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8-K - FORM 8-K - Horizon Lines, Inc. | g26266e8vk.htm |
EX-99.2 - EX-99.2 - Horizon Lines, Inc. | g26266exv99w2.htm |
Exhibit 99.1
PRESS RELEASE
For information contact
For information contact
Investment Community
|
Trade Media | Financial News Media | ||
Jim Storey
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Barbara Yeninas | Meaghan Repko | ||
Director, Investor Relations
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BSY Associates | Joele Frank, Wilkinson Brimmer Katcher | ||
704-973-7107
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732-817-0400 | 212-355-4449 |
HORIZON LINES REACHES RESOLUTION WITH DEPARTMENT
OF JUSTICE AND MOVES FORWARD ON DEBT REFINANCING EFFORTS
OF JUSTICE AND MOVES FORWARD ON DEBT REFINANCING EFFORTS
Company in Constructive Discussions with Lenders
Regarding Waivers as it Seeks New Long-term Financing
Regarding Waivers as it Seeks New Long-term Financing
Provides Preliminary 2010 Results and 2011 Outlook; Suspends Dividend
CHARLOTTE, NC (February 24, 2011) Horizon Lines, Inc. (NYSE: HRZ) today confirmed that it has
entered into a plea agreement with the Antitrust Division of the U.S. Department of Justice (DOJ).
Under the agreement, which is subject to court approval, Horizon Lines will plead guilty to a
charge of violating federal antitrust laws solely with respect to the Puerto Rico tradelane and pay
a fine of $45 million over five years without interest.
With the resolution of the DOJ investigation, Horizon Lines is in discussions with certain of its
lenders to waive a judgment default that will arise from the plea agreement and to provide
financial covenant relief as the company seeks new long-term financing.
We are very pleased to have reached a resolution with the Department of Justice, said Michael T.
Avara, Senior Vice President and Chief Financial Officer. We now look forward to moving ahead in
our discussions with lenders. We remain very focused on serving our customers well, further
improving our operational excellence, and financially strengthening our company for the benefit of
all of our stakeholders.
DOJ Plea Agreement and Civil Antitrust Update
Under terms of the plea agreement, which is subject to court approval, Horizon Lines will plead
guilty to a charge of violating section 1 of the Sherman Act with respect to the Puerto Rico
tradelane between May 2002 and April 2008 and pay a fine of $45 million. The fine is payable over a
five-year period as follows: $1 million within 30 days after imposition of the sentence by the
court, $1 million on the first anniversary thereafter, $3 million on the second anniversary, $5
million on the third anniversary, $15 million on the fourth anniversary, and $20 million on the
fifth anniversary.
The plea agreement provides that Horizon Lines will not face additional charges relating to the
Puerto Rico tradelane. The DOJ also agreed that the company will not face any charges in connection
with the DOJs investigation into the Alaska trade, and indicated that the company is not a subject
or target of any investigation by the DOJ into the Hawaii and Guam trades.
Horizon Lines News Release | Page 2 of 5 |
Additionally, the DOJ has agreed that it will not bring criminal charges against any current
director or officer, although this agreement does not extend to the companys current Chief
Executive Officer or to the companys current Chief Operating Officer.
As previously announced, Horizon Lines has been cooperating with the DOJ since the company became
aware of the investigation in April 2008, and has strengthened its corporate compliance and
training programs to prevent recurrence of the conduct giving rise to the investigation.
We have taken major steps to put the issues in the Puerto Rico tradelane behind us and are working
diligently to resolve the civil litigation arising out of the DOJ investigation as it relates to
Puerto Rico, Mr. Avara said. These steps include reaching a settlement with the plaintiffs in the
direct purchaser Puerto Rico class-action antitrust cases. As part of this process, Walmart
recently released us from antitrust claims related to the Puerto Rico tradelane.
Horizon Lines also entered into a Memorandum of Understanding (MOU) on February 22, 2011, with the
Commonwealth of Puerto Rico and attorneys representing indirect purchasers. The indirect purchasers
allege they paid inflated prices for goods imported to Puerto Rico as a result of the alleged price
fixing conspiracy. Under the MOU, the company has agreed to pay $1.8 million in exchange for a full
release. The settlement agreement, when negotiated and entered into by the parties, will be subject
to court approval.
Credit Agreement Amendment
In conjunction with the DOJ resolution, Horizon Lines is working with financial advisor Moelis &
Company and the legal firm Kirkland & Ellis LLP to help the company fully evaluate refinancing
options and pursue an amendment to its current credit agreement. Regarding its credit agreement,
Horizon Lines is seeking to waive or otherwise satisfy the default conditions that would be
triggered by the amount of the $45 million judgment issued by the court. The company also is
requesting, by early March, relief from anticipated future financial covenant noncompliance, as it
seeks new long-term financing.
Mr. Avara continued, Horizon Lines and its advisors are engaging in constructive discussions with
lenders to identify the best refinancing options for our company. We are working closely with our
lenders and targeting completion of the refinancing process in the second or third quarter.
2010 Preliminary Results
Horizon Lines is scheduled to report fourth-quarter and full-year financial results on March 3,
2011. For the fiscal year ended December 26, 2010, the company expects to report adjusted EBITDA of
approximately $96.0 million (see reconciliation table). Despite achieving results lower than
expectations, Horizon Lines maintained compliance with all debt covenants during fiscal 2010. The
companys fourth-quarter results were adversely impacted by lower-than-projected volumes in its
Hawaii trade lane, rising fuel prices, continued rate pressures, particularly in Puerto Rico, and
the anticipated start-up costs related to the companys new China service.
In conjunction with the DOJ agreement, fiscal 2010 financial results will include a charge of $30.0
million, which represents the present value of the $45 million in installment payments.
The company also has decided to divest its Logistics business and is in discussions to sell the
unit, but can give no assurances that a transaction will take place.
2011 Outlook
The company currently anticipates modest EBITDA growth in 2011 compared to 2010. The typically
slow first quarter is expected to be exacerbated by the seasonality of the companys
Horizon Lines News Release | Page 3 of 5 |
new China service, which replaces a more consistent month-to-month earnings stream produced by its
previous space charter agreement with Maersk. As a result, Horizon Lines does not expect to be in
compliance with its existing financial covenants, but is seeking the credit agreement amendment to
address this. The company expects 2011 financial results to improve in line with the economic
recovery in its domestic tradelanes, the ramp-up of the new China business and the continued
implementation of aggressive cost-reduction initiatives.
Horizon Lines will provide a more detailed review of its financial and operational performance in
2010, as well as its outlook for 2011 in connection with the companys earnings announcement on
March 3, 2011.
Dividend
In light of the companys ongoing refinancing initiative and its outlook for 2011, the Horizon
Lines Board of Directors has suspended the companys quarterly dividend, effective immediately.
Use of Non-GAAP Measures
Horizon Lines reports its financial results in accordance with U.S. generally accepted accounting
principles (GAAP). The company also believes that the presentation of certain non-GAAP measures,
including Adjusted EBITDA, provides useful information for the understanding of its ongoing
operations and enables investors to focus on period-over-period operating performance without the
impact of significant special items. The company further feels this non-GAAP measure enhances the
users overall understanding of the companys current financial performance relative to past
performance and provides a better baseline for modeling future earnings expectations. Adjusted
EBITDA, a non-GAAP measure, is reconciled in the financial table accompanying this news release.
The company cautions that non-GAAP measures should be considered in addition to, but not as a
substitute for, the companys reported GAAP results.
About Horizon Lines
Horizon Lines, Inc., is the nations leading domestic ocean shipping and integrated logistics
company. The company owns or leases a fleet of 20 U.S.-flag containerships and operates five port
terminals linking the continental United States with Alaska, Hawaii, Guam, Micronesia, and Puerto
Rico. The company provides express trans-Pacific service between the U.S. West Coast and the ports
of Ningbo and Shanghai in China, manages a domestic and overseas service partner network and
provides integrated, reliable and cost competitive logistics solutions. Horizon Lines, Inc., is
based in Charlotte, NC, and trades on the New York Stock Exchange under the ticker symbol HRZ.
Forward Looking Statements
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, will, seeking, scheduled, expects, anticipates and similar expressions or
phrases identify forward-looking statements.
All forward-looking statements involve risk and uncertainties. Factors that may cause expected
results or other anticipated events or circumstances discussed in this press release to not occur
or to differ from expected results include: failure by us or the DOJ to comply with the terms of
the plea agreement; the court disapproving the plea agreement; any new developments relating
Horizon Lines News Release | Page 4 of 5 |
to antitrust matters in any of our trades; court disapproval of the class-action settlement in
Puerto Rico; decreases in shipping volumes; volatility in fuel prices; our substantial debt;
restrictive covenants under our debt agreements; or the loss of our key management personnel.
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 Form 10-K filed with the SEC on February 4, 2010, and in our Form 10-Q for the
period ended June 20, 2010, 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.
(EBITDA Reconciliation Table Follows)
Horizon Lines News Release | Page 5 of 5 |
Horizon Lines, Inc.
EBITDA and Adjusted EBITDA Reconciliation
($ in Millions, Totals are Approximate)
EBITDA and Adjusted EBITDA Reconciliation
($ in Millions, Totals are Approximate)
Year Ended | ||||
December 26, 2010 | ||||
Net Loss |
$ | (54.5 | ) | |
Net Loss from Discontinued Operations |
(8.8 | ) | ||
Net Loss from Continuing Operations |
(45.7 | ) | ||
Interest Expense, Net |
40.1 | |||
Tax Expense |
0.3 | |||
Depreciation and Amortization |
59.5 | |||
EBITDA |
54.2 | |||
Department of Justice Settlement |
30.0 | |||
Puerto Rico Indirect Purchaser Settlement |
1.8 | |||
Restructuring Charge |
2.0 | |||
Antitrust Legal Fees |
5.2 | |||
Impairment Charge |
2.6 | |||
Union Severance |
0.6 | |||
Adjusted EBITDA |
$ | 96.4 | ||
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 the Company 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. Adjusted EBITDA excludes certain charges in order
to evaluate our operating performance, for making day-to-day operating
decisions and w hen determining the payment of discretionary bonuses.
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