Horizon Lines, Inc. (NYSE: HRZ) reported record earnings for the fourth quarter and full year of 2006.
Net income for the fourth quarter of 2006 was $10.6 million or $.32 basic earnings per share compared to a net loss of $(10.9) million or $(.38) basic earnings per share in 2005's fourth quarter. After adjustment to exclude non- recurring secondary offering, IPO and transaction-related expenses, and loss on early extinguishment of debt, and to include interest expense savings on debt prepayment, and to apply tonnage tax on pro-forma basis, adjusted net income was $11.5 million or $.34 basic earnings per share in the fourth quarter of 2006 compared to $8.0 million or $ .24 basic earnings per share in the fourth quarter of 2005. The fourth quarter 2006 adjusted basic earnings per share of $.34 was $.01 - $.03 higher than earnings guidance of $.31 - $.33.
Operating revenue increased by $8.5 million or 3% to $287.5 million compared to $279.0 million in the fourth quarters of 2006 and 2005, respectively. This revenue growth was fueled by cargo mix upgrades, rate increases and higher fuel recovery, more than offsetting some volume softness.
Operating income in the fourth quarter 2006 was $22.5 million compared to $12.5 million for the fourth quarter 2005. Operating income would have been $22.9 million in the 2006 fourth quarter, and $19.9 million in the fourth quarter of 2005, excluding the impacts of non-recurring secondary offering, IPO and transaction-related expenses.
Earnings before net interest expense, taxes, depreciation and amortization (EBITDA) was $37.9 million for the fourth quarter 2006 compared to $15.3 million for the 2005 fourth quarter. Excluding the non-recurring secondary offering, IPO and transaction-related expenses, and loss on early extinguishment of debt, EBITDA was $38.9 million in the 2006 fourth quarter versus $35.9 million in the fourth quarter of 2005.
For the full year 2006, net income was $72.4 million or $2.16 basic earnings per share compared to a net loss of $(18.3) million or $(1.05) basic earnings per share in 2005. After adjustment to exclude non-recurring secondary offering expenses and the loss on early extinguishment of debt, 2006 adjusted net income was $74.8 million or $2.23 basic earnings per share, or $.02 - $.04 better than earnings guidance of $2.19 - $2.21. Excluding non- recurring secondary offering, IPO and transaction-related expenses, management fees, and loss on early extinguishment of debt, and to apply tonnage tax on a pro-forma basis, interest expense savings on debt prepayment, and net savings on vessel lease buyouts, adjusted net income was $45.0 million or $1.34 basic earnings per share in 2006 versus $34.8 million or $1.04 basic earnings per share in 2005. Please see attached schedules for reconciliation of fourth quarter and full year 2006 adjusted results and EBITDA amounts to reported results.
"The fourth quarter brought to a very successful close a milestone year in 2006 for Horizon Lines," said Chuck Raymond, Chairman, President and Chief Executive Officer. "We completed the transition that commenced with our September 2005 initial public offering, from private equity ownership to full public company status. The implementation of our fleet enhancement strategic initiative continued ahead of schedule. Horizon Edge, our process re- engineering and customer service initiative, was launched and captured benefits in excess of first-year targets. We also renewed and extended through 2010 all of our principal commercial and operating arrangements with the A.P. Moller Maersk Group. Horizon Services Group, our technology company, accomplished an industry first with the implementation of radio frequency identification (RFID) technology and broadened its outreach as a third party provider of technology services. We elected application of the tonnage tax, which provides for significant tax savings in 2006 and beyond. Our Company continued to deliver strong and improving financial results, setting both earnings and cash flow records in 2006. Finally, we strengthened our Board with the addition of three highly qualified Board Members that will help set the course for Horizon Lines in 2007 and beyond."
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 1-800-218-0530 and asking for the Horizon Lines Fourth Quarter 2006 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.
About Horizon Lines:
Horizon Lines, Inc. is the nation's leading Jones Act container shipping and integrated logistics company, operating 16 U.S.-flag vessels on routes linking the continental United States with Alaska, Hawaii, Guam, and Puerto Rico. Horizon Lines also owns Horizon Services Group, an organization with a diversified offering of cargo management and tracking services being marketed to shippers, carriers, and other supply chain participants. Horizon Lines, Inc. 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 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 final prospectus filed with the SEC on November 17, 2006, 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 development 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.
Consolidated Balance Sheets
(in thousands, except per share data)
December 24, 2006 December 25, 2005
Assets
Current assets:
Cash and cash equivalents $93,949 $41,450
Accounts receivable, net of allowance 120,732 119,838
Deferred tax asset 11,586 16,380
Materials and supplies 24,658 26,355
Other current assets 8,266 6,439
Total current assets 259,191 210,462
Property and equipment, net 188,652 200,597
Goodwill 306,724 306,724
Intangible assets, net 167,882 191,502
Other long-term assets 22,580 18,034
Total assets $945,029 $927,319
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $28,322 $22,368
Current portion of long-term debt 6,758 2,500
Other accrued liabilities 126,548 118,483
Total current liabilities 161,628 143,351
Long-term debt, net of current 503,708 527,568
Deferred tax liability 31,339 61,880
Deferred rent 36,003 40,476
Other long-term liabilities 4,074 2,284
Total liabilities 736,752 775,559
Stockholders' equity:
Common stock, $.01 par value,
50,000 shares authorized and 33,591 and
33,544 issued and outstanding at
December 24, 2006 and December 25, 2005,
respectively 336 336
Additional paid in capital 179,599 179,590
Accumulated other
comprehensive (loss) income (1,011) 74
Retained earnings (accumulated deficit) 29,353 (28,240)
Total stockholders' equity 208,277 151,760
Total liabilities and
stockholders' equity $945,029 $927,319
Horizon Lines, Inc.
Consolidated and Combined Statements of Operations
(in thousands, except per share amounts)
Quarter Ended Quarter Ended
Dec. 24, 2006 Dec. 25, 2005
Operating revenue $287,454 $278,975
Operating expense:
Operating expense (excluding
depreciation expense) 222,890 222,870
Depreciation and amortization 12,684 12,615
Amortization of vessel drydocking 3,320 3,407
Selling, general and administrative 25,606 28,776
Miscellaneous expense (income) 471 (1,156)
Total operating expense 264,971 266,512
Operating income 22,483 12,463
Other expense:
Interest expense, net 12,302 12,183
Loss on early extinguishment of debt 581 13,154
Other (income) expense, net (2) 9
Income (loss) before income taxes 9,602 (12,883)
Income tax benefit (1,043) (1,990)
Net income (loss) 10,645 (10,893)
Less: accretion preferred stock -- 1,472
Net income (loss) available to
common stockholders $10,645 $(12,365)
Net income (loss) per share available
to common stockholders:
Basic $0.32 $(0.38)
Diluted $0.31 $(0.38)
Number of shares used in calculations:
Basic 33,573 32,624
Diluted 34,130 32,629
Dividends per share $0.11 $0.11
Horizon Lines, Inc. and Predecessor Company
Consolidated and Combined Statements of Operations
(in thousands, except per share amounts)
Horizon Lines, Inc. Predecessor A
For the For the For the For the
period period period period
December 26, December 27, July 7, December 22,
2005 through 2004 through 2004 through 2003 through
December 24, December 25, December 26, July 06,
2006 2005 2004 2004
Operating revenue $1,156,892 $1,096,156 $481,898 $498,430
Operating expense:
Operating expense
(excluding
depreciation
expense) 896,311 867,307 377,468 402,875
Depreciation and
amortization 50,223 51,141 24,633 20,937
Amortization of
vessel dry-docking 14,652 15,766 7,118 8,743
Selling, general
and administrative 98,286 114,639 41,482 43,323
Miscellaneous
expense 1,449 649 269 1,891
Total operating
expense 1,060,921 1,049,502 450,970 477,769
Operating income 95,971 46,654 30,928 20,661
Other expense
(income):
Interest expense,
net 48,552 51,357 21,770 5,111
Interest expense -
preferred units
of subsidiary - - - 2,686
Loss on early
extinguishment
of debt 581 13,154 - -
Other (income)
expense, net (187) 26 15 7
Income (loss) before
income taxes 47,025 (17,883) 9,143 12,857
Income tax expense
(benefit) (25,332) 438 3,543 4,896
Net income (loss) 72,357 (18,321) 5,600 7,961
Less: accretion of
preferred stock - 5,073 6,756 -
Net income (loss)
available to
common stockholders $72,357 $(23,394) $(1,156) $7,961
Net income (loss)
per share available
to common
stockholders:
Basic $2.16 $(1.05) $(.07) $9.95
Diluted $2.14 $(1.05) $(.07) $8.94
Number of shares used
in calculations:
Basic 33,551 22,377 15,585 800
Diluted 33,772 22,382 15,585 890
Dividends per share $0.44 $0.11 --- ---
Horizon Lines, Inc. and Predecessor Company
Consolidated and Combined Statements of Cash Flows
(in thousands)
Horizon Lines, Inc. Predecessor A
For the For the For the For the
period period period period
December 26, December 27, July 7, December 22,
2005 through 2004 through 2004 through 2003 through
December 24, December 25, December 26, July 06,
2006 2005 2004 2004
Cash flows from
operating activities:
Net income (loss) $72,357 $(18,321) $5,600 $7,961
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation 30,676 31,580 15,187 19,385
Amortization of
intangibles 19,547 19,561 9,446 1,552
Amortization of
vessel dry-docking 14,652 15,766 7,118 8,743
Amortization of
deferred financing
costs 3,990 3,363 1,303 550
Deferred income taxes (25,134) (7,394) 4,644 2,968
Loss (gain) on
equipment disposals 242 (993) (140) 24
Loss on early
extinguishment of debt 581 13,154 - -
Accretion on 11%
senior discount notes 9,174 12,057 549 -
Accretion of preferred
units of subsidiary - - - 2,686
Stock based
compensation 949 19,052 - 1,765
Tax (deficiency)
benefit from exercise
of stock options (1,289) 5,495 9,494 -
Changes in operating
assets and liabilities:
Accounts receivable (894) (9,037) 8,633 (13,678)
Materials and supplies 1,819 (5,309) (161) (3,020)
Other current assets (1,827) 9,846 (8,390) (6,152)
Accounts payable 5,954 (2,907) (3,203) 200
Accrued liabilities 6,392 3,470 26,079 (13,152)
Vessel dry-docking
payments (16,815) (16,038) (2,075) (10,198)
Other assets/
liabilities (3,561) (2,464) (1,287) (2,562)
Net cash provided
by (used in)
operating
activities 116,813 70,881 72,797 (2,928)
Cash flows from
investing activities:
Purchases of
equipment (21,288) (41,234) (11,000) (21,889)
Acquisition of company - - (663,031) -
Transaction costs
associated with
acquisition - - (246) -
Proceeds from sale
of equipment 2,192 2,417 354 1,399
Other investing
activities (244) - - (150)
Net cash used in
investing
activities (19,340) (38,817) (673,923) (20,640)
Cash flows from
financing activities:
Initial capitalization
of Company - - 87,027 -
Issuance of long term
debt - - 682,819 -
Borrowing under
revolving credit
facility - - 6,000 -
Payment on revolving
credit facility - - (6,000) -
Payment of financing
costs (1,182) (1,754) (4,800) -
Sale of stock - 1,108 20,655 -
Proceeds from exercise
of stock options 101 - - -
Initial public
offering proceeds - 143,750 - -
Costs associated with
initial public
offering (158) (15,717) - -
Payments of long-term
debt (28,776) (98,696) (70,625) -
Payment of interest
on convertible debt - - (3,506) -
Redemption premiums - (9,522) - -
Redemption of
preferred stock - (62,689) (53,613) -
Dividend to
stockholders (14,764) (3,690) - -
Payments on capital
lease obligation (195) (170) (65) (87)
Net cash provided
by (used in)
financing
activities (44,974) (47,380) 657,892 (87)
Net increase (decrease)
in cash and cash
equivalents 52,499 (15,316) 56,766 (23,655)
Cash and cash
equivalents at
beginning of period 41,450 56,766 - 41,811
Cash and cash
equivalents at end
of period $93,949 $41,450 $56,766 $18,156
Horizon Lines, Inc.
Adjusted Operating Income
(in Millions)
Quarter Quarter Year Year
Ended Ended Ended Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
2006 2005 2006 2005
Operating Income $22.5 $12.5 $96.0 $46.7
Adjustments(a)
Stock Compensation Expense -- 7.2 -- 19.2
Management Fees -- -- -- 9.7
Transaction Related Expense 0.4 0.2 2.0 2.2
Lease Buyout Net Expense Savings -- -- -- 3.8
Total Adjustments 0.4 7.4 2.0 34.9
Adjusted Operating Income $22.9 $19.9 $98.0 $81.6
(a) These charges are not anticipated to recur regularly in the ordinary
course of business.
Horizon Lines, Inc.
Adjusted Net Income
(in Millions)
Quarter Quarter Year Year
Ended Ended Ended Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
2006 2005 2006 2005
Net Income (Loss) $10.6 $(10.9) $72.4 $(18.3)
Adjustments(a)
Stock Compensation Expense -- 7.2 -- 19.2
Management Fees -- -- -- 9.7
Transaction Related Expense 0.4 0.2 2.0 2.2
Lease Buyout Net Expense Savings -- -- -- 3.8
Loss on Extinguishment of Debt 0.6 13.2 0.6 13.2
Interest Expense Reduction -- 1.2 -- 8.8
Tax Impact of Adjustments (0.1) (5.5) (0.2) (14.8)
Adjusted Net Income Before
Pro-forma Tonnage Tax Adjustment 11.5 5.4 74.8 23.8
Tonnage Tax Adjustments:
* 2005 Impact -- 2.6 (11.0) 11.0
* Deferred Tax Revaluation -- -- (18.8) ---
Adjusted Net Income $11.5 $8.0 $45.0 $34.8
(a) These charges are not anticipated to recur regularly in the ordinary
course of business.
Horizon Lines, Inc. and Subsidiaries
Net Income / EBITDA Reconciliation
(in Millions)
Quarter Quarter Year Year
Ended Ended Ended Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
2006 2005 2006 2005
Net Income (Loss) $10.6 $(10.9) $72.4 $(18.3)
Interest Expense, Net 12.3 12.2 48.6 51.4
Tax Expense (Benefit) (1.0) (2.0) (25.4) 0.4
Depreciation & Amortization 16.0 16.0 64.9 66.9
EBITDA 37.9 15.3 160.5 100.4
Stock Compensation Expense -- 7.2 -- 19.2
Management Fees -- -- -- 9.7
Transaction Related Expense 0.4 0.2 2.0 2.2
Lease Buyout Gross Expense Savings -- -- -- 5.0
Loss on Extinguishment of Debt 0.6 13.2 0.6 13.2
Adjusted EBITDA $38.9 $35.9 $163.1 $149.7
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 Holding 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.