawaii and Puerto Rico from the continental United States.  The company maintains a fleet of 15 fully Jones Act qualified vessels and operates five port terminals in Alaska, Hawaii and Puerto Rico.  A trusted partner for many of the nation's leading retailers, manufacturers and U.S. government agencies, Horizon Lines provides reliable transportation services that leverage its unique combination of ocean transportation and inland distribution capabilities to deliver goods that are vital to the prosperity of the markets it serves. The company is based in Charlotte, NC, and its stock trades on the over-the-counter market under the symbol HRZL.

Forward Looking Statements

The information contained in this press release should be read in conjunction with our filings made with the Securities and Exchange Commission.  This press release contains "forward-looking statements" within the meaning of the federal securities laws.  Forward-looking statements are those that do not relate solely to historical fact.  They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events.  Words such as, but not limited to, "believe," "anticipate," "plan," "targets," "projects," "will," "expect," "would," "could," "should," "may," and similar expressions or phrases identify forward-looking statements.

Factors that may cause expected results or anticipated events or circumstances discussed in this press release to not occur or to differ from expected results include: our ability to maintain adequate liquidity to operate our business; our ability to make interest payments on our outstanding indebtedness; failure to comply with the terms of our probation imposed by the court in connection with our pleas relating to antitrust and environmental matters; volatility in fuel prices; decreases in shipping volumes; the reaction of our customers and business partners to our announcements and filings, including those referred to herein; government investigations related to (i) the imposition of fuel surcharges in connection with government contracts, (ii) regulations covering products transported on our vessels, including the FDA and USDA, or (iii) any other government investigations and legal proceedings; suspension or debarment by the federal government; compliance with safety and environmental protection and other governmental requirements; increased inspection procedures and tighter import and export controls; repeal or substantial amendment of the coastwise laws of the United States, also known as the Jones Act;  catastrophic losses and other liabilities; our ability to integrate new and retain existing management; the successful start-up of any Jones-Act competitor; failure to comply with the various ownership, citizenship, crewing, and U.S. build requirements dictated by the Jones Act; the arrest of our vessels by maritime claimants; severe weather and natural disasters; and the aging of our vessels and unexpected substantial dry-docking or repair costs for our vessels.

All forward-looking statements involve risk and uncertainties. In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in this press release might not occur. The forward-looking statements included in the press release are made only as of the date they are made and the company undertakes no obligation to update any such statements, except as otherwise required by applicable law. See the section entitled "Risk Factors" in our 2011 Form 10-K filed with the SEC on April 10, 2012, for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences.

 

Horizon Lines, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except per share data)














March 25,


December 25,


2012


2011

Assets




Current assets




Cash

$                 24,866


$                    21,147

Accounts receivable, net of allowance of $5,894 and $6,416 at




March 25, 2012 and December 25, 2011, respectively

118,033


105,949

Materials and supplies

29,520


28,091

Deferred tax asset

10,311


10,608

Assets of discontinued operations

7,695


12,975

Other current assets

7,945


7,196

Total current assets

198,370


185,966

Property and equipment, net

163,673


167,145

Goodwill

198,793


198,793

Intangible assets, net

63,672


69,942

Other long-term assets

16,238


17,963

Total assets

$               640,746


$                  639,809





Liabilities and Stockholders' Deficiency




Current liabilities




Accounts payable

$                 44,585


$                    31,683

Current portion of long-term debt, including capital lease

5,925


6,107

Accrued vessel rent

11,465


13,652

Current liabilities of discontinued operations

28,269


45,313

Other accrued liabilities

102,045


97,097

Total current liabilities

192,289


193,852

Long-term debt, including capital lease, net of current portion

533,231


509,741

Deferred rent

12,435


13,553

Deferred tax liability

10,702


10,702

Liabilities of discontinued operations

54,852


51,293

Other long-term liabilities

25,031


26,654

Total liabilities

828,540


805,795





Stockholders' deficiency




Preferred stock, $.01 par value, 30,500 shares authorized; no shares 




    issued or outstanding

-


-

Common stock, $.01 par value, 100,000 shares authorized, 3,456




shares issued and 3,304 shares outstanding as of March 25, 2012




and 2,421 shares issued and 2,269 shares outstanding as of




December 25, 2011

615


605

Treasury stock, 152 shares at cost

(78,538)


(78,538)

Additional paid in capital

223,358


213,135

Accumulated deficit

(335,769)


(303,260)

Accumulated other comprehensive income

2,540


2,072

Total stockholders' deficiency

(187,794)


(165,986)

Total liabilities and stockholders' deficiency

$               640,746


$                  639,809







Horizon Lines, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)






Quarters Ended


March 25,


March 27,


2012


2011





Operating revenue

$               263,354


$                  240,720

Operating expense:




Vessel

88,645


75,549

Marine

50,605


48,513

Inland

46,697


42,292

Land

37,880


35,634

Rolling stock rent

9,974


9,721

Cost of services (excluding depreciation expense)

233,801


211,709

Depreciation and amortization

10,401


10,877

Amortization of vessel dry-docking

4,012


4,068

Selling, general and administrative

21,514


22,979

Miscellaneous expense (income), net

(310)


443

Total operating expense

269,418


250,076

Operating loss 

(6,064)


(9,356)

Other expense:




Interest expense, net

17,739


10,716

(Gain) loss on conversion/modification of debt

(10,982)


620

Loss on change in value of debt conversion features

13,670


-

Other expense, net

14


14

Loss from continuing operations before income tax expense (benefit)

(26,505)


(20,706)

Income tax expense (benefit)

297


(485)

Net loss from continuing operations

(26,802)


(20,221)

Net loss from discontinued operations

(5,707)


(13,851)

Net loss

$               (32,509)


$                  (34,072)









Basic and diluted net loss per share:




Continuing operations

$                   (8.58)


$                    (16.43)

Discontinued operations

(1.83)


$                    (11.25)

Basic net loss per share

$                 (10.41)


$                    (27.68)





Number of shares used in calculation:




Basic

3,122


1,231

Diluted

3,122


1,231







Horizon Lines, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)






Three Months Ended


March 25,


March 27,


2012


2011





Cash flows from operating activities:




Net loss from continuing operations

$               (26,802)


$                  (20,221)

Adjustments to reconcile net loss to net cash used in operating activities:




Depreciation

5,339


5,799

Amortization of other intangible assets

5,062


5,078

Amortization of vessel dry-docking

4,012


4,068

Amortization of deferred financing costs

770


815

Loss on change in value of conversion features

13,670


-

(Gain) loss on conversion/modification of debt

(10,982)


620

Deferred income taxes

297


(685)

Gain on equipment disposals

(28)


(12)

Stock-based compensation

48


282

Accretion of interest on convertible notes

2,710


2,850

Accretion of interest on legal settlements

544


240

Changes in operating assets and liabilities:




Accounts receivable

(12,069)


(19,786)

Materials and supplies

(1,427)


(1,470)

Other current assets

(749)


50

Accounts payable

12,886


(9,694)

Accrued liabilities

9,345


8,520

Vessel rent

(3,306)


(6,097)

Vessel dry-docking payments

(4,936)


(4,966)

Accrued legal settlements

(1,000)


-

Other assets/liabilities

(1,879)


338

Net cash used in operating activities from continuing operations

(8,495)


(34,271)

Net cash used in operating activities from discontinued operations

(13,940)


(8,630)





Cash flows from investing activities:




Purchases of property and equipment

(1,960)


(3,255)

Proceeds from the sale of property and equipment

127


206

Net cash used in investing activities from continuing operations

(1,833)


(3,049)

Net cash used in investing activities from discontinued operations

-


(215)





Cash flows from financing activities:




Borrowing under ABL facility

30,000


-

Borrowing under revolving credit facility

-


63,500

Payments on revolving credit facility

-


(6,000)

Payments on long-term debt

-


(4,688)

Payments of financing costs

(1,574)


(3,243)

Payments on capital lease obligations

(439)


(384)

Net cash provided by financing activities

27,987


49,185

Net increase in cash from continuing operations

17,659


11,865

Net decrease in cash from discontinued operations

(13,940)


(8,845)

Net increase in cash

3,719


3,020

Cash at beginning of period

21,147


2,751

Cash at end of period

$                 24,866


$                      5,771










Horizon Lines, Inc.

Adjusted Operating Loss Reconciliation

(in thousands)






Quarter Ended

March 25, 2012


Quarter Ended

March 27, 2011

Operating Loss 

$                      (6,064)


$                      (9,356)





Adjustments:




Union/Other Severance

1,124


2,806

Antitrust Legal Expenses

757


2,178

Refinancing Costs

646


-

Total Adjustments

2,527


4,984





Adjusted Operating  Loss

$                      (3,537)


$                      (4,372)







Horizon Lines, Inc.

Adjusted Net Loss Reconciliation

(in thousands)






Quarter Ended

March 25, 2012


Quarter Ended

March 27, 2011

Net Loss 

$                    (32,509)


$                    (34,072)

Net Loss from  Discontinued Operations

(5,707)


(13,851)

Net Loss from Continuing Operations

(26,802)


(20,221)





Adjustments:




Loss on change in value of debt conversion features

13,670


-

Union/Other Severance

1,124


2,806

Antitrust Legal Expenses

757


2,178

Accretion of legal settlement

544


240

(Gain) Loss on Conversion/Modification of Debt/Other Refinancing Costs

(10,336)


620

Tax Impact of Adjustments

10


(1,422)

Total Adjustments

5,769


4,422





Adjusted Net Loss from Continuing Operations

$                    (21,033)


$                    (15,799)







Horizon Lines, Inc.

Adjusted Net Loss Per Share Reconciliation






Quarter Ended

March 25, 2012


Quarter Ended

March 27, 2011

Net Loss Per Share

$                      (10.41)


$                      (27.68)

Net Loss Per Share from Discontinued Operations

(1.83)


(11.25)

Net Loss Per Share from Continuing Operations

(8.58)


(16.43)





Adjustments Per Share:




Loss on change in value of debt conversion features

4.38


-

Union/Other Severance

0.36


2.28

Antitrust Legal Expenses

0.24


1.77

Accretion of legal settlement

0.17


0.20

(Gain) Loss on Conversion/Modification of Debt/Other Refinancing Costs

(3.31)


0.50

Tax Impact of Adjustments

-


(1.15)

Total Adjustments

1.84


3.60





Adjusted Net Loss Per Share from Continuing Operations

$                        (6.74)


$                      (12.83)







Horizon Lines, Inc.

EBITDA and Adjusted EBITDA Reconciliation

(in thousands)






Quarter Ended

March 25, 2012


Quarter Ended

March 27, 2011

Net Loss

$                    (32,509)


$                    (34,072)

Net Loss from Discontinued Operations

(5,707)


(13,851)

Net Loss from Continuing Operations

(26,802)


(20,221)





Interest Expense, Net

17,739


10,716

Tax Expense (Benefit)

297


(485)

Depreciation and Amortization

14,413


14,945

EBITDA

5,647


4,955

Loss on change in value of debt conversion features

13,670


-

Union/Other Severance

1,124


2,806

Antitrust Legal Expenses

757


2,178

(Gain) Loss on /Conversion/Modification of Debt/Other Refinancing Costs

(10,336)


620

Adjusted EBITDA

$                      10,862


$                      10,559










Note:  EBITDA is defined as net income plus net interest expense, income taxes, depreciation and amortization.  We believe that EBITDA is a meaningful measure for investors as (i) EBITDA is a component of the measure used by our board of directors and management team to evaluate our operating performance  and (ii) EBITDA is a measure used by our management team to make day-to-day operating decisions.  Adjusted EBITDA excludes certain charges in order to evaluate our operating performance, for making day-to-day operating decisions and when determining the payment of discretionary bonuses.     








   

SOURCE Horizon Lines, Inc.



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