HORIZON LINES REPORTS GAIN IN COMPARABLE THIRD QUARTER 2007 EARNINGS
CHARLOTTE, North Carolina, October 26, 2007 – Horizon Lines, Inc. (NYSE:HRZ) reported an increase in the third quarter 2007 earnings versus the 2006 third quarter, adjusted to exclude the impact of non-recurring items associated with the Company’s refinancing in August 2007, secondary public stock offering in September 2006, and tonnage tax election in 2006.
The Company completed a refinancing of its capital structure in August with associated one-time, upfront costs significantly impacting the third quarter of 2007, despite the ongoing interest expense savings. Net income for the third quarter of 2007 was $1.6 million or $.05 per diluted share compared to net income of $52.9 million or $1.57 per diluted share for the third quarter of 2006. After adjustment to exclude the non-recurring loss on extinguishment of debt in 2007 and secondary offering expenses in 2006, and to retroactively apply tonnage tax to 2006, adjusted net income was $20.7 million or $.61 per diluted share in 2007’s third quarter, versus $20.2 million or $.60 per diluted share in the third quarter of 2006.
Operating revenue grew by $16.4 million or 5.4% in the third quarter of 2007 to $321.1 million, compared to $304.7 million for the third quarter of 2006.
Operating income in the third quarter of 2007 was $35.3 million, slightly better than the $35.2 million in 2006’s third quarter. Absent non-recurring secondary offering expenses, adjusted operating income in the third quarter of 2006 would have been $36.0 million.
Earnings before interest expense, taxes, depreciation and amortization (EBITDA) was $12.8 million for the third quarter of 2007 compared to $51.0 million for the 2006 third quarter. Excluding the non-recurring loss on extinguishment of debt in 2007 and secondary offering expenses in 2006, adjusted EBITDA would have been $50.8 million in the third quarter of 2007 in contrast to $51.8 million for the third quarter of 2006.
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“Horizon Lines once again rose to the challenge and overcame a less than ideal operating environment, to deliver improved earnings in the third quarter of 2007,” said Chuck Raymond, Chairman, President and Chief Executive Officer. “Volume softness, primarily caused by lingering difficult economic conditions in our Puerto Rico tradelane, was offset by unit revenue improvements, benefits derived from our Horizon EDGE process re-engineering and customer service program and tight controls on our costs. We closed on a refinancing of our capital structure in August that is generating significant benefits in terms of a lower cost of capital, improved cash flow, and enhanced flexibility and greater liquidity that will allow us to take advantage of future growth opportunities. In addition, we changed the structure of Horizon Lines into two separate transportation and logistics operations. This will allow us to stay focused on our core Jones Act transportation operations, while at the same time providing for future growth and development of our fully integrated logistics services. As the first step in growing our new logistics offering, we also acquired Aero Logistics during the quarter.”
The Company also reaffirmed its earnings guidance for the full year 2007, with projections of operating revenue at $1,190 — $1,200 million, EBITDA at $168 — $173 million, and diluted earnings per share (EPS) at $1.56 — $1.68. Free cash flow was updated and projected at $27 — $31 million. Earnings guidance for the fourth quarter of 2007 was also provided, with forecasted operating revenue of $300 — $310 million, EBITDA of $43 — $48 million and diluted EPS of $.53 — $.65.
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 1-800-240-2134 and asking for the Horizon Lines Third Quarter 2007 Earnings Call. A hardcopy of the presentation materials may be printed from the Horizon Lines website,www.horizonlines.com, shortly before the start of the call. Alternatively, a live audio webcast of the call may be accessed atwww.horizonlines.com. In order to access the live audio webcast please allow at least 15
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minutes before the start of the call to visit Horizon Lines’ website and download and install any necessary audio/video software for the webcast.
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 Statement:
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.
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
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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 March 2, 2007 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.
Media Contact:
Michael Avara of Horizon Lines, Inc., 1-704-973-7000, ormavara@horizonlines.com.
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Horizon Lines, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except per share data)
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except per share data)
September 23, | December 24, | |||||||
2007 | 2006(1) | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 9,432 | $ | 93,949 | ||||
Accounts receivable, net of allowance of $6,726 and $4,972 at September 23, 2007 and December 24, 2006, respectively | 165,354 | 120,732 | ||||||
Deferred tax asset | 29,825 | 11,586 | ||||||
Prepaid vessel rent | 4,334 | 1,163 | ||||||
Materials and supplies | 29,969 | 24,658 | ||||||
Other current assets | 8,643 | 7,103 | ||||||
Total current assets | 247,557 | 259,191 | ||||||
Property and equipment, net | 186,164 | 188,652 | ||||||
Goodwill | 335,091 | 306,724 | ||||||
Intangible assets, net | 157,024 | 167,882 | ||||||
Other long-term assets | 35,304 | 22,580 | ||||||
Total assets | $ | 961,140 | $ | 945,029 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 22,332 | $ | 28,322 | ||||
Current portion of long-term debt | 4,687 | 6,758 | ||||||
Accrued vessel rent | — | 25,426 | ||||||
Other accrued liabilities | 106,058 | 101,122 | ||||||
Total current liabilities | 133,077 | 161,628 | ||||||
Long-term debt, net of current | 598,912 | 503,708 | ||||||
Deferred tax liability | 33,085 | 31,339 | ||||||
Deferred rent | 32,649 | 36,003 | ||||||
Other long-term liabilities | 16,995 | 4,074 | ||||||
Total liabilities | 814,718 | 736,752 | ||||||
Stockholders’ equity | ||||||||
Common stock, $.01 par value, 50,000 shares authorized, 33,648 shares issued and 32,648 shares outstanding as of September 23, 2007 and 33,591 shares issued and outstanding as of December 24, 2006 | 337 | 336 | ||||||
Treasury stock, 1,000 shares at cost | (28,560 | ) | — | |||||
Additional paid in capital | 142,586 | 179,599 | ||||||
Accumulated other comprehensive loss | (935 | ) | (1,011 | ) | ||||
Retained earnings | 32,994 | 29,353 | ||||||
Total stockholders’ equity | 146,422 | 208,277 | ||||||
Total liabilities and stockholders’ equity | $ | 961,140 | $ | 945,029 | ||||
(1) | The balance sheet at December 24, 2006 has been derived from the audited financial statements of Horizon Lines, Inc. |
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Horizon Lines, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(in thousands, except per share amounts)
Quarters Ended | Nine Months Ended | |||||||||||||||
September 23, | September 24, | September 23, | September 24, | |||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Operating revenue | $ | 321,145 | $ | 304,657 | $ | 890,509 | $ | 869,438 | ||||||||
Operating expense: | ||||||||||||||||
Operating expense (excluding depreciation expense) | 246,402 | 229,072 | 698,530 | 673,421 | ||||||||||||
Depreciation and amortization | 10,714 | 12,445 | 36,765 | 37,539 | ||||||||||||
Amortization of vessel dry-docking | 4,820 | 3,362 | 13,139 | 11,332 | ||||||||||||
Selling, general and administrative | 23,481 | 24,987 | 66,885 | 72,680 | ||||||||||||
Miscellaneous expense (income), net | 445 | (406 | ) | 525 | 977 | |||||||||||
Total operating expense | 285,862 | 269,460 | 815,844 | 795,949 | ||||||||||||
Operating income | 35,283 | 35,197 | 74,665 | 73,489 | ||||||||||||
Other expense (income): | ||||||||||||||||
Interest expense, net | 10,077 | 12,226 | 32,953 | 36,250 | ||||||||||||
Loss on early extinguishment of debt | 37,958 | — | 38,522 | — | ||||||||||||
Other expense (income), net | 25 | 2 | 45 | (184 | ) | |||||||||||
(Loss) income before income tax benefit | (12,777 | ) | 22,969 | 3,145 | 37,423 | |||||||||||
Income tax benefit | (14,347 | ) | (29,976 | ) | (15,038 | ) | (24,289 | ) | ||||||||
Net income | $ | 1,570 | $ | 52,945 | $ | 18,183 | $ | 61,712 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.05 | $ | 1.58 | $ | 0.54 | $ | 1.84 | ||||||||
Diluted | $ | 0.05 | $ | 1.57 | $ | 0.53 | $ | 1.84 | ||||||||
Number of shares used in calculations: | ||||||||||||||||
Basic | 33,131 | 33,544 | 33,460 | 33,544 | ||||||||||||
Diluted | 33,770 | 33,726 | 34,066 | 33,582 | ||||||||||||
Dividends declared per common share | $ | 0.11 | $ | 0.11 | $ | 0.33 | $ | 0.33 | ||||||||
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Horizon Lines, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended | ||||||||
September 23, | September 24, | |||||||
2007 | 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 18,183 | $ | 61,712 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Depreciation | 21,826 | 22,868 | ||||||
Amortization of other intangible assets | 14,939 | 14,671 | ||||||
Amortization of vessel dry-docking | 13,139 | 11,332 | ||||||
Amortization of deferred financing costs | 2,296 | 2,413 | ||||||
Deferred income taxes | (20,023 | ) | (22,763 | ) | ||||
Gain on equipment disposals | (281 | ) | (471 | ) | ||||
Stock-based compensation | 2,401 | 686 | ||||||
Loss on early extinguishment of debt | 38,522 | — | ||||||
Accretion of interest on 11% senior discount notes | 6,062 | 6,796 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (37,142 | ) | (29,579 | ) | ||||
Materials and supplies | (5,761 | ) | 1,254 | |||||
Other current assets | (1,537 | ) | (3,877 | ) | ||||
Accounts payable | (6,727 | ) | 3,991 | |||||
Accrued liabilities | (8,650 | ) | 16,462 | |||||
Vessel rent | (30,790 | ) | (5,419 | ) | ||||
Vessel dry-docking payments | (15,516 | ) | (13,703 | ) | ||||
Other assets/liabilities | 3,545 | (1,577 | ) | |||||
Net cash (used in) provided by operating activities | (5,514 | ) | 64,796 | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (16,714 | ) | (10,381 | ) | ||||
Purchase of businesses, net of cash acquired | (32,082 | ) | — | |||||
Proceeds from the sale of property and equipment | 3,078 | 1,819 | ||||||
Other investing activities | — | (245 | ) | |||||
Net cash used in investing activities | (45,718 | ) | (8,807 | ) | ||||
Cash flows from financing activities: | ||||||||
Payments on long-term debt | (517,074 | ) | (3,151 | ) | ||||
Issuance of convertible notes | 330,000 | — | ||||||
Borrowing of term loan | 125,000 | — | ||||||
Borrowing under revolving credit facility | 161,500 | — | ||||||
Payments on revolving credit facility | (15,000 | ) | — | |||||
Purchase of call options | (52,541 | ) | — | |||||
Sale of common stock warrants | 11,958 | — | ||||||
Redemption premiums | (25,568 | ) | — | |||||
Dividends to stockholders | (11,003 | ) | (11,070 | ) | ||||
Purchase of treasury stock | (28,560 | ) | — | |||||
Payments of financing costs | (11,929 | ) | (1,057 | ) | ||||
Payments on capital lease obligation | (152 | ) | (149 | ) | ||||
Proceeds from exercise of stock options | 84 | — | ||||||
Costs associated with initial public offering | — | (158 | ) | |||||
Net cash used in financing activities | (33,285 | ) | (15,585 | ) | ||||
Net (decrease) increase in cash | (84,517 | ) | 40,404 | |||||
Cash at beginning of period | 93,949 | 41,450 | ||||||
Cash at end of period | $ | 9,432 | $ | 81,854 | ||||
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Horizon Lines, Inc. and Subsidiaries
Adjusted Operating Income
($ in Millions)
Adjusted Operating Income
($ in Millions)
Quarters Ended | Nine Months Ended | ||||||||||||||||
Sept. 23, 2007 | Sept. 24, 2006 | Sept. 23, 2007 | Sept. 24, 2006 | ||||||||||||||
Operating Income | $ | 35.3 | $ | 35.2 | $ | 74.7 | $ | 73.5 | |||||||||
Adjustments: | |||||||||||||||||
Transaction Related Expense | — | 0.8 | — | 1.7 | |||||||||||||
Total Adjustments | — | 0.8 | — | 1.7 | |||||||||||||
Adjusted Operating Income(a) | $ | 35.3 | $ | 36.0 | $ | 74.7 | $ | 75.2 | |||||||||
(a) | Adjusted to exclude non-recurring secondary offering expenses |
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Horizon Lines, Inc. and Subsidiaries
Adjusted Net Income
($ in Millions)
Adjusted Net Income
($ in Millions)
Quarters Ended | Nine Months Ended | ||||||||||||||||
Sept. 23, 2007 | Sept. 24, 2006 | Sept. 23, 2007 | Sept. 24, 2006 | ||||||||||||||
Net Income | $ | 1.6 | $ | 52.9 | $ | 18.2 | $ | 61.7 | |||||||||
Adjustments: | |||||||||||||||||
Loss on Extinguishment of Debt | 38.0 | — | 38.5 | — | |||||||||||||
Transaction Related Expense | — | 0.8 | — | 1.7 | |||||||||||||
Tax Impact of Adjustments | (14.1 | ) | — | (14.2 | ) | — | |||||||||||
Tonnage Tax Adjustments | (4.8 | ) | (33.5 | ) | (7.3 | ) | (29.9 | ) | |||||||||
Total Adjustments | 19.1 | (32.7 | ) | 17.0 | (28.2 | ) | |||||||||||
Adjusted Net Income(a) | $ | 20.7 | $ | 20.2 | $ | 35.2 | $ | 33.5 | |||||||||
(a) | Adjusted to exclude non-recurring loss on extinguishment of debt, secondary offering expenses, and to retroactively apply tonnage tax. |
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Horizon Lines, Inc. and Subsidiaries
Net Income / EBITDA Reconciliation
($ in Millions)
Net Income / EBITDA Reconciliation
($ in Millions)
Quarters Ended | Nine Months Ended | ||||||||||||||||
Sept. 23, 2007 | Sept. 24, 2006 | Sept. 23, 2007 | Sept. 24, 2006 | ||||||||||||||
Net Income | $ | 1.6 | $ | 52.9 | $ | 18.2 | $ | 61.7 | |||||||||
Interest Expense, Net | 10.1 | 12.2 | 32.9 | 36.2 | |||||||||||||
Tax Benefit | (14.4 | ) | (29.9 | ) | (15.0 | ) | (24.3 | ) | |||||||||
Depreciation and Amortization | 15.5 | 15.8 | 49.9 | 48.9 | |||||||||||||
EBITDA | 12.8 | 51.0 | 86.0 | 122.5 | |||||||||||||
Loss on Extinguishment of Debt | 38.0 | — | 38.5 | — | |||||||||||||
Transaction Related Expense | — | 0.8 | — | 1.7 | |||||||||||||
Adjusted EBITDA | $ | 50.8 | $ | 51.8 | $ | 124.5 | $ | 124.2 | |||||||||
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. |
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Horizon Lines, Inc. and Subsidiaries
EBITDA Projections
($ in Millions)
EBITDA Projections
($ in Millions)
Quarter Ended | Year Ended | |||||||
December 23, 2007 | December 23, 2007 | |||||||
Net Income | $ | 17.7 - $21.9 | $ | 35.9 - $ 40.1 | ||||
Interest Expense, Net | 7.7 | 40.7 | ||||||
Tax Expense (Benefit) | 3.6 - 4.4 | (11.4) - (10.6 | ) | |||||
Depreciation and Amortization | 14.0 | 64.3 | ||||||
EBITDA | 43.0 - 48.0 | 129.5 - 134.5 | ||||||
Loss on Extinguishment of Debt | — | 38.5 | ||||||
Adjusted EBITDA | $ | 43.0 - $48.0 | $ | 168.0 - $173.0 | ||||
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Horizon Lines, Inc. and Subsidiaries
Free Cash Flow Projection
($ in Millions)
Free Cash Flow Projection
($ in Millions)
Year Ended | ||||
December 23, 2007 | ||||
EBITDA | $ | 129.5 - $134.5 | ||
Loss on Extinguishment of Debt | 38.5 | |||
Stock Based Compensation | 3.7 | |||
Working Capital | (26.4) - (27.4 | ) | ||
Vessel Payments in Excess of Accrual | (26.1 | ) | ||
Bonus Payments in Excess of Accrual | (10.5 | ) | ||
TP1 Related Costs | (4.9 | ) | ||
Capital Expenditures | (25.0 | ) | ||
Net Proceeds from Sale of Fixed Assets | 3.0 | |||
Dry-dock Expenditures | (22.5 | ) | ||
Income Taxes | (0.7 | ) | ||
Interest | (31.6 | ) | ||
Free Cash Flow | $ | 27.0 - $ 31.0 | ||
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Horizon Lines, Inc. and Subsidiaries
Adjusted Diluted EPS Projections
($ in Millions)
Adjusted Diluted EPS Projections
($ in Millions)
Quarter Ended | Year Ended | |||||||
December 23, 2007 | December 23, 2007 | |||||||
Net Income | $ | 17.7 - $21.9 | $ | 35.9 - $40.1 | ||||
Adjustments: | ||||||||
Loss on Extinguishment of Debt | — | 38.5 | ||||||
Tax Impact of Adjustments | — | (14.2 | ) | |||||
Tonnage Tax Adjustments | — | (7.3 | ) | |||||
Total Adjustments | — | 17.0 | ||||||
Adjusted Net Income | $ | 17.7 - $21.9 | $ | 52.9 - $57.1 | ||||
Earnings Per Share – Diluted | $ | 0.53 - $0.65 | $ | 1.56 - $1.68 |
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