Horizon Lines Reports 2010 Financial Results

CHARLOTTE, N.C., March 3, 2011 /PRNewswire/ -- Horizon Lines, Inc. (NYSE: HRZ) today reported financial results for its fiscal fourth quarter and year ended December 26, 2010.  

As a result of the company’s previously announced plans to divest its logistics business, financial results are being presented on a continuing operations basis, excluding the discontinued logistics operations.

On a GAAP basis, the fourth-quarter net loss from continuing operations totaled $46.4 million, or $1.50 per share, on revenue from continuing operations of $298.8 million.  On an adjusted basis, the fourth-quarter net loss from continuing operations totaled $10.2 million, or $0.33 per diluted share, after excluding charges totaling $36.2 million after tax, or $1.17 per diluted share.  The majority of these charges, $30.0 million, represents the net present value of a $45.0 million, non-interest bearing fine associated with the resolution of the Department of Justice’s antitrust investigation. The remaining charges include a reduction in non-union workforce, antitrust-related legal fees, an agreement to settle indirect purchaser litigation in Puerto Rico, and equipment impairment charges.

In the year-ago fourth quarter, Horizon Lines reported net income from continuing operations of $1.6 million, or $0.05 per diluted share, on revenue of $286.7 million.  On an adjusted basis, net income totaled $3.9 million, or $0.12 per diluted share, after excluding antitrust-related legal expenses, costs for early retirement of certain union employees, and tax adjustments totaling $2.3 million, or $0.07 per share.  

Container volume for the 2010 fourth quarter totaled 69,427 loads, a 7.9% increase from 64,320 loads for the same period a year ago, due largely to the extra week and the contribution of the company’s new China service, which began operations in December.  Excluding these factors, fourth-quarter volume declined 1.1% from a year ago.  Comparable container volume (excluding the extra week and international loads) for the year totaled 254,854 loads, down 1.1% from 257,625 loads a year ago.  

Container rates, net of fuel, for the 2010 fourth quarter, eased to $3,229 from $3,251 for the fourth quarter a year ago, largely a result of continued pricing pressures in Puerto Rico.  For the year, container rates, net of fuel, were $3,250, marginally below the rate of $3,262 a year ago.

“The fourth-quarter turned out to be very challenging, due to lower-than-anticipated volumes in Hawaii, particularly in the latter months of the quarter, increased fuel prices, continuing rate pressures in Puerto Rico, and anticipated start-up costs related to our new China service,” said Brian W. Taylor, Executive Vice President and Chief Operating Officer. “Despite these challenges we delivered a decent financial performance for the year, including adjusted EBITDA from continuing operations of $96.4 million and adjusted free cash flow from continuing operations of $40.5 million.

“Our achievements for the quarter included the successful launch of our new Five Star Express service between the U.S. West Coast and China, which is operating according to management expectations,” Mr. Taylor said.  “In addition, we continued to demonstrate diligent cost management, maintained relatively consistent container rates in the face of continuing pricing pressures, and delivered excellent customer service and improved schedule integrity across our tradelanes.”

Fourth-Quarter 2010 Financial Highlights

• Operating Revenue – Fourth-quarter operating revenue from continuing operations increased 4.2% to $298.8 million from $286.7 million a year ago.  The largest factors in the $12.1 million revenue gain were a $17.7 million increase in revenue due to volume and a $2.8 million contribution from the company’s terminal services business.  These gains were partially offset by a $5.2 million revenue decline resulting from lost space charter revenue, a $3.5 million decrease related to the expiration of a vessel management contract with the federal government, and a $2.4 million decline resulting from a decrease in rates, net of fuel.  

• Operating Income – The GAAP operating loss from continuing operations for the fourth quarter totaled $35.5 million, compared with operating income from continuing operations of $11.9 million a year ago. The 2010 GAAP operating income includes expenses of $36.5 million. These consist of a $30.0 million charge related to the resolution of the Department of Justice’s antitrust investigation, $2.0 million in charges associated with non-union workforce reductions, $1.8 million in antitrust-related legal expenses, $1.8 million to be paid to settle indirect purchaser litigation in Puerto Rico, and $0.9 million for equipment impairment charges. The 2009 GAAP operating income includes $1.7 million of antitrust-related legal expenses, and $0.3 million in costs for early retirement of certain union employees. Excluding these items, the fourth-quarter 2010 adjusted operating income from continuing operations totaled $0.9 million, compared with $13.9 million a year ago.  The decline in 2010 fourth-quarter adjusted operating income from the prior year was primarily due to lower fuel recovery, higher vessel operating expenses associated with dry-dockings, and lower rates, net of fuel.  These negative factors were partially offset by terminal services savings and a decrease in overhead expenses.

• EBITDA – EBITDA from continuing operations totaled a negative $19.4 million for the 2010 fourth quarter, compared with a positive $25.9 million for the same period a year ago.  Adjusted EBITDA from continuing operations for the fourth quarter of 2010 was $17.1 million, compared with $27.9 million for 2009.  EBITDA and adjusted EBITDA for the 2010 and 2009 fourth quarters were impacted by the same factors affecting operating income.  

• Shares Outstanding – The company had a weighted daily average of 30.9 million fully diluted shares outstanding for the fourth quarter of 2010, the same as the fourth quarter of 2009.  

• Full-Year Results – For the fiscal year ended December 26, 2010, operating revenue increased 3.4% to $1.16 billion from $1.12 billion for 2009.  EBITDA totaled $54.2 million compared with $80.2 million a year ago.  Adjusted EBITDA from continuing operations for 2010 totaled $96.4 million, after excluding $42.2 million in charges related to the resolution of the Department of Justice’s antitrust investigation, antitrust-related legal expenses, equipment impairment charges, non-union workforce reductions, resolution of indirect purchaser litigation in Puerto Rico, and charges associated with early retirement of certain union employees.  Adjusted EBITDA from continuing operations for 2009 totaled $115.4 million, after excluding $35.2 million in charges related to the Puerto Rico class-action settlement, antitrust-related legal expenses, restructuring, and impairment and other charges.  The 2010 net loss from continuing operations totaled $45.8 million, or $1.49 per diluted share, compared with a net loss from continuing operations of $26.4 million, or $0.87 per diluted share for 2009.  The adjusted net loss from continuing operations for 2010 totaled $4.0 million, or $0.13 per diluted share, compared with adjusted net income from continuing operations of $19.1 million, or $0.62 per diluted share, a year ago.

• Liquidity, Credit Facility Compliance & Debt Structure – As of December 26, 2010, the company had total liquidity of $60.4 million, consisting of $2.8 million in cash and $57.6 million of effective revolver availability. The company’s trailing 12-month interest coverage and senior secured leverage ratios were 3.61 times and 2.14 times, respectively, in compliance with the credit agreement requirement of above 3.5 times and below 2.75 times, respectively. Funded debt outstanding totaled $532.9 million, a reduction of $7.8 million from the third quarter and $9.6 million from a year-ago.  The funded debt outstanding at December 26, 2010, consisted of $202.9 million in senior secured debt and $330.0 million in convertible notes, at a weighted average interest rate of 4.48%.  The company’s senior secured debt matures in August 2012, but the maturity will accelerate to February 2012 if the convertible notes are not refinanced or if arrangements are not being made for their refinancing by that date.

Please see attached schedules for the reconciliation of fourth-quarter and full-year 2010 and 2009 reported GAAP results and Non-GAAP adjusted results.

Outlook

“We are cautiously optimistic about the outlook for 2011 and expect modest volume improvements in line with the pace of economic recovery in our tradelanes,” said Michael T. Avara, Executive Vice President and Chief Financial Officer.  “We expect some strengthening of our tradelane economies, combined with our cost-reduction initiatives, to result in revenue and EBITDA growth for 2011. We expect the seasonal weakness typical in the first quarter to be exaggerated by start-up costs associated with our new China service and the corresponding loss of steady month-to-month revenue from our previous TP1 agreement with Maersk, but we also anticipate improving growth as the year progresses.  

“Our progress in 2011 will continue to be influenced by the pace and breadth of economic recovery in our tradelanes, the success of our start-up in China, and the continued high fuel costs and ongoing pricing pressures in Puerto Rico,” Mr. Avara said. “Horizon Lines is positioned to make progress in this environment.  With the Department of Justice investigation behind us, we are now moving ahead with our refinancing efforts.  We are targeting a completion of this process in the second or third quarter, and are currently in discussions with our lenders to obtain covenant relief so that we can move forward with our plans.

“Our new China business also is ramping up according to management expectations,” Mr. Avara said. “We are encouraged by the EBITDA contribution potential of this business over the longer term, but do not expect it to break even on a standalone basis this year, which is consistent with our earlier projections.”    

Webcast & Conference Call Information

Company executives will provide additional perspective on the company’s financial results during a conference call beginning at 11:00 a.m. Eastern Time today.  Those interested in participating in the call may do so by dialing 1-866-394-6819, and providing the operator with conference number 36140537.   A copy of the presentation materials may be obtained from the Horizon Lines website, http://www.horizonlines.com, shortly before the start of the call. Alternatively, a live audio webcast of the call may be accessed at http://www.horizonlines.com. In order to access the live audio webcast, please allow at least 15 minutes before the start of the call to visit Horizon Lines' website and download and install any necessary audio/video software for the webcast.

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, free cash flow 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 the nation's leading domestic ocean shipping and integrated logistics company. The company owns or leases a fleet of 20 U.S.-flag containerships and operates five port terminals linking the continental United States with Alaska, Hawaii, Guam, Micronesia and Puerto Rico. The company also manages a domestic and overseas service partner network and provides integrated, reliable and cost competitive logistics solutions. Horizon Lines, Inc., is based in Charlotte, NC, and trades on the New York Stock Exchange under the ticker symbol HRZ.

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.  These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.  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,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “projects,” “likely,” “will,” “would,” “could,” 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: failure by us or the Department of Justice to comply with the terms of the plea agreement, the court’s failure to approve the plea agreement or any settlement agreement, any further government investigations, decreases in shipping volumes, our substantial debt, restrictive covenants under our debt agreements, or changes in our management personnel.

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.  We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.  See the section entitled “Risk Factors” in our Form 10-K filed with the SEC on February 4, 2010, and in our Form 10-Q for the period ended June 20, 2010, 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.

SOURCE Horizon Lines, Inc.