EX-99.1 2 g14461kexv99w1.htm EXHIBIT 99.1 Exhibit 99.1
Exhibit 99.1
(HORIZON LINES, INC LOGO)
Horizon Lines, LLC
4064 Colony Road, Suite 200
Charlotte, NC 28211
704.973.7000
www.horizonlines.com
News Release
For information contact:
Michael T. Avara
Senior Vice President & Chief Financial Officer
704.973.7000
mavara@horizonlines.com
HORIZON LINES REPORTS SECOND-QUARTER 2008 RESULTS
  •   Revenue increases 11.9% to $331.0 million from year ago; Revenue per container up 9.7%
 
  •   GAAP Diluted EPS of $0.24 vs. $0.28 in prior year; Adjusted Diluted EPS of $0.33 vs. $0.29
CHARLOTTE, NC, July 25, 2008 — Horizon Lines, Inc. (NYSE: HRZ), today reported results for the second quarter ended June 22, 2008. On a GAAP basis, net income was $7.2 million, or $0.24 per diluted share, on revenue of $331.0, compared with $9.6 million, or $0.28 per diluted share, on revenue of $295.7 million for the same period a year ago.
Adjusted net income for the second quarter was $9.9 million, or $0.33 per diluted share, compared with adjusted net income of $10.0 million, or $0.29 per diluted share, in the 2007 second quarter. Adjusted 2008 results exclude anti-trust related legal expenses and severance costs related to early retirement for specific union employees. These expenses totaled $2.7 million after tax, or $0.09 per share. Adjusted 2007 results excluded an after-tax loss of $0.4 million, or $0.01 per share, related to the extinguishment of debt.

 

 

Horizon Lines 2nd Quarter 2008   Page 2 of 16
                                 
Comparison of GAAP and Adjusted Net Income (in millions, except per share data)
    Three months ended   Six months ended
    6/22/08   6/24/07   6/22/08   6/24/07
As reported:
                                
Total revenue
   $ 331.0     $ 295.7     $ 636.9     $ 569.4  
Net income
   $ 7.2     $ 9.6     $ 9.3     $ 16.6  
Net income per diluted share
   $ 0.24     $ 0.28     $ 0.31     $ 0.49  
Adjusted*:
                                
Net income
   $ 9.9     $ 10.0     $ 12.0     $ 14.4  
Net income per diluted share
   $ 0.33     $ 0.29     $ 0.39     $ 0.42  
EBITDA
   $ 35.8     $ 40.0     $ 63.1     $ 73.7  
 
*   See attached schedules for reconciliation of second-quarter and first-half 2008 and 2007 reported results and EBITDA amounts to adjusted results.
“Our second-quarter financial performance reflects strong execution by our associates in a very challenging environment,” said Chuck Raymond, Chairman, President and Chief Executive Officer. “Despite sharply rising fuel costs and volume softness related primarily to the ongoing recessionary business environment in Puerto Rico, we achieved a 13.8% increase in our adjusted earnings per share. We were able to effectively mitigate the impact of steep fuel cost increases in the quarter through a combination of conservation, strict vessel scheduling and fuel cost recovery measures. Additionally, we repaid $10 million in revolving debt during the quarter, further strengthening our financial position.”
Second-Quarter 2008 Financial Highlights
•   Operating Revenue — The 11.9% growth in operating revenue for the quarter, to $331.0 million from $295.7 million the prior year, was driven by a combination of revenue from acquisitions, unit revenue improvement, and increased fuel surcharges, which more than offset a 2.4% volume decline. Revenue per container improved $349, or 9.7%, from the same period a year ago. Acquisitions contributed $10.5 million to operating revenue in the 2008 second quarter.
•   Operating Income — Operating income for the second quarter of 2008 was $16.7 million, compared with $22.9 million for the second quarter of 2007. Adjusted operating income was $19.9 million for the 2008 second quarter. The decline in

 

 

Horizon Lines 2nd Quarter 2008   Page 3 of 16
    operating income primarily reflects lower overall container volume, increased vessel lease costs, and legal fees related to the pricing investigation and severance costs. The decline was slightly offset by rate improvements and reduced vessel operating expense. Both the increase in vessel lease costs and the decrease in vessel operating costs were due to the deployment of five new vessels in 2007.
 
•   Adjusted EBITDA — Adjusted EBITDA in the 2008 second quarter was $35.8 million, compared with $40.0 million in the 2007 second quarter. Adjusted EBITDA was impacted by the same factors affecting operating income.
 
•   Shares Outstanding — As a result of share repurchases over the past year, the company had a weighted daily average of 30.2 million diluted shares outstanding for the second quarter of 2008, compared with 34.3 million for the second quarter of 2007.
 
•   Six-Month Results — For the first half of 2008, operating revenue increased $11.9% to $636.9 million from $569.4 million for the first half of 2007. EBITDA was $59.9 million compared with $73.2 million a year ago, while adjusted EBITDA, excluding the items previously mentioned, was $63.1 million versus $73.7 million. Six-month net income totaled $9.3 million, or $0.31 per diluted share, compared with $16.6 million, or $0.49 per diluted share for the same period last year. Adjusted net income was $12.0 million, or $0.39 per diluted share, compared with $14.4 million, or $0.42 per diluted share, for the first half of 2007, which excludes the after-tax loss related to the extinguishment of debt mentioned above, as well as a $2.6 million deferred tax revaluation benefit.
(Please see attached schedules for reconciliation of second-quarter and first-half 2008 and 2007 reported results and EBITDA amounts to adjusted results.)
Outlook
Mr. Raymond concluded: “Looking at the remainder of 2008, we anticipate that economic challenges will continue. While expectations for our markets remain largely unchanged, further sharp increases in fuel prices will likely pressure our financial performance. During the second quarter, the average bunker fuel price per ton jumped nearly 33%. We were able to mitigate a good portion of this increase, and we will continue to take prudent steps in the second half of 2008 to manage fuel costs, control operating expenses, and remain focused on providing the highest level of service to our customers. We continue to take the

 

 

Horizon Lines 2nd Quarter 2008   Page 4 of 16
necessary steps to emerge from this difficult period a stronger, better positioned company.”
Based on management’s expectations for continued fuel-price increases, earnings guidance for the full year 2008 has been updated as follows:
                 
    Current Guidance   Previous Guidance
Revenue:
   $1.335-$1.365 billion   $1.315-$1.350 billion
Adjusted EBITDA(1):
   $135-$150 million   $145-$160 million
Adjusted diluted EPS (1):
   $ 1.03-$1.43     $ 1.30-$1.69  
Adjusted Free Cash Flow (1,2):
   $40-$59 million   $72-$87million
 
(1)   Adjusted 2008 results exclude the anticipated $6.5 million in anti-trust related legal expenses and $0.8 million in severance costs related to early retirement for specific union employees, totaling $5.8 million after tax, or $0.19 per share.
 
(2)   In addition to the EBITDA guidance reduction, the reduced free cash flow projection includes $13.8 million in capital expenditures related to initial payments for three new cranes for Alaska that the company previously intended to lease, but was able to purchase at a lower price and more favorable economics.
(Please see attached schedules for reconciliation of full-year projections.)
Webcast & Conference Call Information
Company executives will provide additional perspective on the Company’s earnings 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 1-800-218-0204 and asking for the Horizon Lines Earnings Call. A hardcopy of the presentation materials may be printed 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.

 

 

Horizon Lines 2nd Quarter 2008   Page 5 of 16
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., 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, and thereby enhances the user’s overall understanding of the company’s current financial performance relative to past performance and provides 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 comprised of two primary operating subsidiaries. Horizon Lines, LLC operates a fleet of 21 U.S.-flag containerships and 5 port terminals linking the continental United States with Alaska, Hawaii, Guam, Micronesia and Puerto Rico. Horizon Logistics, LLC offers customized logistics solutions to shippers from a suite of transportation and distribution management services designed by Aero Logistics, information technology developed by Horizon Services Group and intermodal trucking and warehousing services provided by Sea-Logix. 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

 

 

Horizon Lines 2nd Quarter 2008   Page 6 of 16
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.
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 6, 2008, and in subsequent Form 10-Qs, 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.
(Tables Follow)

 

 

Horizon Lines 2nd Quarter 2008   Page 7 of 16
Horizon Lines, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except per share data)
                 
    June 22,     December 23,  
    2008     2007(1)  
Assets
                
Current assets
                
Cash
   $ 23,953     $ 6,276  
Accounts receivable, net of allowance of $7,385 and $6,191 at June 22, 2008 and December 23, 2007, respectively
     159,244       140,820  
Deferred tax asset
     11,638       13,792  
Prepaid vessel rent
     8,685       4,361  
Materials and supplies
     35,695       31,576  
Other current assets
     10,012       10,446  
 
            
Total current assets
     249,227       207,271  
Property and equipment, net
     189,735       194,679  
Goodwill
     334,718       334,671  
Intangible assets, net
     140,410       152,031  
Deferred tax asset
     4,242       4,060  
Other long-term assets
     32,070       33,729  
 
            
Total assets
   $ 950,402     $ 926,441  
 
            
 
                
Liabilities and Stockholders’ Equity
                
Current liabilities
                
Accounts payable
   $ 28,416     $ 40,225  
Current portion of long-term debt
     6,543       6,537  
Accrued vessel rent
     —       6,503  
Other accrued liabilities
     114,657       95,027  
 
            
Total current liabilities
     149,616       148,292  
Long-term debt, net of current
     617,196       572,469  
Deferred rent
     29,294       31,531  
Other long-term liabilities
     20,856       19,571  
 
            
Total liabilities
     816,962       771,863  
 
            
Stockholders’ equity
                
Common stock, $.01 par value, 100,000 shares authorized, 33,733 shares issued and 29,933 shares outstanding as of June 22, 2008 and 50,000 shares authorized, 33,674 shares issued and 31,502 shares outstanding as of December 23, 2007
     337       337  
Treasury stock, 3,800 and 2,172 shares at cost as of June 22, 2008 and December 23, 2007, respectively
     (78,538 )     (49,208 )
Additional paid in capital
     166,870       163,760  
Retained earnings
     42,671       39,994  
Accumulated other comprehensive income (loss)
     2,100       (305 )
 
            
Total stockholders’ equity
     133,440       154,578  
 
            
Total liabilities and stockholders’ equity
   $ 950,402     $ 926,441  
 
            
 
(1)   The balance sheet at December 23, 2007 has been derived from the audited financial statements of Horizon Lines, Inc.

 

 

Horizon Lines 2nd Quarter 2008   Page 8 of 16
Horizon Lines, Inc.
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
                                 
    Quarters Ended     Six Months Ended  
    June 22,     June 24,     June 22,     June 24,  
    2008     2007     2008     2007  
Operating revenue
   $ 330,958     $ 295,701     $ 636,905     $ 569,365  
Operating expense:
                                
Cost of services (excluding depreciation expense)
     268,699       234,447       521,669       452,128  
Depreciation and amortization
     11,550       12,583       22,875       26,050  
Amortization of vessel dry-docking
     4,400       4,559       8,775       8,319  
Selling, general and administrative
     28,873       21,510       54,004       43,403  
Miscellaneous expense (income), net
     752       (303 )     1,297       81  
 
                        
Total operating expense
     314,274       272,796       608,620       529,981  
 
                                
Operating income
     16,684       22,905       28,285       39,384  
Other expense:
                                
Interest expense, net
     8,147       11,663       17,156       22,876  
Loss on early extinguishment of debt
     —       564       —       564  
Other expense, net
     4       25       1       23  
 
                        
Income before income tax expense (benefit)
     8,533       10,653       11,128       15,921  
Income tax expense (benefit)
     1,298       1,093       1,802       (691 )
 
                        
Net income
   $ 7,235     $ 9,560     $ 9,326     $ 16,612  
 
                        
 
                                
Net income per share:
                                
Basic
   $ 0.24     $ 0.28     $ 0.31     $ 0.49  
Diluted
   $ 0.24     $ 0.28     $ 0.31     $ 0.49  
 
                                
Number of shares used in calculations:
                                
Basic
     29,919       33,635       30,105       33,624  
Diluted
     30,163       34,312       30,514       34,253  
 
                                
Dividends declared per common share
   $ 0.11     $ 0.11     $ 0.22     $ 0.22  
 
                        

 

 

Horizon Lines 2nd Quarter 2008   Page 9 of 16
Horizon Lines, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
                 
    Six Months Ended  
    June 22,     June 24,  
    2008     2007  
Cash flows from operating activities:
                
Net income
   $ 9,326     $ 16,612  
Adjustments to reconcile net income to net cash used in operating activities:
                
Depreciation
     12,211       16,270  
Amortization of other intangible assets
     10,664       9,780  
Amortization of vessel dry-docking
     8,775       8,319  
Amortization of deferred financing costs
     1,347       1,586  
Deferred income taxes
     1,972       (1,365 )
Gain on equipment disposals
     (23 )     (354 )
Stock-based compensation
     2,377       1,169  
Loss on early extinguishment of debt
     —       564  
Accretion of interest on 11% senior discount notes
     —       4,928  
Changes in operating assets and liabilities:
                
Accounts receivable
     (18,425 )     (24,478 )
Materials and supplies
     (4,118 )     (3,376 )
Other current assets
     435       (1,514 )
Accounts payable
     (11,913 )     (5,804 )
Accrued liabilities
     22,786       (8,141 )
Vessel rent
     (12,670 )     (33,339 )
Vessel dry-docking payments
     (6,544 )     (9,064 )
Other assets/liabilities
     362       (795 )
 
            
Net cash provided by (used in) operating activities
     16,562       (29,002 )
 
            
 
                
Cash flows from investing activities:
                
Purchases of property and equipment
     (7,462 )     (10,377 )
Purchase of business
     (198 )     —  
Proceeds from the sale of property and equipment
     208       2,650  
 
            
Net cash used in investing activities
     (7,452 )     (7,727 )
 
            
 
                
Cash flows from financing activities:
                
Payments on long-term debt
     (3,267 )     (30,636 )
Borrowing under revolving credit facility
     73,000       —  
Payments on revolving credit facility
     (25,000 )     —  
Dividends to stockholders
     (6,649 )     (7,407 )
Purchase of treasury stock
     (29,330 )     —  
Payments of financing costs
     (137 )     (42 )
Payments on capital lease obligation
     (60 )     (93 )
Common stock issued under employee stock purchase plan
     10       8  
Proceeds from exercise of stock options
     —       84  
 
            
Net cash provided by (used in) financing activities
     8,567       (38,086 )
 
            
Net increase (decrease) in cash
     17,677       (74,815 )
Cash at beginning of period
     6,276       93,949  
 
            
 
                
Cash at end of period
   $ 23,953     $ 19,134  
 
            

 

 

Horizon Lines 2nd Quarter 2008   Page 10 of 16
Horizon Lines, Inc.
Adjusted Operating Income
($ in Millions)
                                   
    Quarter Ended       Six Months Ended  
    June 22, 2008     June 24, 2007       June 22, 2008     June 24, 2007  
                       
Operating Income
   $ 16.7     $ 22.9       $ 28.3     $ 39.4  
 
                                  
Adjustments:
                                  
Anti-Trust Related Legal Expenses
     2.4       —         2.4       —  
Severance
     0.8       —         0.8       —  
                       
Total Adjustments
     3.2       —         3.2       —  
                       
 
                                  
Adjusted Operating Income
   $ 19.9     $ 22.9       $ 31.5     $ 39.4  
                       

 

 

Horizon Lines 2nd Quarter 2008   Page 11 of 16
Horizon Lines, Inc.
Adjusted Net Income
($ in Millions)
                                   
    Quarter Ended       Six Months Ended  
    June 22, 2008     June 24, 2007       June 22, 2008     June 24, 2007  
Net Income
   $ 7.2     $ 9.6       $ 9.3     $ 16.6  
 
                                  
Adjustments:
                                  
Anti-Trust Related Legal Expenses
     2.4       —         2.4       —  
Severance
     0.8       —         0.8       —  
Loss on Extinguishment of Debt
     —       0.5         —       0.5  
Tax Impact of Adjustments
     (0.5 )     (0.1 )       (0.5 )     (0.1 )
2007 Tonnage Tax Deferred Tax Revaluation Benefit
     —       —         —       (2.6 )
 
                          
Total Adjustments
     2.7       0.4         2.7       (2.2 )
 
                                  
Adjusted Net Income
   $ 9.9     $ 10.0       $ 12.0     $ 14.4  
 
                          

 

 

Horizon Lines 2nd Quarter 2008   Page 12 of 16
Horizon Lines, Inc.
Net Income / EBITDA / Adjusted EBITDA Reconciliation
($ in Millions)
                                   
    Quarter Ended       Six Months Ended  
    June 22, 2008     June 24, 2007       June 22, 2008     June 24, 2007  
Net Income
   $ 7.2     $ 9.6       $ 9.3     $ 16.6  
Interest Expense, Net
     8.1       11.7         17.1       22.9  
Tax Expense (Benefit)
     1.3       1.1         1.8       (0.6 )
Depreciation and Amortization
     16.0       17.1         31.7       34.3  
 
                          
EBITDA
     32.6       39.5         59.9       73.2  
 
                                  
Adjustments:
                                  
Anti-Trust Related Legal Expenses
     2.4       —         2.4       —  
Severance
     0.8       —         0.8       —  
Loss on Extinguishment of Debt
     —       0.5         —       0.5  
 
                          
Total Adjustments
     3.2       0.5         3.2       0.5  
 
                                  
 
                          
Adjusted EBITDA
   $ 35.8     $ 40.0       $ 63.1     $ 73.7  
 
                          
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, (ii) the senior credit facility contains covenants that require Horizon Lines, Inc. to maintain certain interest expense coverage and leverage ratios, which contain EBITDA, and (iii) EBITDA is a measure used by our management team to make day-to-day operating decisions.

 

 

Horizon Lines 2nd Quarter 2008   Page 13 of 16
Horizon Lines, Inc.
Operating Income to Adjusted EBITDA Segment Reconciliation
($ in Millions)
Second Quarter 2008
                         
    Liner     Logistics     Consolidated  
Operating Income (Loss)
   $ 17.2     $ (0.5 )   $ 16.7  
Depreciation and Amortization
     10.8       0.7       11.5  
Amortization of Vessel Dry-docking
     4.4       —       4.4  
 
                  
EBITDA
     32.4       0.2       32.6  
Anti-Trust Related Legal Expense
     2.4       —       2.4  
Severance
     0.8       —       0.8  
 
                  
Adjusted EBITDA
   $ 35.6     $ 0.2     $ 35.8  
 
                  
Six Months 2008
                         
    Liner     Logistics     Consolidated  
Operating Income (Loss)
   $ 30.0     $ (1.7 )   $ 28.3  
Depreciation and Amortization
     21.4       1.4       22.8  
Amortization of Vessel Dry-docking
     8.8       —       8.8  
 
                  
EBITDA
     60.2       (0.3 )     59.9  
Anti-Trust Related Legal Expense
     2.4       —       2.4  
Severance
     0.8       —       0.8  
 
                  
Adjusted EBITDA
   $ 63.4     $ (0.3 )   $ 63.1  
 
                  

 

 

Horizon Lines 2nd Quarter 2008   Page 14 of 16
Horizon Lines, Inc.
2008 Net Income to Adjusted EBITDA Projection Reconciliation
($ in Millions)
         
    Year Ended  
    December 21, 2008  
Net Income
   $ 25.6 — $37.6  
 
        
Adjustments:
        
Anti-Trust Related Legal Expense
     6.5  
Severance
     0.8  
Tax Impact of Adjustments
     (1.5 )
 
      
Total Adjustments
     5.8  
 
        
Adjusted Net Income
     31.4 — 43.4  
Interest Expense, Net
     32.7  
Tax Expense
     7.9 — 10.9  
Depreciation and Amortization
     63.0  
 
      
Adjusted EBITDA
   $ 135.0 — $150.0  
 
      

 

 

Horizon Lines 2nd Quarter 2008   Page 15 of 16
Horizon Lines, Inc.
2008 Operating Income to Adjusted EBITDA Projection Segment Reconciliation
($ in Millions)
2008 Segment Financial Guidance(1)
                         
    Liner     Logistics     Consolidated  
Operating Income
   $ 75.1     $ (2.9 )   $ 72.2  
 
                        
Adjustments:
                        
Anti-Trust Related Legal Expense
     6.5       —       6.5  
Severance
     0.8       —       0.8  
 
                  
Total Adjustments
     7.3       —       7.3  
 
                        
Adjusted Operating Income (Loss)
     82.4       (2.9 )     79.5  
Depreciation and Amortization
     42.9       3.3       46.2  
Amortization of Vessel Dry-docking
     16.8       —       16.8  
 
                  
Adjusted EBITDA
   $ 142.1     $ 0.4     $ 142.5  
 
                  
 
(1)   At midpoint of Guidance

 

 

Horizon Lines 2nd Quarter 2008   Page 16 of 16
Horizon Lines, Inc.
2008 Free Cash Flow Projection
($ in Millions)
         
Adjusted EBITDA
   $ 135.0 — $150.0  
Stock Compensation
     5.3  
Annual Cash Incentive Plan
     0.0 — 6.6  
Working Capital
     (10.0) — (12.8 )
Vessel Payments in Excess of Accrual
     (4.9 )
TP1 Related Costs
     (0.1 )
Capital Expenditures
     (40.4 )
Net Proceeds from Sale of Fixed Assets
     0.4  
Dry-dock Expenditures
     (14.9 )
Purchase Price Adjustments
     (0.2 )
Income Taxes
     (0.7 )
Interest, Net
     (29.2 )
 
      
Adjusted Free Cash Flow
   $ 40.3 — $59.1  
 
        
Severance
     (0.4 )
Anti-Trust Related Legal Fees
     (6.5 )
 
      
Free Cash Flow
   $ 33.4 — $52.2  
 
      
# # #