Horizon Lines, Inc. (NYSE: HRZ), reported results for its fiscal second quarter ended June 21, 2009. On a GAAP basis, the company reported a net loss of $(31.1) million, or $(1.02) per share, on revenue of $278.5 million. The results reflect certain items, including a $20 million charge related to the previously disclosed class-action legal settlement in Puerto Rico, and a $10.5 million tax valuation allowance. After excluding these and other charges totaling $35.2 million, or $1.15 per share after tax, adjusted net income was $4.1 million, or $0.13 per fully diluted share.
The company recorded the valuation allowance for book tax purposes against its deferred tax assets due to projected cumulative pre-tax GAAP losses for the three-year period ending in 2009. However, the previous years' pre-tax book losses include significant loss on debt extinguishment in connection with the August 2007 refinancing and recent expenses related to the anti-trust investigation. The valuation allowance has no cash impact and does not affect the company's ability to utilize its deferred tax assets to offset taxable income in future years as the company's net operating losses do not begin to expire until 2019 and 2024 for state and federal purposes, respectively.
In addition to the items related to the Puerto Rico class-action settlement and the tax valuation allowance, adjusted 2009 second-quarter results exclude antitrust-related legal expenses of $4.1million, and $0.9 million for impairment and restructuring charges, as well as a loss on debt
Net income for the second quarter of 2008 totaled $5.8 million, or $0.19 per diluted share, on revenue of $331.0 million. Adjusted 2008 second-quarter net income totaled $8.5 million, or $0.28 per fully diluted share, after excluding anti-trust related legal expenses and a severance charge totaling $3.2 million pretax, or $0.09 per share after tax.
"Our company experienced weak volumes in all tradelanes during the second quarter, as the unabated global recession continued to dampen consumer sentiment and spending throughout our markets," said Chuck Raymond, Chairman, President and Chief Executive Officer. "We combated these challenges through continued focus on customer service excellence, schedule integrity, and cost reductions throughout the organization. While revenue and adjusted EBITDA for the quarter were below internal expectations, we achieved better-than-expected cash flow relative to EBITDA, earned a 2.5% container rate increase, net of fuel, and estimate that market share in each of our tradelanes held steady and in some cases improved slightly. We finished the second quarter with adequate corporate liquidity and in compliance with our credit facility financial covenants.
"Our volume levels compare very favorably to other transportation segments and reflect our focus on U.S. domestic ocean markets, where we play a primary role in delivering cargo that is vital to the basic needs of our tradelanes," Mr. Raymond said. "We serve these markets with operational excellence and devotion to our customers, who include diverse, large, brand-name companies.
"The company's logistics business continued to be adversely impacted by the economic recession," Mr. Raymond noted. "Our ongoing strategy is to organically position this business to be able to capitalize on targeted growth opportunities when the economy rebounds. In the meantime, we are focused on accelerating revenue growth and more fully leveraging our Liner sales force in the logistics sales process.
"During the quarter, we reached an agreement to settle class action antitrust litigation in Puerto Rico and at the same time executed an amended credit agreement with our lender group, as we previously disclosed" Mr. Raymond said. "We also continue to fully cooperate with the Department of Justice in its investigation into pricing practices in domestic ocean shipping."
Second-Quarter 2009 Financial Highlights:
Operating Revenue - Operating revenue declined 15.9% to $278.5 million from $331.0 million a year ago. The largest factors in the $52.5 million revenue decline were a $27.8 million reduction in fuel surcharges, and a $27.7 million decrease from a 9.8% reduction in volume. The volume decline was due to weak market conditions across all tradelanes; specifically, a decline in visitors and construction in Hawaii, the ongoing recession in Puerto Rico, and recessionary worries that curbed consumer spending in Alaska. The volume decline was partially offset by increased revenue per container, which was driven by both rate and mix improvements. Second-quarter revenue per container, net of fuel, increased 2.5% to $3,293 from the prior year.
Operating (Loss) Income - The GAAP operating loss for the second quarter of 2009 totaled $(11.2) million, compared with operating income of $16.7 million for the second quarter of 2008. The 2009 GAAP operating loss includes expenses of $24.9 million that are excluded from adjusted operating income. These consist of $20 million for the settlement of class action litigation in Puerto Rico, $4.1 million for antitrust-related legal expenses, and $0.9 million for additional impairment and restructuring charges. The 2008 GAAP operating loss includes expenses of $3.2 million that are excluded from adjusted operating income. These consist of $2.4 million in antitrust-related legal expenses and $0.8 million in severance costs related to early retirement for certain union employees. Excluding these items, adjusted operating income totaled $13.7 million for the second quarter of 2009, and $19.9 million for the prior year's second quarter. The decline from last year was largely due to reduced volumes and lower non-transportation revenue, which were partially offset by reduced fuel costs and non-union workforce reductions.
EBITDA - EBITDA totaled $3.5 million for the 2009 second quarter, compared with $32.6 million for the same period a year ago. Adjusted EBITDA for the 2009 second quarter was $28.5 million, compared with $35.8 million for 2008. EBITDA and adjusted EBITDA for the 2009 and 2008 second quarters were impacted by the same factors affecting operating income.
Shares Outstanding - The company had a weighted daily average of 30.4 million shares outstanding for the second quarter of 2009, compared with 30.3 million for the second quarter of 2008.
Six-Month Results - For the six months ended June 21, 2009, operating revenue decreased 13.5% to $550.8 million from $636.9 million for the same period in 2008. EBITDA totaled $17.5 million compared with $59.9 million a year ago. Adjusted EBITDA, excluding the items previously mentioned as well as a 2009 first -quarter restructuring charge of $0.8 million and antitrust legal expenses of $4.4 million, totaled $47.7 million versus $63.1 million for 2008. The 2009 six-month net loss totaled $(41.0) million, or $(1.35) per share, compared with net income of $6.6 million, or $0.21 per diluted share for the same period a year earlier. The 2009 adjusted net loss totaled $(0.6) million, or $(0.02) per share, compared with adjusted net income of $9.2 million, or $0.30 per diluted share, a year ago.
Please see attached schedules for reconciliation of second-quarter 2009 and 2009 reported GAAP results and Non-GAAP adjusted results.
"Challenges continue across our markets, which all have been impacted in varying degrees by the global recession," Mr. Raymond said. "Horizon Lines remains well positioned to continue operating successfully in this extended recessionary environment. Our 2009 business plan contemplated a deep and protracted recession. We implemented necessary cost-reduction measures early on and have other measures that we can execute quickly if the economy worsens appreciably in future months. We are intensely focused on serving our customers while continuing to remove costs from the organization. While we have somewhat tempered our EBITDA expectations relative to last year, we believe our markets are stabilizing modestly and we anticipate that adjusted EBITDA for 2009 will remain above levels that would jeopardize our compliance with financial covenants in our credit agreement. As we move through the second half of the year and beyond, we are confident that Horizon Lines is operating on a foundation of financial stability and with adequate liquidity."