Horizon Lines Reports First-Quarter Financial Results

News Release Horizon Lines, Inc. (Corporate Headquarters) May 11, 2012

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Volume and EBITDA Improve
Modestly From Year Ago 
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CHARLOTTE,
NC (May 9, 2012)-- Horizon Lines, Inc. (OTCQB: HRZL) today
reported financial results for the fiscal first quarter ended March 25,
2012.
 
Financial results are
presented on a continuing operations basis, excluding the discontinued
trans-Pacific FSX service and logistics operations. Per-share amounts
reflect a 1-for-25 reverse stock split, effective December 7,
2011.<IMG style="TEXT-ALIGN: left; WIDTH: 7px; HEIGHT: 11px"
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"Horizon Lines
generated slightly improved revenue container volume and higher EBITDA and
adjusted EBITDA in the first quarter relative to a year ago, despite
challenges that included severe winter weather in Alaska, higher fuel
prices and increased expenses," said Stephen H. Fraser, interim President
and Chief Executive Officer. "Hawaii's performance improved significantly
on solid customer support and an improving economy. Alaska's results were
also better despite record cold and snowfall, which had a significant,
adverse impact on customer demand and operations. Alaska was buoyed in
part by domestic southbound volume that was driven by a strong seafood
market. Earnings declined in Puerto Rico from the same period a year ago,
due to continued slow business conditions and vessel service
disruptions.
 
"In 2012, we are
making significant investments in our Jones Act fleet with the dry-docking
of three of our Puerto Rico vessels in Asia," Mr. Fraser said. "Although
dry-docking our vessels in Asia will add considerable transit expense in
2012, it will also facilitate extensive maintenance and
high-quality enhancements that are instrumental in helping
maintain service integrity in the Puerto Rico market."
 
First-Quarter
2012 Financial Highlights
<UL>
<LI style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">Volume,
Rate & Fuel Cost - Container volume for the
2012 first quarter totaled 57,086 revenue loads, up 0.4% from 56,841
loads for the same period a year ago. Unit revenue per container totaled
$4,257 in the 2012 first quarter, compared with $3,896 a year ago.
First-quarter unit revenue per container, net of fuel surcharges, was
$3,225, up 1.0% from $3,192 a year ago. Bunker fuel costs averaged $693
per metric ton in the first quarter, 26.5% above the average price of
$548 per ton in the same quarter a year ago. </LI></UL>
<UL>
<LI style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">Operating
Revenue - First-quarter operating revenue from
continuing operations increased 9.4% to $263.4 million from $240.7
million a year ago. The factors driving the $22.7 million revenue
improvement were: an $18.9 million increase in fuel surcharges; growth
of $1.7 million in revenue container rates; a $1.3 million rise in other
non-transportation services revenue; and a $0.8 million gain in volume.
   
<LI style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">Operating
Loss - The GAAP operating loss from continuing
operations for the first quarter totaled $6.1 million, compared with an
operating loss of $9.4 million a year ago. The 2012 first-quarter GAAP
operating loss includes a $1.1 million charge for severance expenses,
$0.8 million in antitrust-related legal expenses, and $0.7 million in
refinancing costs. The 2011 first-quarter GAAP operating loss includes a
$2.8 million charge related to severance expenses and $2.2 million in
antitrust-related legal expenses. Adjusting for these items, the
first-quarter 2012 adjusted operating loss from continuing operations
totaled $3.5 million, compared with an adjusted operating loss of $4.4
million a year ago. First-quarter 2012 operating results benefited from
improved partial recovery of increased fuel costs, higher earnings from
transportation services contracts, and slightly better volumes. The
positive factors were partially offset by costs associated with
vessel-related service disruptions, variable expense increases that
exceeded the container rate improvements, and higher overhead costs.
</LI></UL>
<UL>
<LI
style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">EBITDA
- EBITDA from continuing operations totaled $5.6 million
for the 2012 first quarter, compared with $5.0 million for the same
period a year ago. Adjusted EBITDA from continuing operations for the
first quarter of 2012 was $10.9 million, an increase of 2.8% from $10.6
million for 2011. EBITDA and adjusted EBITDA for the 2012 and 2011 first
quarters were impacted by the same factors affecting operating loss.
Additionally, 2012 adjusted EBITDA reflects the exclusion of a $13.7
million non-cash loss on marking the conversion feature in the company's
convertible debt to fair value, partially offset by the elimination of a
non-cash $10.3 million net gain resulting from the conversion of debt
into equity. First-quarter 2011 adjusted EBITDA also excluded a charge
of $0.6 million related to a loss on the modification of debt.  
  
<LI style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">Net
Loss - On a GAAP basis, the first-quarter net loss
from continuing operations totaled $26.8 million, or $8.58 per share,
compared with a 2011 first-quarter net loss from continuing operations
of $20.2 million, or $16.43 per share. On an adjusted
basis, the first-quarter net loss from continuing operations totaled
$21.0 million, or $6.74 per share, compared with an adjusted net loss of
$15.8 million, or $12.83 per share, a year ago. The 2012 and 2011
first-quarter net losses reflect the same items impacting adjusted
EBITDA in each period. Additionally, the net loss for both periods
reflects non-cash accretion of payments associated with
antitrust-related legal settlements, and the tax impact on the
adjustments. </LI></UL>
<UL>
<LI style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">Shares
Outstanding - The company had a weighted daily average of
3.1 million basic and fully diluted shares outstanding for the first
quarter of 2012, compared with 1.2 million basic and fully diluted
shares outstanding for the first quarter a year ago. Shares outstanding
reflect a 1-for-25 reverse stock split approved at a special meeting of
stockholders on December 2, 2011, and made effective on December 7,
2011. </LI></UL>
<UL>
<LI style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">Liquidity,
Credit Facility Compliance & Debt Structure - Based
on accounts receivable outstanding as of March 25, 2012, the company had
total liquidity of $50.9 million, consisting of $24.9 million in cash
and $26.0 million of asset-based loan ("ABL") borrowing availability.
Funded debt outstanding totaled $592.7 million, consisting of: $225.0
million of 11.00% first-lien senior secured notes due October 15, 2016;
$100.0 million of second-lien senior 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; $228.4 million of 6.00% convertible secured notes due
April 15, 2017; and $30.0 million drawn on the ABL facility, bearing
interest at a weighted average of 3.73%. Also remaining outstanding were
$2.2 million of 4.25% convertible notes due August 15, 2012, and a $7.1
million capital lease. The company's weighted average interest rate for
funded debt was 9.01%. Availability under the ABL facility is based on a
percentage of eligible accounts receivable and customary reserves, with
a maximum of $100.0 million. Letters of credit issued against the ABL
facility totaled $19.6 million at March 25, 2012. </LI></UL>
Please see attached
schedules for the reconciliation of first-quarter 2012 and 2011 reported
GAAP results and Non-GAAP adjusted results.
 
Completion of
Financial Restructuring 
 
On April 9, 2012, the
company entered into transactions with noteholders representing
approximately 99% of the outstanding $228.4 million of the 6.00% Series A
and Series B convertible senior secured notes to substantially deleverage
the balance sheet by converting the notes into common stock and warrants.
At the same time, the company agreed with Ship Finance International
Limited ("SFL") and certain of its subsidiaries to terminate the company's
vessel charter obligations related to its discontinued trans-Pacific
service in exchange for the issuance of $40.0 million of debt, plus
warrants to purchase 9.25 million shares of the company's common stock.
These simultaneous transactions resulted in a net debt reduction of
approximately $188.4 million and the elimination of $32.0 million in
annual vessel charter obligations through 2018, and $4.8 million in 2019,
as well as associated vessel lay-up costs of $3.0 million per year,
assuming the five vessels were to remain inactive.
 
As a result of the
conversion of the Series A and Series B notes, the company expects to
record a non-cash loss on the conversion of approximately $185.4 million
during the second quarter of 2012. In connection with the termination of
the vessel lease obligations with SFL, the company also expects to record
a second-quarter charge of $19.0 million, which will be recorded as part
of discontinued operations. 
 
Outlook
 
The company continues
to project that 2012 container volumes will increase modestly, in the 1%
to 2% range, and that container rates, net of fuel surcharges, will rise
slightly from 2011 levels. Fuel prices for 2012 are currently projected in
the $725-$730 per-ton range, excluding additional costs for low sulfur
fuel that will be required in the Alaska tradelane, effective August 1,
2012. 
 
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, i.e., EBITDA and results
excluding certain costs and expenses, 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 these non-GAAP measures enhance
the user's overall understanding of the company's current financial
performance relative to past performance and provide a better baseline for
modeling future earnings expectations. Non-GAAP measures are reconciled in
the financial tables accompanying this news release. The company cautions
that non-GAAP measures should be considered in addition to, but not as a
substitute for, the company's reported GAAP results.  
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