Horizon Lines, Inc. has posted its financial results for the fiscal fourth quarter ended December 25, 2011, which include a projected rise in marine fuel costs of around $100 per tonne in its oulook for 2012.
According to the US shipper, fuel prices for 2012 are projected in the $730-$735 per tonne range, excluding costs for low sulphur fuel that will be required in the Alaska Tradelane, effective August 1, 2012.
With Horizon's fuel costs averaging $631 per tonne in 2011, the 2012 price forecast represents a year-on-year rise of $99-$104 per tonne, or 15.7% - 16.5%.
In its report, Horizon said it achieved a $117.8 million rise in fourth quarter 2011 net income from continuing operations to $74.2 million, or $24.14 per diluted share, compared to a net loss of $43.6 million, or $35.49 per basic share, during the prior-year period.
Revenue from continuing operations during the fourth quarter was up $8 million, or 3 percent, to $264.1 million, up from $256.1 million during the quarter ended December 26, 2010.
On an adjusted basis, the company recorded a fourth-quarter net loss from continuing operations of $14.6 million, or $4.74 per diluted share, after adjustments totalling $(88.8) million, after tax, or $(28.88) per share.
Also on an adjusted basis, the net loss from continuing operations in the fourth quarter of 2010 totalled $6.8 million, or $5.54 per basic share, after excluding charges for antitrust-related legal settlements and expenses, severance related to a non-union workforce reduction, impairment charges and tax adjustments totalling $36.8 million, or $29.95 per share.
Container volume for the 2011 fourth quarter totalled 60,279 loads, representing a 5.8% decrease from 63,977 loads for the same period a year ago. Horizon said the volume decline resulted from an additional week in the 2010 fourth quarter. Excluding the extra week, fourth quarter 2011 container volume increased 0.2% from 60,133 loads the previous year. Alaska volume was flat, while Hawaii and Puerto Rico were up slightly, excluding the extra week.
Container rates, net of fuel, were $3,136 for the 2011 fourth quarter, up slightly from $3,126 during the prior-year period.
"Our fourth-quarter operating performance from continuing operations was relatively stable when compared with a year ago, as both container volumes and rates reflected marginal improvement on a comparable 52-week basis," said
Stephen H. Fraser, interim President and Chief Executive Officer.
"Our financial performance was pressured by high fuel prices, the ongoing recession in Puerto Rico, severe winter weather in Alaska, and increased expenses from incremental lift and equipment costs resulting from the expiration of certain of our Maersk agreements. Despite these challenges, our company produced adjusted EBITDA in the fourth quarter that nearly matched last year's performance, as we maintained our focus on disciplined cost management and customer service excellence."
As previously reported, Horizon Lines terminated its FSX trans-Pacific service during the fourth quarter of 2011. The service and associated operations were classified as discontinued operations, and the company recorded a pretax restructuring charge of $119.3 million. This charge includes costs to return excess rolling stock equipment, severance, facility lease expense, and vessel charter expense, net of estimated sub-charter income.
Fourth-Quarter 2011 Financial Highlights
Fourth-quarter operating revenue from continuing operations increased 3.1% to $264.1 million from $256.1 million the previous year.
Fuel surcharges accounted for approximately 22.5% of total revenue in the 2011 fourth quarter, compared with 15.6% in the last quarter of 2010. The largest factors in the $8.0 million revenue improvement were: a $19.5 million growth in fuel surcharges, a $1.2 million rise in space charter revenue, and a $0.3 million increase from rate improvements. These gains were partially offset by a $13.0 million revenue decline resulting from an $11.6 million decrease related to domestic volume shortfalls and a $1.4 million decline in non-transportation revenue.
Operating Income
The GAAP operating loss from continuing operations for the fourth quarter totalled $6.9 million, compared to a loss of $33.0 million in the corresponding period in 2010.
The 2011 GAAP operating loss includes $14.0 million in charges for antitrust-related legal settlements and expenses, employee severance expense, and equipment impairment charges, partially offset by a $2.2 million gain resulting from a reduction of the goodwill impairment charge recorded in the third quarter.
The 2010 fourth-quarter GAAP operating loss includes $36.8 million in charges for antitrust-related legal settlements and expenses, restructuring costs related to a non-union workforce reduction, equipment impairment charge, and costs for union employee severance.
Adjusting for these items, the fourth-quarter 2011 adjusted operating income from continuing operations totaled $4.9 million, compared with $3.8 million a year ago. Horizon said fourth quarter 2011 operating results were negatively impacted by reduced container volumes, additional equipment and container lift expense after the termination in 2010 of various Maersk agreements, and weather-related vessel incidents. These negative factors were partly offset by partial recovery of increased fuel costs, ongoing cost-savings initiatives, reduced vessel labor and leasing costs, and improved overhead.
EBITDA from continuing operations totalled $108.1 million for the 2011 fourth quarter, compared to a loss of $17.1 million for the prior-year period. Adjusted EBITDA from continuing operations for the fourth quarter of 2011 was $18.9 million, compared to $19.8 million in 2010.
EBITDA and adjusted EBITDA for the 2011 and 2010 fourth quarters were impacted by the same factors affecting operating income. Additionally, 2011 adjusted EBITDA excluded net gains of $101.1 million related to the company's debt refinancing transaction and marking the conversion feature in the company's convertible debt to fair value.
Full Year Results 2011
For the full fiscal year ended December 25, 2011, operating revenue from continuing operations increased 2.7% to $1.03 billion from $1.0 billion for fiscal 2010. Fiscal 2010 contained 53 weeks, compared with 52 weeks for 2011.
EBITDA from continuing operations totalled $60.9 million compared with $63.4 million the previous year. Adjusted EBITDA for 2011 totalled $82.1 million, after excluding charges totaling $126.3 million for goodwill impairment, antitrust-related legal expenses, severance, and asset impairment, which were partially offset by the inclusion of $105.1 million of net gains related to marking the conversion feature in the company's convertible debt to fair value, refinancing of the company's debt and adjustments to legal settlements.
Adjusted EBITDA for the 2010 full year totalled $106.0 million. Excluded from the adjusted 2010 EBITDA were charges totaling $42.6 million related to antitrust-related legal settlements and expenses, equipment impairment and severance.
The net loss from continuing operations for 2011 totalled $53.2 million, or $36.33 per basic share, compared with $35.6 million, or $29.01 per basic share, for the prior year.
The 2011 adjusted net loss from continuing operations totalled $31.9 million, or $21.76 per basic share, compared with adjusted net income from continuing operations of $6.6 million, or $5.40 per basic share, in 2010.
Liquidity, Credit Facility Compliance & Debt Structure
As of December 25, 2011, the company had total liquidity of $74.0 million, consisting of cash of $21.1 million and $52.9 million available under its asset-based loan (ABL) revolving credit facility.
Funded debt outstanding totalled $612.8 million, consisting of: $225.0 million of 11.00% first-lien secured notes due October 15, 2016; $100.0 million of second-lien secured notes due October 15, 2016, bearing interest at 13.00% if paid in cash, 14.00% if paid 50% in cash and 50% in kind, and 15.00% if paid in kind with additional second-lien secured notes; and $278.1 million of 6.00% convertible secured notes due April 15, 2017.
Also remaining outstanding were $2.2 million of 4.25% convertible notes due August 15, 2012, and a $7.5 million capital lease.
The company's weighted average interest rate for funded debt was 9.02%. Availability under the asset-based-loan (ABL) revolving credit facility is based on a percentage of eligible accounts receivable and customary reserves, with a maximum of $100 million. Letters of credit issued against the ABL facility totaled $19.6 million at December 25, 2011, but there were no outstanding borrowings.
On January 11, 2012, the company completed a mandatory debt-to-equity conversion of a portion of the 6.00% convertible secured notes due October 15, 2016. The conversion reduced funded debt outstanding by $49.7 million.
Additionally, on April 9, 2012, the company completed transactions with more than 99% of its noteholders, and with Ship Finance International Limited and certain of its subsidiaries, to substantially deleverage the company's balance sheet and terminate vessel charter obligations related to its discontinued trans-Pacific service.
These simultaneous transactions convert virtually all of the remaining $228.4 million of the Company's 6.00% Series A and Series B Convertible Secured Notes, partially offset by the issuance of $40.0 million of debt to SFL as part of the full settlement of the vessel charter obligations, resulting in a net debt reduction of $188.4 million.
Horizon said the Company's earnings and cash flows will be further improved by the termination of $32.0 million in annual vessel charter obligations for the five ships, as well as the elimination of approximately $3.0 million of annual lay-up costs for the idle vessels. As a result of the transactions, the company's total funded debt outstanding has been reduced to approximately $404.4 million.
2012 Outlook
The company currently projects that 2012 container volumes will increase modestly, in the 1-2% range, and rates, net of fuel, will increase slightly from 2011 levels.
In 2012, the company currently projects adjusted EBITDA of approximately $75.0 million. The expected decline from 2011 adjusted EBITDA is primarily due to fuel and duplicate vessel operating expenses associated with the planned dry-docking of three vessels in Asia, lower terminal services revenues, and projections of continued slow economic growth.