Exhibit 99.2
HORIZON LINES REPORTS ROBUST SECOND QUARTER 2006 EARNINGS GROWTH
CHARLOTTE, North Carolina, July 28, 2006 – Horizon Lines, Inc. (NYSE:HRZ) reported robust growth in second quarter 2006 earnings compared to the second quarter of 2005.
Net income for the second quarter 2006 was $6.4 million or $.19 per share, compared to a net loss of $(4.1) million, or $(.21) per share in the 2005 second quarter. After adjustment to exclude non-recurring transaction-related expenses associated with a secondary stock offering in 2006 and an initial public stock offering in 2005, adjusted net income was $7.0 million or $.21 per share in the second quarter of 2006, compared to adjusted net income of $4.4 million or $.13 per share in the second quarter of 2005.
Operating revenue increased by $19.3 million or 7.1% to $289.8 million for the second quarter of 2006 versus $270.5 million in the 2005 second quarter. Freight rate and cargo mix improvements more than offset some modest volume softness in the second quarter of 2006 compared to 2005.
Operating income for the second quarter 2006 was $22.4 million compared to $12.0 million in the second quarter of 2005. Absent the non-recurring transaction-related expenses, second quarter 2006 operating income would have been $23.3 million, an increase of $5.1 million or 28.0% over $18.2 million in the second quarter of 2005.
Earnings before interest expense, taxes, depreciation and amortization (EBITDA) was $39.8 million for the second quarter of 2006 compared to $29.3 million for the 2005 second quarter. Excluding the non-recurring transaction-related expenses, EBITDA was $40.7 million in the 2006 second quarter versus $36.0 million in the second quarter of 2005, an improvement of $4.7 million or 13.1%. Please see attached reconciliation from net income to EBITDA.
“The second quarter 2006 was another great one for Horizon Lines,” said Chuck Raymond, President and Chief Executive Officer. “We produced our 18th consecutive quarter of adjusted EBITDA growth and enjoyed double digit gains in all earnings measures. Our vessel fleet enhancement program is ahead of schedule and we have launched our customer focus and service efficiency program, Horizon Edge. Also, we continue to invest in our container fleet as part of our rolling stock replacement program, with the acquisition of 1,250 new containers in the second quarter. Horizon Lines was again recognized for service excellence, the fourth such customer award in 2006.”
The Company updated its earnings guidance for the full year 2006, with projections of operating revenue at $1,155 - $1,165 million, EBITDA at $158 - $162 million and earnings per share (EPS) at $.85 - $.90. Earnings guidance for the third quarter of 2006 was also provided, with forecasts of operating revenue of $305 - $310 million, EBITDA of $48 - $51 million and EPS of $.40 - $.42.
Company executives will provide additional perspective on the Company’s quarterly results during its second quarter earnings 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 Earnings Call. Presentation materials and a live audio webcast will be accessible at Horizon Lines’ websitewww.horizonlines.com. In addition, Horizon Lines’ detailed financial information contained in its Form 10-Q document will be posted onwww.horizonlines.com after filing with the Securities and Exchange Commission.
Horizon Lines, Inc. is the nation’s leading Jones Act container shipping and integrated logistics company. It accounts for approximately 36% of total U.S. marine container shipments from the continental U.S. to the three non-contiguous Jones Act markets, Alaska, Hawaii and Puerto Rico, and to Guam.
This press release includes “forward-looking statements,” as defined by federal securities laws, with respect to financial condition, results of operations and business. All forward-looking statements involve risk and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some of which are not predictable or within our control. Actual results may differ materially from expected results.
Factors that may cause actual results to differ from expected results include: substantial debt; restrictive covenants under our debt agreements; decreases in shipping volumes; our failure to renew our commercial agreements with Maersk; rising fuel prices; labor interruptions or strikes; job related claims; liability under multi-employer pension plans; compliance with safety and environmental protection and other governmental requirements; new statutory and regulatory directives in the United States addressing homeland security concerns; the successful start-up of any Jones Act competitor; increased inspection procedures and tight import and export controls; restrictions on foreign ownership of our vessels; repeal or substantial amendment of the Jones Act; escalation of insurance costs; catastrophic losses and other liabilities; the arrest of our vessels by maritime claimants; severe weather and natural disasters; our inability to exercise our purchase options for our chartered vessels; the loss of our key management personnel; actions by our significant stockholder, and legal or other proceedings to which we are or may become subject.
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.
Media Contact:
Michael Avara of Horizon Lines, Inc. 1-704-973-7000, ormavara@horizonlines.com.
Horizon Lines, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
($ in thousands)
June 25, 2006 | December 25, 2005(1) | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 44,187 | $ | 41,450 | ||||
Accounts receivable, net of allowance of $7,504 and $6,064 at June 25, 2006 and December 25, 2005, respectively | 134,619 | 119,838 | ||||||
Income taxes receivable | 510 | 470 | ||||||
Deferred tax asset | 11,634 | 16,380 | ||||||
Materials and supplies | 24,864 | 26,355 | ||||||
Other current assets | 6,695 | 5,969 | ||||||
Total current assets | 222,509 | 210,462 | ||||||
Property and equipment, net | 191,289 | 200,597 | ||||||
Goodwill | 306,724 | 306,724 | ||||||
Intangible assets, net | 180,276 | 191,502 | ||||||
Other long term assets | 24,236 | 18,034 | ||||||
Total assets | $ | 925,034 | $ | 927,319 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 23,348 | $ | 22,368 | ||||
Current portion of long term debt | 2,500 | 2,500 | ||||||
Other accrued liabilities | 113,477 | 118,483 | ||||||
Total current liabilities | 139,325 | 143,351 | ||||||
Long term debt, net of current | 529,577 | 527,568 | ||||||
Deferred tax liability | 62,354 | 61,880 | ||||||
Deferred rent | 38,240 | 40,476 | ||||||
Other long term liabilities | 2,527 | 2,284 | ||||||
Total liabilities | 772,023 | 775,559 | ||||||
Stockholders’ equity | ||||||||
Common stock, $.01 par value. 50,000,000 shares authorized and 33,614,170 and 33,544,170 shares issued and outstanding as of June 25, 2006 and December 25, 2005, respectively | 336 | 336 | ||||||
Additional paid in capital | 179,753 | 179,590 | ||||||
Accumulated other comprehensive (loss) income | (226 | ) | 74 | |||||
Retained deficit | (26,852 | ) | (28,240 | ) | ||||
Total stockholders’ equity | 153,011 | 151,760 | ||||||
Total liabilities and stockholders’ equity | $ | 925,034 | $ | 927,319 | ||||
(1) | The balance sheet at December 25, 2005 has been derived from the audited financial statements of Horizon Lines, Inc. |
Horizon Lines, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
($ in thousands, except share and per share amounts)
Quarters Ended | Six Months Ended | |||||||||||||||
June 25, 2006 | June 26, 2005 | June 25, 2006 | June 26, 2005 | |||||||||||||
Operating revenue | $ | 289,847 | $ | 270,544 | $ | 564,781 | $ | 528,106 | ||||||||
Operating expenses: | ||||||||||||||||
Operating expense (excluding depreciation expense) | 224,423 | 216,266 | 444,347 | 422,469 | ||||||||||||
Selling, general and administrative | 24,772 | 25,121 | 47,694 | 54,634 | ||||||||||||
Depreciation and amortization | 12,592 | 12,548 | 25,095 | 25,441 | ||||||||||||
Amortization of vessel drydocking | 4,557 | 4,746 | 7,971 | 8,544 | ||||||||||||
Miscellaneous expense, net | 1,084 | (94 | ) | 1,383 | 1,220 | |||||||||||
Total operating expense | 267,428 | 258,587 | 526,490 | 512,308 | ||||||||||||
Operating income | 22,419 | 11,957 | 38,291 | 15,798 | ||||||||||||
Other expense: | ||||||||||||||||
Interest expense, net | 12,304 | 13,386 | 24,024 | 26,238 | ||||||||||||
Other expense (income), net | (201 | ) | (2 | ) | (186 | ) | 1 | |||||||||
Income (loss) before income taxes | 10,316 | (1,427 | ) | 14,453 | (10,441 | ) | ||||||||||
Income tax expense | 3,915 | 1,067 | 5,686 | 226 | ||||||||||||
Net income (loss) | 6,401 | (2,494 | ) | 8,767 | (10,667 | ) | ||||||||||
Less: accretion of preferred stock | — | 1,561 | — | 3,122 | ||||||||||||
Net income (loss) available to common stockholders | $ | 6,401 | $ | (4,055 | ) | $ | 8,767 | $ | (13,789 | ) | ||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.19 | $ | (0.21 | ) | $ | 0.26 | $ | (0.73 | ) | ||||||
Diluted | $ | 0.19 | $ | (0.21 | ) | $ | 0.26 | $ | (0.73 | ) | ||||||
Number of shares used in calculations: | ||||||||||||||||
Basic | 33,544,170 | 19,101,778 | 33,544,170 | 18,912,639 | ||||||||||||
Diluted | 33,621,120 | 19,101,778 | 33,586,992 | 18,912,639 | ||||||||||||
Dividends declared per common share | $ | 0.11 | $ | — | $ | 0.22 | $ | — | ||||||||
Horizon Lines, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
($ in thousands)
Six Months Ended | ||||||||
June 25, 2006 | June 26, 2005 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 8,767 | $ | (10,667 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation | 15,314 | 15,660 | ||||||
Amortization of other intangible assets | 9,781 | 9,781 | ||||||
Amortization of vessel drydocking | 7,971 | 8,544 | ||||||
Amortization of deferred financing costs | 1,596 | 1,677 | ||||||
Deferred income taxes | 5,220 | 226 | ||||||
Gain on equipment disposals | (465 | ) | (114 | ) | ||||
Stock-based compensation | 384 | 10,412 | ||||||
Accretion of interest on 11% senior discount notes | 4,489 | 6,191 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (14,781 | ) | (16,980 | ) | ||||
Materials and supplies | 1,613 | (1,624 | ) | |||||
Other current assets | (766 | ) | 1,422 | |||||
Accounts payable | 980 | (4,035 | ) | |||||
Accrued liabilities | (3,713 | ) | (1,135 | ) | ||||
Vessel drydocking payments | (12,129 | ) | (9,991 | ) | ||||
Other assets/liabilities | (4,870 | ) | (972 | ) | ||||
Net cash provided by operating activities | 19,391 | 8,395 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (7,218 | ) | (2,217 | ) | ||||
Proceeds from the sale of property and equipment | 1,555 | 413 | ||||||
Net cash used in investing activities | (5,663 | ) | (1,804 | ) | ||||
Cash flows from financing activities: | ||||||||
Principal payments on long term debt | (1,250 | ) | (1,250 | ) | ||||
Purchase of 11% senior discount notes | (1,276 | ) | — | |||||
Dividends to stockholders | (7,380 | ) | — | |||||
Payment of financing costs | (834 | ) | (200 | ) | ||||
Costs associated with initial public offering | (158 | ) | (947 | ) | ||||
Sale of stock | — | 1,108 | ||||||
Distribution to holders of preferred stock | — | (535 | ) | |||||
Payments on capital lease obligation | (93 | ) | (93 | ) | ||||
Net cash used in financing activities | (10,991 | ) | (1,917 | ) | ||||
Net increase in cash and cash equivalents | 2,737 | 4,674 | ||||||
Cash and cash equivalents at beginning of period | 41,450 | 56,766 | ||||||
Cash and cash equivalents at end of period | $ | 44,187 | $ | 61,440 | ||||
Horizon Lines, Inc. and Subsidiaries
Adjusted Net Income
($ in Millions)
Quarter Ended | Six Months Ended | |||||||||||||||||
June 25, 2006 | June 26, 2005 | June 25, 2006 | June 26, 2005 | |||||||||||||||
Net Income (Loss) | $ | 6.4 | $ | (2.5 | ) | $ | 8.8 | $ | (10.7 | ) | ||||||||
Adjustments:(a) | ||||||||||||||||||
Lease Buyout | — | 1.3 | — | 2.7 | ||||||||||||||
IPO Restricted Stock Compensation | — | 4.0 | — | 10.4 | ||||||||||||||
Management Fees | — | 0.7 | — | 1.5 | ||||||||||||||
Transaction Related Expense | 0.9 | 0.2 | 0.9 | 0.2 | ||||||||||||||
Interest Expense Reduction | — | 2.4 | — | 4.8 | ||||||||||||||
Tax Impact | (0.3 | ) | (1.7 | ) | (0.3 | ) | (3.4 | ) | ||||||||||
Total Adjustments | 0.6 | 6.9 | 0.6 | 16.2 | ||||||||||||||
Adjusted Net Income | $ | 7.0 | $ | 4.4 | $ | 9.4 | $ | 5.5 | ||||||||||
(a) | These charges are not expected to occur regularly in the ordinary course of business. |
Horizon Lines, Inc. and Subsidiaries
Adjusted Operating Income
($ in Millions)
Quarter Ended | Six Months Ended | |||||||||||||
June 25, 2006 | June 26, 2005 | June 25, 2006 | June 26, 2005 | |||||||||||
Operating Income | $ | 22.4 | $ | 12.0 | $ | 38.3 | $ | 15.8 | ||||||
Adjustments:(a) | ||||||||||||||
Lease Buyout | — | 1.3 | — | 2.7 | ||||||||||
IPO Restricted Stock Compensation | — | 4.0 | — | 10.4 | ||||||||||
Management Fees | — | 0.7 | — | 1.5 | ||||||||||
Transaction Related Expense | 0.9 | 0.2 | 0.9 | 0.2 | ||||||||||
Total Adjustments | 0.9 | 6.2 | 0.9 | 14.8 | ||||||||||
Adjusted Operating Income | $ | 23.3 | $ | 18.2 | $ | 39.2 | $ | 30.6 | ||||||
(a) | These charges are not expected to occur regularly in the ordinary course of business. |
Horizon Lines, Inc. and Subsidiaries
Net Income / EBITDA Reconciliation
($ in Millions)
Quarter Ended | Six Months Ended | |||||||||||||||
June 25, 2006 | June 26, 2005 | June 25, 2006 | June 26, 2005 | |||||||||||||
Net Income (Loss) | $ | 6.4 | $ | (2.5 | ) | $ | 8.8 | $ | (10.7 | ) | ||||||
Interest Expense, Net | 12.3 | 13.4 | 24.0 | 26.2 | ||||||||||||
Tax Expense | 3.9 | 1.1 | 5.7 | 0.3 | ||||||||||||
Depreciation and Amortization | 17.2 | 17.3 | 33.1 | 34.0 | ||||||||||||
EBITDA | 39.8 | 29.3 | 71.6 | 49.8 | ||||||||||||
Lease Buyout | — | 1.8 | — | 3.5 | ||||||||||||
IPO Restricted Stock Compensation | — | 4.0 | — | 10.4 | ||||||||||||
Management Fees | — | 0.7 | — | 1.5 | ||||||||||||
Transaction Related Expense | 0.9 | 0.2 | 0.9 | 0.2 | ||||||||||||
Adjusted EBITDA | $ | 40.7 | $ | 36.0 | $ | 72.5 | $ | 65.4 | ||||||||
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 Holding Corp. 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.