UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark one)
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x
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Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the fiscal
year ended December 20,
2009
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OR
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o
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Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the transition period
from to
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Commission File Number
001-32627
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HORIZON LINES, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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74-3123672
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification
No.)
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4064 Colony Road,
Suite 200, Charlotte, North Carolina 28211
(Address of principal executive
offices)
(704) 973-7000
(Registrants telephone
number, including area code)
NOT APPLICABLE
(Former name, former address and
former fiscal year, if changed since last report)
Securities registered pursuant to Section 12 (b) of
the Act:
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Title of each class
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Name of each exchange on which registered
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Common stock, par value $0.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12 (g) of
the Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes o No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15
(d) of the Act.
Yes o No x
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such a period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days. Yes x No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for shorter period that the registrant was
required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(229.405) of this chapter) is not contained herein, and will not
be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer x
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes o No x
The aggregate market value of common stock held by
non-affiliates, computed by reference to the closing price of
the common stock as of the last business day of the
registrants most recently completed second fiscal quarter,
was approximately $51.0 million.
As of January 29, 2010, 30,401,673 shares of common
stock, par value $.01 per share, were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The information required in Part III of this
Form 10-K
is incorporated by reference to the registrants definitive
proxy statement to be filed for the Annual Meeting of
Stockholders to be held June 1, 2010.
Horizon Lines,
Inc.
FORM 10-K
INDEX
Safe Harbor
Statement
This
Form 10-K
(including the exhibits hereto) 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, targets,
projects, likely, will,
would, could and similar expressions or
phrases identify forward-looking statements.
All forward-looking statements involve risks and uncertainties.
The occurrence of the events described, and the achievement of
the expected results, depend on many events, some or all of
which are not predictable or within our control. Actual results
may differ materially from expected results.
(i)
Factors that may cause actual results to differ from expected
results include: decreases in shipping volumes; legal or other
proceedings to which we are or may become subject, including the
Department of Justice antitrust investigation and related legal
proceedings; volatility in fuel prices; our substantial debt;
restrictive covenants under our debt agreements; our failure to
renew our commercial agreements with Maersk and resulting
potential alternative arrangements; labor interruptions or
strikes; job related claims, liability under multi-employer
pension plans; compliance with safety and environmental
protection and other governmental requirements; new statutory
and regulatory directives in the United States addressing
homeland security concerns; the successful
start-up of
any Jones-Act competitor; increased inspection procedures and
tighter import and export controls; restrictions on foreign
ownership of our vessels; repeal or substantial amendment of the
coastwise laws of the United States, also known as the Jones
Act; escalation of insurance costs, catastrophic losses and
other liabilities; the arrest of our vessels by maritime
claimants; severe weather and natural disasters; our inability
to exercise our purchase options for our chartered vessels; the
aging of our vessels; unexpected substantial dry-docking costs
for our vessels; the loss of our key management personnel;
actions by our stockholders; changes in tax laws or in their
interpretation or application (including the repeal of the
application of the tonnage tax to our trade in any one of our
applicable shipping routes); and adverse tax audits and other
tax matters.
In light of these risks and uncertainties, expected results or
other anticipated events or circumstances discussed in this
Form 10-K
(including the exhibits hereto) might not occur. We undertake no
obligation, and specifically decline any obligation, to publicly
update or revise any forward-looking statements, even if
experience or future developments make it clear that projected
results expressed or implied in such statements will not be
realized, except as may be required by law.
See the section entitled Risk Factors in this
Form 10-K
for a more complete discussion of these risks and uncertainties
and for other risks and uncertainties. Those factors and the
other risk factors described in this
Form 10-K
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 to, or effects on, us. Given these uncertainties,
prospective investors are cautioned not to place undue reliance
on such forward-looking statements.
(ii)
Part I.
Background
Horizon Lines, Inc., a Delaware corporation, (the
Company and together with its subsidiaries,
we) operates as a holding company for Horizon Lines,
LLC (Horizon Lines), a Delaware limited liability
company and wholly-owned subsidiary, Horizon Logistics Holdings,
LLC (Horizon Logistics), a Delaware limited
liability company and wholly-owned subsidiary, Horizon Lines of
Puerto Rico, Inc. (HLPR), a Delaware corporation and
wholly-owned subsidiary, and Hawaii Stevedores, Inc., a Hawaii
corporation (HSI).
Our long operating history dates back to 1956, when
Sea-Land
Service, Inc.
(Sea-Land)
pioneered the marine container shipping industry and established
our business. In 1958 we introduced container shipping to the
Puerto Rico market, and in 1964 we pioneered container shipping
in Alaska with the first year-round scheduled vessel service. In
1987, we began providing container shipping services between the
U.S. west coast and Hawaii and Guam through our acquisition
from an existing carrier of all of its vessels and certain other
assets that were already serving that market. In December 1999,
CSX Corporation, the former parent of
Sea-Land
Domestic Shipping, LLC (SLDS), sold the
international marine container operations of
Sea-Land to
the A.P. Møller Maersk Group (Maersk) and SLDS
continued to be owned and operated by CSX Corporation as CSX
Lines, LLC. On February 27, 2003, Horizon Lines Holding
Corp. (HLHC) (which at the time was indirectly
majority-owned by Carlyle-Horizon Partners, L.P.) acquired from
CSX Corporation, 84.5% of CSX Lines, LLC, and 100% of CSX Lines
of Puerto Rico, Inc., which together with Horizon Logistics and
HSI constitute our business today. CSX Lines, LLC is now known
as Horizon Lines, LLC and CSX Lines of Puerto Rico, Inc. is now
known as Horizon Lines of Puerto Rico, Inc. The Company was
formed as an acquisition vehicle to acquire, on July 7,
2004, the equity interest in HLHC. The Company was formed at the
direction of Castle Harlan Partners IV. L.P. (CHP
IV), a private equity investment fund managed by Castle
Harlan, Inc. (Castle Harlan). In 2005, the Company
completed its initial public offering. Subsequent to the initial
public offering, the Company completed three secondary
offerings, including a secondary offering (pursuant to a shelf
registration) whereby CHP IV and other affiliated private equity
investment funds managed by Castle Harlan divested their
ownership in the Company. Today, as the only Jones Act vessel
operator with one integrated organization serving Alaska, Hawaii
and Puerto Rico, we are uniquely positioned to serve customers
requiring shipping and logistics services in more than one of
these markets.
Operations
The Companys services can be classified into two principal
businesses, Horizon Lines and Horizon Logistics. Horizon Lines
operates as a Jones Act container shipping business with primary
service to ports within the continental United States, Puerto
Rico, Alaska, Hawaii, and Guam. Horizon Lines also offers
terminal services at certain ports. Horizon Logistics provides
integrated logistics service offerings, including rail,
trucking, warehousing, distribution, expedited logistics, and
non-vessel operating common carrier (NVOCC)
operations.
For financial information with respect to our business segments,
see Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations, and Note 6 to our Consolidated
Financial Statements. Item 7 and Note 6 contain
information about sales and profits for each segment, and
Note 6 contains information about each segments
assets.
1
Horizon
Lines
Overview
We believe that we are the nations leading Jones Act
container shipping and integrated logistics company, accounting
for approximately 37% of total U.S. marine container
shipments from the continental U.S. to Alaska, Puerto Rico
and Hawaii, constituting the three non-contiguous Jones Act
markets; and to Guam, the U.S. Virgin Islands and
Micronesia. We own or lease 20 vessels, 15 of which are
fully qualified Jones Act vessels, and approximately 18,500
cargo containers. We also provide comprehensive shipping and
sophisticated logistics services in our markets. We have access
to terminal facilities in each of our ports, operating our
terminals in Alaska, Hawaii, and Puerto Rico and contracting for
terminal services in the seven ports in the continental
U.S. and in the ports in Guam, Yantian and Xiamen, China
and Kaohsiung, Taiwan.
We ship a wide spectrum of consumer and industrial items used
every day in our markets, ranging from foodstuffs (refrigerated
and non-refrigerated) to household goods and auto parts to
building materials and various materials used in manufacturing.
Many of these cargos are consumer goods vital to the populations
in our markets, thereby providing us with a relatively stable
base of demand for our shipping and logistics services. We have
many long-standing customer relationships with large consumer
and industrial products companies, such as Costco Wholesale
Corporation, Johnson & Johnson, Lowes Companies,
Inc., Safeway, Inc., Toyota Motor Corporation and Wal-Mart
Stores, Inc. We also serve several agencies of the
U.S. government, including the Department of Defense and
the U.S. Postal Service. Our customer base is broad and
diversified, with our top ten customers accounting for
approximately 35% of revenue and our largest customer accounting
for approximately 8% of revenue.
The Jones
Act
During 2009, approximately 85% of our revenues were generated
from our shipping and logistics services in markets where the
marine trade is subject to the coastwise laws of the United
States, also known as the Jones Act, or other U.S. maritime
cabotage laws.
The Jones Act is a long-standing cornerstone of
U.S. maritime policy. Under the Jones Act, all vessels
transporting cargo between covered U.S. ports must, subject
to limited exceptions, be built in the U.S., registered under
the U.S. flag, manned by predominantly U.S. crews, and
owned and operated by
U.S.-organized
companies that are controlled and 75% owned by
U.S. citizens.
U.S.-flagged
vessels are generally required to be maintained at higher
standards than foreign-flagged vessels and are supervised by, as
well as subject to rigorous inspections by, or on behalf of the
U.S. Coast Guard, which requires appropriate certifications
and background checks of the crew members. Our trade routes
between Alaska, Hawaii and Puerto Rico and the continental
U.S. represent the three non-contiguous Jones Act markets.
Vessels operating on these trade routes are required to be fully
qualified Jones Act vessels. Other U.S. maritime laws
require vessels operating on the trade routes between Guam, a
U.S. territory, and U.S. ports to be
U.S.-flagged
and predominantly
U.S.-crewed,
but not
U.S.-built.
Cabotage laws, which reserve the right to ship cargo between
domestic ports to domestic vessels, are not unique to the United
States; similar laws are common around the world and exist in
over 50 countries. In general, all interstate and intrastate
marine commerce within the U.S. falls under the Jones Act,
which is a cabotage law. We believe the Jones Act enjoys broad
support from President Obama and both major political parties in
both houses of Congress. We believe that the ongoing war on
terrorism has further solidified political support for the Jones
Act, as a vital and dedicated U.S. merchant marine is a
cornerstone for a strong homeland defense, as well as a critical
source of trained U.S. mariners for wartime support.
2
Market Overview
and Competition
The Jones Act distinguishes the U.S. domestic shipping
market from international shipping markets. Given the limited
number of existing Jones Act qualified vessels, the high capital
investment and long delivery lead times associated with building
a new containership in the U.S., the substantial investment
required in infrastructure and the need to develop a broad base
of customer relationships, the markets in which we operate have
been less vulnerable to overcapacity and volatility than
international shipping markets.
Although the U.S. container shipping industry is affected
by general economic conditions, the industry does not tend to be
as cyclical as other sectors within the shipping industry.
Specifically, most of the cargos shipped via container vessels
consist of a wide range of consumer and industrial items as well
as military and postal loads. Since many of these types of
cargos are consumer goods vital to the populations in our
markets, they provide us with a stable base of demand for our
shipping and logistics services.
The Jones Act markets are not as fragmented as international
shipping markets. We are one of only two major container
shipping operators currently serving the Alaska market, where we
account for approximately 42% of total container loads traveling
from the continental U.S. to Alaska. Horizon Lines and TOTE
serve the Alaska market. We are also only one of two container
shipping companies currently serving the Hawaii and Guam markets
with an approximate 37% share of total domestic marine container
shipments from the continental U.S. to these markets. This
percentage reflects 36% and 49% shares of total domestic marine
container shipments from the continental U.S. to Hawaii and
Guam markets, respectively. Horizon Lines and Matson Navigation
Co (Matson) serve the Hawaii and Guam market. In
Puerto Rico, we are the largest provider of marine container
shipping, accounting for approximately 34% of Puerto Ricos
total container loads from the continental U.S. The Puerto
Rico market is currently served by two containership companies,
Horizon Lines and Sea Star Lines (Sea Star). Sea
Star is an independently operated company majority-owned by an
affiliate of TOTE. Two barge operators, Crowley and Trailer
Bridge, Inc., also currently serve this market.
The U.S. container shipping industry as a whole is
experiencing rising customer expectations for real-time shipment
status information and the on-time
pick-up and
delivery of cargo, as customers seek to optimize efficiency
through greater management of the delivery process of their
products. Commercial and governmental customers are increasingly
requiring the tracking of the location and status of their
shipments at all times and have developed a strong preference to
retrieve information and communicate using the Internet. During
2008, we introduced the ReeferPlus
®
GPS container tracking and shipment monitoring solution for
refrigerated ocean containers moving between the continental
U.S. and Puerto Rico. This innovative solution is designed
to improve the visibility and security of high-value perishable
cargo requiring cold chain logistics; a term used to describe
the maintenance of product temperature through the entire
transport chain from packing to delivery. Key capabilities of
ReeferPlus
®
GPS include GPS-enabled real-time container tracking; in-box
sensors reporting temperature, atmosphere and security updates
via the web; and remote monitoring and adjusting of reefer
conditions with one computer click. During 2007, we established
a fully-functional intermodal active radio frequency
identification (RFID) solution providing customers
in our Alaska trade real-time shipment visibility during all
phases of transit. The active RFID-based real-time tracking
system, when matched with Horizons industry-leading
web-based event management system, offers shipment visibility
and supply chain efficiencies by providing real-time detailed
shipment information throughout the containers transit
from origin loading facility through to final destination. A
broad range of domestic and foreign governmental agencies are
also increasingly requiring access to shipping information in
automated formats for customs oversight and security purposes.
To ensure on-time
pick-up and
delivery of cargo, shipping companies must maintain strict
vessel schedules and efficient terminal operations for
expediting the movement of containers in and out of terminal
facilities. The departure and arrival of vessels on schedule is
heavily influenced by both vessel maintenance standards (i.e.,
minimizing mechanical breakdowns) and terminal operating
discipline. Marine terminal gate and yard efficiency can be
enhanced by efficient yard layout, high-quality information
systems, and streamlined gate processes.
3
Vessel
Fleet
Our management team adheres to an effective strategy for the
maintenance of our vessels. Early in our
52-year
operating history, when we pioneered Jones Act container
shipping, we recognized the vital importance of maintaining our
valuable Jones Act qualified vessels. Our on-shore vessel
management team carefully manages all of our ongoing regular
maintenance and dry-docking activity.
We maintain our vessels according to our own strict maintenance
procedures, which meet or exceed U.S. government
requirements. All of our vessels are regulated pursuant to
rigorous standards promulgated by the U.S. Coast Guard and
subject to periodic inspection and certification, for compliance
with these standards, by the American Bureau of Shipping, on
behalf of the U.S. Coast Guard. Our procedures protect and
preserve our fleet to the highest standards in our industry and
enable us to preserve the usefulness of our ships. During each
of the last four years, our vessels have been in operational
condition, ready to sail, over 99% of the time when they were
required to be ready to sail.
The table below lists our vessel fleet, which is the largest
containership fleet within the Jones Act markets, as of
December 20, 2009. Our vessel fleet consists of
20 vessels of varying classes and specifications, 15 of
which are fully Jones Act qualified. Of the 16 vessels that
are actively deployed, 11 are Jones Act qualified. Three Jones
Act qualified vessels are spare vessels available for seasonal
and dry-dock needs and to respond to potential new revenue
opportunities. A fourth spare Jones Act qualified vessel could
be available for deployment after undergoing dry-docking for
inspection and maintenance.
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Year
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Reefer
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Max.
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Owned/
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Charter
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Vessel Name
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Market
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Built
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TEU(1)
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Capacity(2)
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Speed
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Chartered
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Expiration
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U.S Built Jones Act Qualified
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Horizon Anchorage
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Alaska
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1987
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1,668
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280
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20.0 kts
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Chartered
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Jan 2015
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Horizon Tacoma
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Alaska
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1987
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1,668
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280
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20.0 kts
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Chartered
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Jan 2015
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Horizon Kodiak
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Alaska
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1987
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1,668
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280
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20.0 kts
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Chartered
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Jan 2015
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Horizon Fairbanks(3)
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Alaska
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1973
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1,476
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140
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22.5 kts
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Owned
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Horizon Pacific
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Hawaii & Guam
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1980
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2,407
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150
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21.0 kts
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Owned
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Horizon Enterprise
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Hawaii & Guam
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1980
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2,407
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150
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21.0 kts
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Owned
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Horizon Spirit
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Hawaii & Guam
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1980
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2,653
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150
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22.0 kts
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Owned
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Horizon Reliance
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Hawaii & Guam
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1980
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2,653
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156
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22.0 kts
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Owned
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Horizon Producer
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Puerto Rico
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1974
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1,751
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170
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22.0 kts
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Owned
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Horizon Challenger
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Puerto Rico
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1968
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1,424
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71
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21.2 kts
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Owned
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Horizon Navigator
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Puerto Rico
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1972
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2,386
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190
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21.0 kts
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Owned
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Horizon Trader
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Puerto Rico
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1973
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2,386
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190
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21.0 kts
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Owned
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Horizon Discovery(4)
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1968
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1,442
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100
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21.2 kts
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Owned
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Horizon Consumer(4)
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1973
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1,751
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170
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22.0 kts
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Owned
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Horizon Hawaii(4)
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1973
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1,420
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170
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22.5 kts
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Owned
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Foreign Built Non-Jones Act Qualified
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Horizon Hunter
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Transpacific
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2006
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2,824
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566
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23.0 kts
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Chartered
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Nov 2018
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Horizon Hawk
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Transpacific
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2007
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2,824
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566
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23.0 kts
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Chartered
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Mar 2019
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Horizon Tiger
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Transpacific
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2006
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2,824
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566
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23.0 kts
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Chartered
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May 2019
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Horizon Eagle
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Transpacific
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2007
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2,824
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566
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23.0 kts
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Chartered
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Apr 2019
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Horizon Falcon
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Transpacific
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2007
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2,824
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566
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23.0 kts
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Chartered
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Apr 2019
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(1) |
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Twenty-foot equivalent unit, or TEU, is a standard measure of
cargo volume correlated to the volume of a standard 20-foot dry
cargo container. |
4
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(2) |
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Reefer capacity, or refrigerated container capacity, refers to
the total number of 40-foot equivalent units, or FEUs, which the
vessel can hold. The FEU is a standard measure of refrigerated
cargo volume correlated to the volume of a standard 40-foot
reefer, or refrigerated cargo container. |
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(3) |
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Serves as a spare vessel available for deployment in any of our
markets and seasonal operation in the Alaska trade from June
through August. |
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(4) |
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Vessels are available for seasonal needs, dry-dock relief and to
respond to potential new revenue opportunities, and thus are not
specific to any given market. Horizon Hawaii must undergo
inspection and maintenance (dry-docking) in order to be
available for deployment. Given current economic conditions, and
if the new revenue opportunities fail to materialize we may make
a decision to scrap one of more of the spare vessels. |
Vessel
Charters
Eight of our vessels, the Horizon Anchorage, Horizon Tacoma,
Horizon Kodiak, Horizon Hunter, Horizon Hawk, Horizon Eagle,
Horizon Falcon and Horizon Tiger are leased, or chartered. The
charters for the Horizon Anchorage, Horizon Tacoma, and Horizon
Kodiak are due to expire in January 2015, for the Horizon Hunter
in 2018 and for the Horizon Hawk, Horizon Eagle, Horizon Falcon
and Horizon Tiger in 2019. Under the charter for each chartered
vessel, we generally have the following options in connection
with the expiration of the charter: (i) purchase the vessel
for its fair market value, (ii) extend the charter for an
agreed upon period of time at a fair market value charter rate
or, (iii) return the vessel to its owner.
The obligations under the existing charters for the Horizon
Anchorage, Horizon Tacoma and Horizon Kodiak are guaranteed by
our former parent, CSX Corporation, and certain of its
affiliates. In turn, certain of our subsidiaries are parties to
the Amended and Restated Guarantee and Indemnity Agreement,
referred to herein as the GIA, with CSX Corporation and certain
of its affiliates, pursuant to which these subsidiaries have
agreed to indemnify these CSX entities if any of them should be
called upon by any owner of the chartered vessels to make
payments to such owner under the guarantees referred to above.
5
Container
Fleet
As summarized in the table below, our container fleet as of
December 20, 2009 consists of owned and leased containers
of different types and sizes. All of our container leases are
operating leases.
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Container Type
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Owned
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|
|
Leased
|
|
|
Combined
|
|
|
20 Standard Dry
|
|
|
14
|
|
|
|
314
|
|
|
|
328
|
|
20 Flat Rack
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
20 High-Cube Reefer
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
20 Miscellaneous
|
|
|
66
|
|
|
|
|
|
|
|
66
|
|
20 Tank
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
40 Standard Dry
|
|
|
77
|
|
|
|
743
|
|
|
|
820
|
|
40 Flat Rack
|
|
|
254
|
|
|
|
533
|
|
|
|
787
|
|
40 High-Cube Dry
|
|
|
1,275
|
|
|
|
4,566
|
|
|
|
5,841
|
|
40 Standard Insulated
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
40 High-Cube Insulated
|
|
|
376
|
|
|
|
|
|
|
|
376
|
|
40 Standard Opentop
|
|
|
|
|
|
|
71
|
|
|
|
71
|
|
40 Miscellaneous
|
|
|
56
|
|
|
|
|
|
|
|
56
|
|
40 Tank
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
40 Car Carrier
|
|
|
165
|
|
|
|
|
|
|
|
165
|
|
40 Standard Reefer
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
40 High-Cube Reefer
|
|
|
905
|
|
|
|
4,365
|
|
|
|
5,270
|
|
45 High-Cube Dry
|
|
|
1,193
|
|
|
|
2,404
|
|
|
|
3,597
|
|
45 High-Cube Flatrack
|
|
|
|
|
|
|
25
|
|
|
|
25
|
|
45 High-Cube Insulated
|
|
|
474
|
|
|
|
|
|
|
|
474
|
|
45 High-Cube Reefer
|
|
|
|
|
|
|
325
|
|
|
|
325
|
|
48 High-Cube Dry
|
|
|
178
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,126
|
|
|
|
13,346
|
|
|
|
18,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maersk
Arrangements
In connection with the sale of the international marine
container operations of
Sea-Land by
our former parent, CSX Corporation, to Maersk, in December 1999,
our predecessor, CSX Lines, LLC and certain of its subsidiaries
entered into a number of commercial agreements with various
Maersk entities that encompass terminal services, equipment
sharing, sales agency services, trucking services, cargo space
charters, and transportation services. These agreements, which
were most recently renewed and amended in December 2006,
generally are now scheduled to expire at the end of 2010. Maersk
is our terminal service provider in the continental U.S., at our
ports in Elizabeth, New Jersey, Jacksonville, Florida,
Houston, Texas, Los Angeles, California, and Tacoma, Washington.
We are Maersks terminal operator in Hawaii, Guam, Alaska
and Puerto Rico. We share containers with Maersk and also pool
chassis and generator sets with Maersk. We are Maersks
sales agent in Alaska and Puerto Rico, and Maersk serves as our
sales agent in Canada. On the U.S. west coast, we provide
trucking services for Maersk.
Under our cargo space charter and transportation service
agreements with Maersk, we currently operate five foreign-built,
U.S.-flagged
vessels that sail from the U.S. west coast to Hawaii,
continuing from Hawaii to Guam, and then from Guam to Yantian
and Xiamen, China, and Kaohsiung, Taiwan, with a return trip to
Los Angeles and Oakland, California. We utilize Maersk
containers to carry a portion of our cargo westbound to Hawaii
and Guam, where the contents of the containers are unloaded. We
ship the empty Maersk containers to the three ports in Asia.
When the vessels arrive in
6
Asia, Maersk unloads the empty containers and replaces them with
loaded containers for the return trip to the U.S. west
coast. We achieve significantly greater vessel capacity
utilization and revenue on this route as a result of this
arrangement. We do not transport any domestic cargo between the
U.S. mainland and Hawaii on these vessels. We do carry some
international cargo to and from Hawaii for Maersk. We also use
Maersk equipment on our service to Hawaii from our
U.S. west coast ports, as well as from select
U.S. inland locations.
Capital
Construction Fund
The Merchant Marine Act, 1936, as amended, permits the limited
deferral of U.S. federal income taxes on earnings from
eligible
U.S.-built
and
U.S.-flagged
vessels and
U.S.-built
containers if the earnings are deposited into a Capital
Construction Fund (CCF), pursuant to an agreement
with the U.S. Maritime Administration, (MARAD).
Any amounts deposited in a CCF can be withdrawn and used for the
acquisition, construction or reconstruction of
U.S.-built
and
U.S.-flagged
vessels or
U.S.-built
containers.
Horizon Lines has a CCF agreement with MARAD under which it
occasionally deposits earnings attributable to the operation of
its Jones Act qualified vessels into the CCF and makes
withdrawals of funds from the CCF to acquire
U.S.-built
and
U.S.-flagged
vessels. From
2003-2005,
Horizon Lines utilized CCF deposits totaling $50.4 million
to acquire six
U.S.-built
and
U.S.-flagged
vessels (Horizon Enterprise, Horizon Pacific, Horizon Hawaii,
Horizon Fairbanks, Horizon Navigator, and Horizon Trader).
Any amounts deposited in a CCF cannot be withdrawn for other
than the qualified purposes specified in the CCF agreement. Any
nonqualified withdrawals are subject to federal income tax at
the highest marginal rate. In addition, such tax is subject to
an interest charge based upon the number of years the funds have
been on deposit. If Horizon Lines CCF agreement was
terminated, funds then on deposit in the CCF would be treated as
nonqualified withdrawals for that taxable year. In addition, if
a vessel built, acquired, or reconstructed with CCF funds is
operated in a nonqualified operation, the owner must repay a
proportionate amount of the tax benefits as liquidated damages.
These restrictions apply (i) for 20 years after
delivery in the case of vessels built with CCF funds,
(ii) ten years in the case of vessels reconstructed or
acquired with CCF funds more than one year after delivery from
the shipyard, and (iii) ten years after the first
expenditure of CCF funds in the case of vessels in regard to
which qualified withdrawals from the CCF fund have been made to
pay existing indebtedness (five years if the vessels are more
than 15 years old on the date the withdrawal is made). In
addition, the sale or mortgage of a vessel acquired with CCF
funds requires MARADs approval. Our consolidated balance
sheets at December 20, 2009 and December 21, 2008
include liabilities of approximately $14.2 million and
$12.9 million, respectively, for deferred taxes on deposits
in our CCF.
Horizon
Logistics
Horizon Logistics offers integrated logistics services through
relationships with affiliated and third-party truckers,
railroads, and worldwide ocean carriers. Horizon Logistics was
formed in 2007 from the merger of our existing logistics
operations and the acquisition of Aero Logistics, a
U.S. third-party logistics provider specializing in
expedited delivery and special projects. Horizon Logistics
operations rely substantially on independent contractors to
fulfill the transportation services for most of its shipments.
Horizon Logistics service offerings are divided into the
following categories:
|
|
|
|
|
truck brokerage, offering
less-than-truckload
and full-truck-load services utilizing trucks owned by our
affiliate, Sea-Logix, and a nationwide network of vans, flatbeds
and drop-deck trailers;
|
|
|
|
non-vessel operating common carrier, offering small to medium
sized shippers a single source solution for ocean shipping
worldwide;
|
7
|
|
|
|
|
rail, providing a cost-effective alternative for less time
sensitive delivery requirements;
|
|
|
|
warehouse and distribution, consisting of centralized storage
and other value-added distribution services including pick and
pack, and
|
|
|
|
expedited logistics, consisting of unique and expedited
point-to-point
service for customers with extremely time sensitive delivery
requirements.
|
Horizon Logistics operates a warehouse and cross-dock facility
in Compton, California to offer integrated inbound and export
logistics services to manufacturers and retailers. The
176,000 square-foot distribution center is located
10 miles from the Los Angeles/Long Beach ports with
connections to rail and road infrastructure within the Alameda
Corridor. Horizon Logistics is using the facility to offer an
integrated distribution solution, including a port drayage
service using Sea-Logix-owned and leased Clean Truck and
Transportation Worker Identification Credential
(TWIC) compliant fleet; air freight forwarding;
rapid transload for international import and export logistics;
intermodal transportation management; value-added distribution
services; and long-term storage as required by customers.
Market Overview
and Competition
The worldwide transportation and logistics market is an integral
part of the global economy. According to Armstrong &
Associates, an independent research firm, gross revenue for
third-party logistics in the United States has grown from
approximately $34.0 billion in 1997 to approximately
$127.0 billion in 2008. The global logistics industry
consists of companies, large and small, that provide supply
chain management, freight forwarding, distribution, warehousing
and customs brokerage services. As business requirements for
efficient and cost-effective logistics services have increased,
so has the importance and complexity of effectively managing
freight transportation. Businesses increasingly strive to
minimize inventory levels, perform manufacturing and assembly
operations in the lowest cost locations, and distribute their
products in numerous global markets. As a result, companies are
increasingly looking to third-party logistics providers to help
them execute their supply chain strategies.
Competition within the freight forwarding, logistics and supply
chain management industry is intense, and is expected to remain
so. We compete with large international firms that have
worldwide capabilities to provide all of the services that we
offer. We also face competition from smaller regional and local
logistics providers, integrated transportation companies that
operate their own aircraft, cargo sales agents and brokers,
surface freight forwarders, ocean carriers, airlines,
associations of shippers organized to consolidate their
members shipments to obtain lower freight rates, and
internet-based freight exchanges. In addition, computer
information and consulting firms, which traditionally have
operated outside of the supply chain management industry, are
now expanding their scope of services to include supply chain
related activities as a means of serving the logistics needs of
their existing and potential customers.
Sales and
Marketing
We manage a sales and marketing team of 113 employees
strategically located in our various ports, as well as in five
regional offices across the continental U.S., including from our
headquarters in Charlotte, North Carolina and from Compton,
California. Senior sales and marketing professionals are
responsible for developing sales and marketing strategies and
are closely involved in servicing our largest customers. All
pricing activities are also coordinated from Charlotte and from
Renton, Washington, enabling us to manage our customer
relationships. The marketing team located in Charlotte is
responsible for providing appropriate market intelligence and
direction to the Puerto Rico sales organization. The marketing
team located in Renton is responsible for providing appropriate
market intelligence and direction to the members of the team who
focus on the Hawaii, Guam and Alaska markets.
Our regional sales and marketing presence ensures close and
direct interaction with customers on a daily basis. Many of our
regional sales professionals have been servicing the same
customers
8
for over ten years. We believe that we have the largest sales
force of all container shipping and logistics companies active
in our markets. Unlike our competitors, our sales force
cross-sells our shipping and logistics services across all of
these markets. We believe that the breadth and depth of our
relationships with our customers is the principal driver of
repeat business from our customers.
Customers
We serve a diverse base of long-standing, established customers
consisting of many of the worlds largest consumer and
industrial products companies. Such customers include Costco
Wholesale Corporation, Johnson & Johnson, Lowes
Companies, Inc., Safeway, Inc., Toyota Motor Corporation and
Wal-Mart Stores, Inc. In addition, we serve several agencies of
the U.S. government, including the Department of Defense
and the U.S. Postal Service.
We believe that we are uniquely positioned to serve these and
other large national customers due to our position as the only
shipping and logistics company serving all three non-contiguous
Jones Act markets and Guam and Asia. Approximately 55% of our
transportation revenue in 2009 was derived from customers
shipping with us in more than one of our markets and
approximately 32% of our transportation revenue in 2009 was
derived from customers shipping with us in all three markets.
We generate most of our revenue through customer contracts with
specified rates and volumes, and with durations ranging from one
to six years, providing stable revenue streams. The majority of
our customer contracts contain provisions that allow us to
implement fuel surcharges based on fluctuations in our fuel
costs. In addition, our relationships with many of our customers
extend far beyond the length of any given contract. For example,
some of our customer relationships extend back over
40 years and our top ten customer relationships average
32 years.
We serve customers in numerous industries and carry a wide
variety of cargos, mitigating our dependence upon any single
customer or single type of cargo. For 2009, our top ten largest
customers represented approximately 36% of transportation
revenue, with the largest customer accounting for approximately
9% of transportation revenue. During 2009, our top ten largest
customers comprised approximately 35% of total revenue, with our
largest customer accounting for approximately 8% of total
revenue. Total revenue includes transportation,
non-transportation and other revenue.
Industry and market data used throughout this
Form 10-K,
including information relating to our relative position in the
shipping and logistics industries are approximations based on
the good faith estimates of our management. These estimates are
generally based on internal surveys and sources, and other
publicly available information, including local port
information. Unless otherwise noted, financial data and industry
and market data presented herein are for a period ending in
December 2009.
Operations
Overview
Our operations share corporate and administrative functions such
as finance, information technology, human resources, legal, and
sales and marketing. Centralized functions are performed
primarily at our headquarters and at our operations center in
Irving, Texas.
We book and monitor all of our shipping and logistics services
with our customers through the Horizon Information Technology
System (HITS). HITS, our proprietary ocean shipping
and logistics information technology system, provides a platform
to execute a shipping transaction from start to finish in a
cost-effective, streamlined manner. HITS provides an extensive
database of information relevant to the shipment of
containerized cargo and captures all critical aspects of every
shipment booked with us. In addition, HITS supports a wide
variety of our logistics services including
less-than-truckload
(LTL), full truckload (FTL), NVOCC, air freight, expedited
ground and warehousing. In a typical transaction, our customers
go on-line to book a shipment or call, fax or
e-mail our
customer service department. Once applicable shipping
information is input into the booking system,
9
a booking number is generated. The booking information then
downloads into other systems used by our dispatch team, terminal
personnel, vessel planners, documentation team, logistics team
and other teams and personnel who work together to produce a
seamless transaction for our customers.
Our dispatch team coordinates truck
and/or rail
shipping between inland locations and ports on intermodal
bookings. We currently purchase rail services directly from the
railroads involved through confidential transportation service
contracts. Our terminal personnel schedule equipment
availability for containers picked up at the port. Our vessel
planners develop stowage plans and our documentation teams
process the cargo bill. We review space availability and inform
our other teams and personnel when additional bookings are
needed and when bookings need to be changed or pushed to the
next vessel. After containers arrive at the port of origin, they
are loaded on board the vessel. Once the containers are loaded
and are at sea, our destination terminal staff initiates their
process of receiving and releasing containers to our customers.
Customers accessing HITS via our internet portal have the option
to receive
e-mail
alerts as specific events take place throughout this process.
All of our customers have the option to call our customer
service department or to access HITS via our internet portal,
24 hours a day, seven days a week, to track and trace
shipments. Customers may also view their payment histories and
make payments on-line.
Insurance
We maintain insurance policies to cover risks related to
physical damage to our vessels and vessel equipment, other
equipment (including containers, chassis, terminal equipment and
trucks) and property, as well as with respect to third-party
liabilities arising from the carriage of goods, the operation of
vessels and shoreside equipment, and general liabilities which
may arise through the course of our normal business operations.
We also maintain workers compensation insurance, business
interruption insurance, and directors and officers
insurance providing indemnification for our directors, officers,
and certain employees for some liabilities.
Security
Heightened awareness of maritime security needs, brought about
by the events of September 11, 2001 and numerous maritime
piracy attacks around the globe, have caused the United Nations
through its International Maritime Organization
(IMO), the U.S. Department of Homeland
Security, through its Coast Guard, and the states and local
ports to adopt a more stringent set of security procedures
relating to the interface between port facilities and vessels.
In addition, the U.S. Congress has enacted legislation
requiring the implementation of Coast Guard approved vessel and
facility security plans.
Certain aspects of our security plans require our investing in
infrastructure upgrades to ensure compliance. We have applied in
the past and will continue to apply going forward for federal
grants to offset the incremental expense of these security
investments. While we were successful through two early rounds
of funding to secure substantial grants for specific security
projects, the current grant award criteria favor the largest
ports and stakeholder consortia applications, limiting the
available funds for standalone private maritime industry
stakeholders. In addition, the current administration is
continuously reviewing the criteria for awarding such grants.
Such changes could have a negative impact on our ability to win
grant funding in the future. Security surcharges are evaluated
regularly and we may at times incorporate these surcharges into
the base transportation rates that we charge.
Employees
As of December 20, 2009, we had 1,895 employees, of
which approximately 1,277 were represented by seven labor unions.
We completed a non-union workforce reduction initiative during
the first quarter of 2009. The reduction in workforce impacted
approximately 80 non-union employees and resulted in a
$4.0 million restructuring charge. Of the
$4.0 million, $3.2 million, or $0.11 per fully diluted
share, was recorded during the fourth quarter of 2008 and the
remaining $0.8 million was recorded during the first
quarter
10
of 2009. Of the $0.8 million recorded during the first
quarter of 2009, $0.7 million was included within the
Horizon Lines segment and the remaining $35 thousand was
included in the Horizon Logistics segment. In addition, during
the quarter ended June 21, 2009, we recorded an additional
$0.2 million of severance costs related to the elimination
of certain positions in connection with the loss of a major
customer and reorganization within the Horizon Logistics segment.
The table below sets forth the unions which represent our
employees, the number of employees represented by these unions
as of December 20, 2009 and the expiration dates of the
related collective bargaining agreements:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Collective Bargaining
|
|
Our
|
|
|
Agreement(s)
|
|
Employees
|
Union
|
|
Expiration Date
|
|
Represented
|
|
International Brotherhood of Teamsters
|
|
March 31, 2013
|
|
|
254
|
|
International Brotherhood of Teamsters, Alaska
|
|
June 30, 2011
|
|
|
110
|
|
International Longshore & Warehouse Union (ILWU)
|
|
July 1, 2014
|
|
|
212
|
|
International Longshore and Warehouse Union, Alaska (ILWU-Alaska)
|
|
June 30, 2011
|
|
|
99
|
|
International Longshoremens Association, AFL-CIO (ILA)
|
|
September 30, 2012
|
|
|
|
(1)
|
International Longshoremens Association, AFL-CIO, Puerto
Rico
|
|
September 30, 2012
|
|
|
86
|
|
Marine Engineers Beneficial Association (MEBA)
|
|
June 15, 2012
|
|
|
109
|
|
International Organization of Masters, Mates & Pilots,
AFL-CIO (MMP)
|
|
June 15, 2012
|
|
|
68
|
|
Office & Professional Employees International Union,
AFL-CIO
|
|
November 9, 2012
|
|
|
63
|
|
Seafarers International Union (SIU)
|
|
June 30, 2011
|
|
|
276
|
|
|
|
|
(1) |
|
Multi-employer arrangement representing workers in the industry,
including workers who may perform services for us but are not
our employees. |
The table below provides a breakdown of headcount by
non-contiguous Jones Act market and function for our non-union
employees as of December 20, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hawaii
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska
|
|
|
Guam
|
|
|
Puerto Rico
|
|
|
Horizon
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Market
|
|
|
Market
|
|
|
Logistics
|
|
|
Corporate(a)
|
|
|
Total
|
|
|
Senior Management
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
10
|
|
|
|
14
|
|
Operations
|
|
|
33
|
|
|
|
81
|
|
|
|
48
|
|
|
|
55
|
|
|
|
35
|
|
|
|
252
|
|
Sales and Marketing
|
|
|
18
|
|
|
|
23
|
|
|
|
48
|
|
|
|
11
|
|
|
|
13
|
|
|
|
113
|
|
Administration(b)
|
|
|
4
|
|
|
|
34
|
|
|
|
8
|
|
|
|
15
|
|
|
|
178
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Headcount
|
|
|
56
|
|
|
|
139
|
|
|
|
105
|
|
|
|
82
|
|
|
|
236
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate headcount includes employees in both Charlotte, North
Carolina (headquarters) and in Irving, Texas and other locations. |
|
(b) |
|
Administration headcount is comprised of back-office functions
and also includes customer service and documentation. |
Environmental
Initiatives
We are committed to protecting the environment. We strive to
support our commitment to protect the environment with programs
that promote best practices in environmental stewardship. During
2008, we launched our Horizon Green initiative. Through our
Horizon Green initiative, we strive to better understand and
measure our impact on the environment, and to develop programs
that
11
incorporate environmental stewardship and impact into our core
operations. Within the Horizon Green initiative, we are
addressing four key areas:
Marine
Environment
To protect the marine environment, we have established several
programs in addition to compliance with the MARPOL Convention
(International Convention for the Prevention of Pollution from
Ships) and ISM Code (International Safety Management Code)
created by the IMO. These programs include vessel management
controls and audits, ballast water management, waste stream
analyses, low sulfur diesel fuel usage and marine terminal
pollution mitigation plans.
Emissions
We strive to reduce transportation emissions, including carbon
dioxide, particulates, nitrous oxides and sulfur dioxide,
through improvements in vessel fuel consumption and truck
efficiency combined with the use of alternative fuels and more
efficient transportation alternatives, such as coastwise
shipping.
Sustainability
We believe in a long-term, sustainable approach to logistics
management which will benefit the Company, its associates,
customers, shareholders and the community. Examples include
reducing empty backhaul miles through logistics network
optimization, reduced fossil fuel consumption and using recycled
materials to build containers.
Carbon
Offsets
Freight shipping is one of the worlds leading sources of
carbon dioxide emissions that contribute to global climate
change. To address this challenge together with our customers,
Horizon Logistics has introduced a new carbon offset shipping
program, developed by our custom delivery and special handling
division. The carbon offset program offers customers a
carbon-neutral shipping solution through which retailers and
manufacturers can purchase environmental credits that fund
carbon offset programs, such as forestation and alternative
energy projects.
Available
Information
The mailing address of the Companys Executive Office is
4064 Colony Road, Suite 200, Charlotte, North Carolina
28211 and the telephone number at that location is
(704) 973-7000.
The Companys most recent SEC filings can be found on the
SECs website, www.sec.gov, and on the Companys
website, www.horizonlines.com. The Companys 2009 annual
report on
Form 10-K
will be available on the Companys website as soon as
reasonably practicable. All such filings are available free of
charge. The contents of our website are not incorporated by
reference into this
Form 10-K.
The public may read and copy any materials the Company files
with the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling
1-800-SEC-0330.
We are the
Subject of an Investigation by the Antitrust Division of the
Department of Justice Regarding Possible Antitrust Violations in
the Domestic Ocean Shipping Business. The Government
Investigation Could Result in a Material Criminal Penalty and
Could Have a Material Adverse Effect on Our
Business.
On April 17, 2008, we received a federal grand jury
subpoena and search warrant from the U.S. District Court
for the Middle District of Florida seeking information regarding
an investigation by the Antitrust Division of the Department of
Justice (DOJ) into possible antitrust violations in
the
12
domestic ocean shipping business. Subsequently, the DOJ expanded
the timeframe covered by the subpoena. We are currently
providing documents to the DOJ in response to the subpoenas, and
we intend to continue to fully cooperate with the DOJ in its
investigation.
It is possible that we, our current or former directors,
officers or employees could be subject to criminal prosecution
and, if found guilty, imprisonment and substantial and material
fines and penalties. Three of our former employees have plead
guilty to a conspiracy to eliminate competition and raise prices
for moving freight between the continental U.S. and Puerto
Rico and were sentenced to varying prison terms. The effect of
an indictment being returned by the grand jury against us or our
directors or officers could, by itself, have a significant
impact on us and our business.
It is possible that the government investigation may lead to a
criminal conviction or settlement providing for the payment of
substantial fines by us. It is also possible that the outcome of
the investigation would damage our reputation and might impair
our ability to conduct our ocean shipping business in one or
more of the domestic trade lanes or with one or more of our
customers. Any conviction or potential settlement with the DOJ
could have a substantial and material effect on our financial
position, liquidity and cash flow.
Numerous
Purported Class Action Lawsuits Related to the Subject of
the Antitrust Investigations Have Been Filed Against Us and We
May Be Subject to Civil Liabilities.
Subsequent to the commencement of the DOJ investigation,
fifty-seven purported class action lawsuits were filed against
us and other domestic shipping carriers alleging price-fixing in
violation of the Sherman Act. The complaints seek treble
monetary damages, costs, attorneys fees, and an injunction
against the allegedly unlawful conduct. The federal cases have
been consolidated by the federal Panel on Multidistrict
Litigation in the District of Puerto Rico for the cases
including the Puerto Rico tradelane and the Western
District of Washington for the cases including the Hawaii and
Guam tradelanes. A federal class action lawsuit was filed in the
District of Alaska for the Alaska tradelane. A similar complaint
was filed in Duval County, Florida, against us and other
domestic shipping carriers by a customer alleging price-fixing
in violation of the Florida Antitrust Act and the Florida
Deceptive and Unlawful Trade Practices Act.
A related securities class action lawsuit was filed in the
District of Delaware against us and several of our current and
former employees, including our Chief Executive Officer. The
lawsuit alleges that the defendants made material
misrepresentations and omissions, including with respect to the
alleged price-fixing and violations of the Sherman Act, causing
the plaintiffs to pay inflated prices for our shares. The
securities litigation seeks unspecified monetary damages, among
other things.
Further, it is possible that there could be unfavorable outcomes
in the lawsuits that could result in the payment by us of
substantial monetary damages. We could also be required to make
payments for settlements in amounts that are not determinable.
For example, in connection with the Puerto Rico multidistrict
litigation (MDL), we have entered into a settlement
agreement, subject to count approval, and have agreed to pay
$20.0 million and to certain base-rate freezes. We have
paid $5.0 million into an escrow account pursuant to the
terms of the settlement agreement. The existence of these
proceedings could have a material adverse effect on our ability
to access the capital markets to raise additional funds to
refinance indebtedness or for other purposes. We cannot predict
or determine the timing or final outcomes of the investigation
or the lawsuits and are unable to estimate the amount or range
of loss that could result from unfavorable outcomes but, adverse
results in some or all of these legal proceedings could be
material to our results of operations, financial condition or
cash flows.
We have
Incurred Significant Costs in Connection with the
Antitrust-Related Proceedings and These Costs Will Continue to
Have a Material Adverse Effect on Our Financial Condition,
Liquidity and Cash Flow.
The legal costs associated with the investigation and the
lawsuits and the amount of time required to be spent by
management and the board of directors on these matters has had a
material adverse
13
effect on our business, financial condition and results of
operations. In addition to expenses incurred for our defense in
these matters, under Delaware law and our bylaws, we may have an
additional obligation to indemnify our current and former
officers and directors in relation to those matters, and we have
advanced, and may continue to advance, legal fees and expenses
to certain other current and former employees. We have incurred
legal fees and costs for antitrust-related investigations and
legal proceedings of $12.2 million in fiscal year 2009 and
$10.7 million in fiscal year 2008. Our legal costs and fees
have had a material adverse effect on our financial condition,
liquidity and cash flow and will continue have a substantial
impact on our financial condition.
Our Ability to
Pay any Settlement in Connection with the Class Action
Lawsuits or the Government Investigation or Satisfy any Judgment
or Criminal Penalty May be Constrained by the Terms of Our Debt
Agreements.
Our ability to pay any settlement of either the class action
lawsuits or in connection with the government investigation is
limited by the terms of our credit agreement and the indenture
governing our convertible notes. Our credit agreement includes
financial covenants that limit our ability to pay a fine or
settlement. In addition, the events of default under both the
credit agreement and the indenture governing our convertible
notes may require an amendment in order to pay a substantial
fine or penalty. The lenders under our credit agreement or the
holders of our convertible notes may not agree to amend the
terms of the debt or they may require us to pay substantial fees
and incur unreasonable expenses in order to obtain an amendment.
For example, the pending settlement agreement entered into in
connection with the Puerto Rico MDL litigation required the
amendment of our credit agreement to permit the payments
required under the settlement agreement. To amend the credit
agreement, our lenders required us to pay a substantial consent
fee and the interest rate for borrowings under the credit
agreement was increased by 1.50% and the commitment fee was
increased. The fees and expenses incurred in connection with the
amendment of our credit agreement had a material adverse effect
on our financial condition. If we have to amend our credit
agreement or the indenture governing our convertible notes to
effect any other settlements or satisfy a judgment, we cannot
assure you that our lenders will permit such amendment, or that
such amendment will be available on terms that are acceptable to
us.
Our Ability to
Pay a Fine, Settlement or Judgment is Very Limited, and a
Substantial Fine, Settlement or Judgment Would Have a Material
Adverse Effect on Our Business, Operations and Financial
Condition.
Our ability to satisfy any fine or judgment or pay any
settlement is limited by our limited cash, limited borrowing
capacity, lack of unencumbered assets, limited cash flow and our
need to fund necessary capital expenditures, including vessel
maintenance and replacement of old vessels. We cannot assure you
that we would be able to borrow sufficient money or generate
sufficient cash flow to pay any fine, judgment or settlement in
connection with the antitrust-related matters. If we were
required to pay a substantial fine, it would have a material
adverse effect on our business plans, as well as our financial
condition and results of operations.
If We do not
Meet the New York Stock Exchange Continued Listing Requirements,
Our Common Stock May be Delisted, and We May be Required to
Repurchase or Refinance Our 4.25% Convertible Notes Due
2012.
In order to maintain our listing on the New York Stock Exchange
(NYSE), we must continue to meet the NYSE minimum
share price listing rule, the minimum market capitalization rule
and other continued listing criteria. If our common stock were
delisted, it could (i) reduce the liquidity and market
price of our common stock; (ii) negatively impact our
ability to raise equity financing and access the public capital
markets; and (iii) materially adversely impact our results
of operations and financial condition. In addition, if our
common stock is not listed on the NYSE or another national
exchange, holders of our 4.25% convertible notes due 2012 will
be entitled to require us to repurchase their
14
convertible notes. Our senior secured credit facility provides
that the occurrence of this repurchase right constitutes a
default under such facility.
Further
Economic Decline and Decrease in Market Demand For the
Companys Services in the Jones Act and Guam Markets Will
Adversely Affect the Companys Operating Results and
Financial Condition.
A further slowdown in economic conditions of our Jones Act and
Guam markets may adversely affect our business. Demand for our
shipping services depends on levels of shipping in our Jones Act
markets and in the Guam market, as well as on economic and trade
growth and logistics. Cyclical or other recessions in the
continental U.S. or in these markets can negatively affect
our operating results. Consumer purchases or discretionary items
generally decline during periods where disposable income is
adversely affected or there is economic uncertainty, and, as a
result our customers may ship fewer containers or may ship
containers only at reduced rates. For example, shipping volume
in Hawaii was down approximately 10% and Puerto Rico and Alaska
volumes were down approximately 5% in 2009 as compared to 2008
as a result of poor economic conditions. The economic downturn
in our tradelanes has negatively affected our earnings. We
cannot predict the length of the current economic downturn or
whether further economic decline may occur. At this time, we are
also unable to determine the impact to our customers and
business, if any, of programs adopted by the U.S. or other
governments to stabilize and support the economy.
Volatility in
Fuel Prices May Adversely Affect Our Profits.
Fuel is a significant operating expense for our shipping
operations. The price and supply of fuel is unpredictable and
fluctuates based on events outside our control, including
geopolitical developments, supply and demand for oil and gas,
actions by OPEC and other oil and gas producers, war and unrest
in oil producing countries and regions, regional production
patterns and environmental concerns. As a result, variability in
the price of fuel, such as we are currently experiencing, may
adversely affect profitability. There can be no assurance that
our customers will agree to bear such fuel price increases via
fuel surcharges without a reduction in their volumes of business
with us, nor any assurance that our future fuel hedging efforts,
if any, will be successful.
Repeal,
Substantial Amendment, or Waiver of the Jones Act or Its
Application Could Have a Material Adverse Effect on Our
Business.
If the Jones Act was to be repealed, substantially amended, or
waived and, as a consequence, competitors with lower operating
costs were to enter any of our Jones Act markets, our business
would be materially adversely affected. In addition, our
advantage as a
U.S.-citizen
operator of Jones Act vessels could be eroded by periodic
efforts and attempts by foreign interests to circumvent certain
aspects of the Jones Act. If maritime cabotage services were
included in the General Agreement on Trade in Services, the
North American Free Trade Agreement or other international trade
agreements, or if the restrictions contained in the Jones Act
were otherwise altered, the shipping of maritime cargo between
covered U.S. ports could be opened to foreign-flag or
foreign-built vessels.
In September 2005, the Department of Homeland Security issued
limited temporary waivers of the Jones Act solely to permit the
transport of petroleum and refined petroleum products in the
United States in response to the damage caused to the
nations oil and gas production facilities and pipelines by
Hurricanes Katrina and Rita. There can be no assurance as to the
timing of any future waivers of the Jones Act or that any such
waivers will be limited to the transport of petroleum and
refined petroleum products.
15
Change in Tax
Laws or the Interpretation Thereof, Adverse Tax Audits and Other
Tax Matters Related to Our Tonnage Tax Election or Such Tax May
Adversely Affect Our Future Results.
During 2006, after evaluating the merits and requirements of the
tonnage tax, we elected the application of the tonnage tax
instead of the federal corporate income tax on income from our
qualifying shipping activities. Changes in tax laws or the
interpretation thereof, adverse tax audits, and other tax
matters related to such tax election or such tax may adversely
affect our future results.
During the fourth quarter of 2007, a draft of a Technical
Corrections Act proposed redefining the Puerto Rico trade to not
qualify for application of the tonnage tax. The tax writing
committee in Congress removed the tonnage tax repeal language
from the Technical Corrections Act before its passage, but there
can be no assurance that there will not be future efforts to
repeal all, or any portion of, the tonnage tax as it applies to
our shipping activities.
Our Failure to
Renew Our Commercial Agreements With Maersk in the Future Could
Have a Material Adverse Effect on Our Business.
We have several commercial agreements with Maersk, an
international shipping company, that encompass terminal
services, equipment sharing, cargo space charters, sales agency
services, trucking services, and transportation services. For
example, under these agreements, Maersk provides us with
terminal services at five ports located in the continental
U.S. (Elizabeth, New Jersey; Jacksonville, Florida;
Houston, Texas; Los Angeles, California; and Tacoma,
Washington). In general, these agreements, which were most
recently renewed and amended in December 2006, are currently
scheduled to expire at the end of 2010. If we fail to renew
these agreements in the future, the requirements of our business
will necessitate that we enter into substitute commercial
agreements with third parties for at least some portion of the
services contemplated under our existing commercial agreements
with Maersk, such as terminal services at our ports located in
the continental U.S. There can be no assurance that, if we
fail to renew our commercial agreements with Maersk, we will be
successful in negotiating and entering into substitute
commercial agreements with third parties and, even if we succeed
in doing so, the terms and conditions of these new agreements,
individually or in the aggregate, may be significantly less
favorable to us than the terms and conditions of our existing
agreements with Maersk or others. Furthermore, if we do enter
into substitute commercial agreements with third parties,
changes in our operations to comply with the requirements of
these new agreements (such as our use of other terminals in our
existing ports in the continental U.S. or our use of other
ports in the continental U.S.) may cause disruptions to our
business, which could be significant, and may result in
additional costs and expenses and possible losses of revenue.
Our Industry
is Unionized and Strikes By Our Union Employees or Others in the
Industry May Disrupt Our Services and Adversely Affect Our
Operations.
As of December 20, 2009, we had 1,895 employees, of
which 1,277 were unionized employees represented by seven
different labor unions. Our industry is susceptible to work
stoppages and other adverse employee actions due to the strong
influence of maritime trade unions. We may be adversely affected
by future industrial action against efforts by our management or
the management of other companies in our industry to reduce
labor costs, restrain wage increases or modify work practices.
For example, in 2002 our operations at our U.S. west coast
ports were significantly affected by a
10-day labor
interruption by the International Longshore and Warehouse Union.
This interruption affected ports and shippers throughout the
U.S. west coast.
In addition, in the future, we may not be able to negotiate, on
terms and conditions favorable to us, renewals of our collective
bargaining agreements with unions in our industry and strikes
and disruptions may occur as a result of our failure or the
failure of other companies in our industry to negotiate
collective bargaining agreements with such unions successfully.
Our collective bargaining agreements are scheduled to expire as
follows: three in 2011, five in 2012, one in 2103 and one in
2014.
16
Our Employees
are Covered By Federal Laws That May Subject Us to Job-Related
Claims in Addition to Those Provided By State
Laws.
Some of our employees are covered by several maritime statutes,
including provisions of the Jones Act, the Death on the High
Seas Act, the Seamens Wage Act and general maritime law.
These laws typically operate to make liability limits
established by state workers compensation laws
inapplicable to these employees and to permit these employees
and their representatives to pursue actions against employers
for job-related injuries in federal courts. Because we are not
generally protected by the limits imposed by state workers
compensation statutes for these employees, we may have greater
exposure for any claims made by these employees than is
customary in the United States.
Due to Our
Participation in Multi-Employer Pension Plans, We May Have
Exposure Under Those Plans That Extends Beyond What Our
Obligations Would Be With Respect to Our
Employees.
We contribute to fifteen multi-employer pension plans. In the
event of a partial or complete withdrawal by us from any plan
which is underfunded, we would be liable for a proportionate
share of such plans unfunded vested benefits. Based on the
limited information available from plan administrators, which we
cannot independently validate, we believe that our portion of
the contingent liability in the case of a full withdrawal or
termination would be material to our financial position and
results of operations. In the event that any other contributing
employer withdraws from any plan which is underfunded, and such
employer (or any member in its controlled group) cannot satisfy
its obligations under the plan at the time of withdrawal, then
we, along with the other remaining contributing employers, would
be liable for our proportionate share of such plans
unfunded vested benefits. We have no current intention of taking
any action that would subject us to any withdrawal liability and
cannot assure you that no other contributing employer will take
such action.
In addition, if a multi-employer plan fails to satisfy the
minimum funding requirements, the Internal Revenue Service,
pursuant to Section 4971 of the Internal Revenue Code of
1986, as amended, referred to herein as the Code, will impose an
excise tax of five (5%) percent on the amount of the accumulated
funding deficiency. Under Section 413(c)(5) of the Code,
the liability of each contributing employer, including us, will
be determined in part by each employers respective
delinquency in meeting the required employer contributions under
the plan. The Code also requires contributing employers to make
additional contributions in order to reduce the deficiency to
zero, which may, along with the payment of the excise tax, have
a material adverse impact on our financial results.
Compliance
With Safety and Environmental Protection and Other Governmental
Requirements May Adversely Affect Our Operations.
The shipping industry in general and our business and the
operation of our vessels and terminals in particular are
affected by extensive and changing safety, environmental
protection and other international, national, state and local
governmental laws and regulations. For example, our vessels, as
U.S.-flagged
vessels, generally must be maintained in class and
are subject to periodic inspections by the American Bureau of
Shipping or similar classification societies, and must be
periodically inspected by, or on behalf of, the U.S. Coast
Guard. In addition, the United States Oil Pollution Act of 1990
(referred to as OPA), the Comprehensive Environmental Response,
Compensation & Liability Act of 1980 (referred to as
CERCLA), the Clean Air Act and other federal environmental laws,
and certain state laws require us, as a vessel operator, to
comply with numerous environmental regulations and to obtain
certificates of financial responsibility and to adopt procedures
for oil or hazardous substance spill prevention, response and
clean up. In complying with these laws, we have incurred
expenses and may incur future expenses for ship modifications
and changes in operating procedures. Changes in enforcement
policies for existing requirements and additional laws and
regulations adopted in the future could limit our ability to do
business or further increase the cost of our doing business.
17
We believe our vessels are maintained in good condition in
compliance with present regulatory requirements, are operated in
compliance in all material respects with applicable
safety/environmental laws and regulations and are insured
against the usual risks for such amounts as our management deems
appropriate. Our vessels operating certificates and
licenses are renewed periodically during the required annual
surveys of the vessels. However, there can be no assurance that
such certificates and licenses will be renewed. Also, in the
future, we may have to alter existing equipment, add new
equipment to, or change operating procedures for, our vessels to
comply with changes in governmental regulations, safety or other
equipment standards to meet our customers changing needs.
If any such costs are material, they could adversely affect our
financial condition.
We are Subject
to Statutory and Regulatory Directives in the United States
Addressing Homeland Security Concerns That May Increase Our
Costs and Adversely Affect Our Operations.
Various government agencies within the Department of Homeland
Security (DHS), including the Transportation
Security Administration, the U.S. Coast Guard, and
U.S. Bureau of Customs and Border Protection, have adopted,
and may adopt in the future, rules, policies or regulations or
changes in the interpretation or application of existing laws,
rules, policies or regulations, compliance with which could
increase our costs or result in loss of revenue.
The Coast Guards maritime security regulations, issued
pursuant to the Maritime Transportation Security Act of 2002
(MTSA), require us to operate our vessels and
facilities pursuant to both the maritime security regulations
and approved security plans. Our vessels and facilities are
subject to periodic security compliance verification
examinations by the Coast Guard. A failure to operate in
accordance with the maritime security regulations or the
approved security plans may result in the imposition of a fine
or control and compliance measures, including the suspension or
revocation of the security plan, thereby making the vessel or
facility ineligible to operate. We are also required to audit
these security plans on an annual basis and, if necessary,
submit amendments to the Coast Guard for its review and
approval. Failure to timely submit the necessary amendments may
lead to the imposition of the fines and control and compliance
measures mentioned above. Failure to meet the requirements of
the maritime security regulations could have a material adverse
effect on our results of operations.
DHS may adopt additional security-related regulations, including
new requirements for screening of cargo and our reimbursement to
the agency for the cost of security services. These new
security-related regulations could have an adverse impact on our
ability to efficiently process cargo or could increase our
costs. In particular, our customers typically need quick
shipping of their cargos and rely on our on-time shipping
capabilities. If these regulations disrupt or impede the timing
of our shipments, we may fail to meet the needs of our
customers, or may increase expenses to do so.
Increased
Inspection Procedures and Tighter Import and Export Controls
Could Increase Costs and Disrupt Our Business.
Domestic and international container shipping is subject to
various security and customs inspection and related procedures,
referred to herein as inspection procedures, in countries of
origin and destination as well as in countries in which
transshipment points are located. Inspection procedures can
result in the seizure of containers or their contents, delays in
the loading, offloading, transshipment or delivery of containers
and the levying of customs duties, fines or other penalties
against exporters or importers (and, in some cases, shipping and
logistics companies such as us). Failure to comply with these
procedures may result in the imposition of fines
and/or the
taking of control or compliance measures by the applicable
governmental agency, including the denial of entry into
U.S. waters.
We understand that, currently, only a small proportion of all
containers delivered to the United States are physically
inspected by U.S., state or local authorities prior to delivery
to their
18
destinations. The U.S. government, foreign governments,
international organizations, and industry associations have been
considering ways to improve and expand inspection procedures.
There are numerous proposals to enhance the existing inspection
procedures, which if implemented would likely affect shipping
and logistics companies such as us. Such changes could impose
additional financial and legal obligations on us, including
additional responsibility for physically inspecting and
recording the contents of containers we are shipping. In
addition, changes to inspection procedures could impose
additional costs and obligations on our customers and may, in
certain cases, render the shipment of certain types of cargo by
container uneconomical or impractical. Any such changes or
developments may have a material adverse effect on our business,
financial condition and results of operations.
Restrictions
on Foreign Ownership of Our Vessels Could Limit Our Ability to
Sell Off Any Portion of Our Business or Result in the Forfeiture
of Our Vessels.
The Jones Act restricts the foreign ownership interests in the
entities that directly or indirectly own the vessels which we
operate in our Jones Act markets. If we were to seek to sell any
portion of our business that owns any of these vessels, we would
have fewer potential purchasers, since some potential purchasers
might be unable or unwilling to satisfy the foreign ownership
restrictions described above. As a result, the sales price for
that portion of our business may not attain the amount that
could be obtained in an unregulated market. Furthermore, at any
point Horizon Lines, LLC, our indirect wholly-owned subsidiary
and principal operating subsidiary, ceases to be controlled and
75% owned by U.S. citizens, we would become ineligible to
operate in our current Jones Act markets and may become subject
to penalties and risk forfeiture of our vessels.
No Assurance
Can Be Given That Our Insurance Costs Will Not
Escalate.
Our protection and indemnity insurance (P&I) is
provided by a mutual P&I club which is a member of the
International Group of P&I clubs. As a mutual club, it
relies on member premiums, investment reserves and income, and
reinsurance to manage liability risks on behalf of its members.
Increased investment losses, underwriting losses, or reinsurance
costs could cause international marine insurance clubs to
increase the cost of premiums, resulting not only in higher
premium costs, but also higher levels of deductibles and
self-insurance retentions.
Our coverage under the Longshore Act for U.S. Longshore and
Harbor Workers compensation is provided by Signal Mutual
Indemnity Association Ltd. Signal Mutual is a non-profit
organization whose members pool risks of a similar nature to
achieve long-term and stable insurance protection at cost.
Signal Mutual is now the largest provider of Longshore benefits
in the country. This program provides for first-dollar coverage
without a deductible.
Catastrophic
Losses and Other Liabilities Could Adversely Affect Our Results
of Operations and Such Losses and Liability May Be Beyond
Insurance Coverage.
The operation of any oceangoing vessel carries with it an
inherent risk of catastrophic maritime disaster, mechanical
failure, collision, and loss of or damage to cargo. Also, in the
course of the operation of our vessels, marine disasters, such
as oil spills and other environmental mishaps, cargo loss or
damage, and business interruption due to political or other
developments, as well as maritime disasters not involving us,
labor disputes, strikes and adverse weather conditions, could
result in loss of revenue, liabilities or increased costs,
personal injury, loss of life, severe damage to and destruction
of property and equipment, pollution or environmental damage and
suspension of operations. Damage arising from such occurrences
may result in lawsuits asserting large claims.
Although we maintain insurance, including retentions and
deductibles, at levels that we believe are consistent with
industry norms against the risks described above, including loss
of life, there can be no assurance that this insurance would be
sufficient to cover the cost of damages suffered by us from the
occurrence of all of the risks described above or the loss of
income resulting from one or
19
more of our vessels being removed from operation. We also cannot
be assured that a claim will be paid or that we will be able to
obtain insurance at commercially reasonable rates in the future.
Further, if we are negligent or otherwise responsible in
connection with any such event, our insurance may not cover our
claim.
In the event that any of the claims arising from any of the
foregoing possible events were assessed against us, all of our
assets could be subject to attachment and other judicial process.
As a result of the significant insurance losses incurred in the
September 11, 2001 attack and related concern regarding
terrorist attacks, global insurance markets increased premiums
and reduced or restricted coverage for terrorist losses
generally. Accordingly, premiums payable for terrorist coverage
have increased substantially and the level of terrorist coverage
has been significantly reduced.
Additionally, new and stricter environmental regulations have
led to higher costs for insurance covering environmental damage
or pollution, and new regulations could lead to similar
increases or even make this type of insurance unavailable.
The reliability of our service may be adversely affected if our
spare vessels reserved for relief are not deployed efficiently
under extreme circumstances, which could damage our reputation
and harm our operating results. We generally keep spare vessels
in reserve available for relief if one of our vessels in active
service suffers a maritime disaster or must be unexpectedly
removed from service for repairs. However, these spare vessels
may require several days of sailing before it can replace the
other vessel, resulting in service disruptions and loss of
revenue. If more than one of our vessels in active service
suffers a maritime disaster or must be unexpectedly removed from
service, we may have to redeploy vessels from our other trade
routes, or lease one or more vessels from third parties. We may
suffer a material adverse effect on our business if we are
unable to rapidly deploy one of our spare vessels and we fail to
provide on-time scheduled service and adequate capacity to our
customers.
Interruption
or Failure of Our Information Technology and Communications
Systems Could Impair our Ability to Effectively Provide Our
Shipping and Logistics Services, Especially HITS, Which Could
Damage Our Reputation and Harm Our Operating
Results.
Our provision of our shipping and logistics services depends on
the continuing operation of our information technology and
communications systems, especially HITS. We have experienced
brief system failures in the past and may experience brief or
substantial failures in the future. Any failure of our systems
could result in interruptions in our service reducing our
revenue and profits and damaging our brand. Some of our systems
are not fully redundant, and our disaster recovery planning does
not account for all eventualities. The occurrence of a natural
disaster, or other unanticipated problems at our facilities at
which we maintain and operate our systems could result in
lengthy interruptions or delays in our shipping and logistics
services, especially HITS.
Our Vessels
Could Be Arrested By Maritime Claimants, Which Could Result in
Significant Loss of Earnings and Cash Flow.
Crew members, suppliers of goods and services to a vessel,
shippers of cargo, lenders and other parties may be entitled to
a maritime lien against a vessel for unsatisfied debts, claims
or damages. In many jurisdictions, a claimant may enforce its
lien by either arresting or attaching a vessel through
foreclosure proceedings. Moreover, crew members may place liens
for unpaid wages that can include significant statutory penalty
wages if the unpaid wages remain overdue (e.g., double wages for
every day during which the unpaid wages remain overdue). The
arrest or attachment of one or more of our vessels could result
in a significant loss of earnings and cash flow for the period
during which the arrest or attachment is continuing.
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In addition, international vessel arrest conventions and certain
national jurisdictions allow so-called sister-ship arrests,
which allow the arrest of vessels that are within the same legal
ownership as the vessel which is subject to the claim or lien.
Certain jurisdictions go further, permitting not only the arrest
of vessels within the same legal ownership, but also any
associated vessel. In nations with these laws, an association
may be recognized when two vessels are owned by companies
controlled by the same party. Consequently, a claim may be
asserted against us or any of our vessels for the liability of
one or more of the other vessels that we own.
We are
Susceptible to Severe Weather and Natural
Disasters.
Our operations are vulnerable to disruption as a result of
weather and natural disasters such as bad weather at sea,
hurricanes, typhoons and earthquakes. Such events will interfere
with our ability to provide the on-time scheduled service our
customers demand resulting in increased expenses and potential
loss of business associated with such events. In addition,
severe weather and natural disasters can result in interference
with our terminal operations, and may cause serious damage to
our vessels, loss or damage to containers, cargo and other
equipment and loss of life or physical injury to our employees.
Terminals in the South Pacific Ocean, particularly in Guam, and
terminals on the east coast of the continental U.S. and in
the Caribbean are particularly susceptible to hurricanes and
typhoons. In the recent past, the terminal at our port in Guam
was seriously damaged by a typhoon and our terminal in Puerto
Rico was seriously damaged by a hurricane. These storms resulted
in damage to cranes and other equipment and closure of these
facilities. Earthquakes in Anchorage and in Guam have also
damaged our terminal facilities resulting in delay in terminal
operations and increased expenses. Any such damage will not be
fully covered by insurance.
We May Face
New Competitors.
Other established or
start-up
shipping operators may enter our markets to compete with us for
business.
Existing non-Jones Act qualified shipping operators whose
container ships sail between ports in Asia and the
U.S. west coast could add Hawaii, Guam or Alaska as
additional stops on their sailing routes for
non-U.S. originated
or destined cargo. Shipping operators could also add Puerto Rico
as a new stop on sailings of their vessels between the
continental U.S. and ports in Europe, the Caribbean, and
Latin America for
non-U.S. originated
or destined cargo. Further, shipping operators could introduce
U.S.-flagged
vessels into service sailing between Guam and U.S. ports,
including ports on the U.S. west coast or in Hawaii. On
these routes to and from Guam no limits would apply as to the
origin or destination of the cargo dropped off or picked up. In
addition, current or new U.S. citizen shipping operators
may order the building of new vessels by U.S. shipyards and
may introduce these
U.S.-built
vessels into Jones Act qualified service on one or more of our
trade routes. These potential competitors may have access to
financial resources substantially greater than our own. The
entry of a new competitor on any of our trade routes could
result in a significant increase in available shipping capacity
that could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We May Not
Exercise Our Purchase Options For Our Chartered
Vessels.
We intend to exercise our purchase options for the three Jones
Act vessels that we have chartered upon the expiration of their
charters in January 2015. In addition, we have not determined
whether we will exercise our scheduled purchase options for the
five recently built
U.S.-flag
vessels that we have chartered. There can be no assurance that,
when these options for these eight vessels become exercisable,
the price at which these vessels may be purchased will be
reasonable in light of the fair market value of these vessels at
such time or that we will have the funds required to make these
purchases. As a result, we may not exercise our options to
purchase these vessels. If we do not exercise our options, we
may need to renew our existing charters for these vessels or
charter replacement vessels. There can be no assurance that our
existing charters will be renewed, or, if
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renewed, that they will be renewed at favorable rates, or, if
not renewed, that we will be able to charter replacement vessels
at favorable rates.
We May Face
Significant Costs As the Vessels Currently in Our Fleet
Age.
We believe that each of the vessels we currently operate has an
estimated useful life of approximately 45 years from the
year it was built. As of the date hereof, the average age of our
active vessels is approximately 22 years and the average
age of our Jones Act vessels is approximately 32 years. We
expect to incur increasing costs to operate and maintain the
vessels in good condition as they age. Eventually, these vessels
will need to be replaced. We may not be able to replace our
existing vessels with new vessels based on uncertainties related
to financing, timing and shipyard availability.
We May Face
Unexpected Substantial Dry-Docking Costs For Our
Vessels.
Our vessels are dry-docked periodically to comply with
regulatory requirements and to effect maintenance and repairs,
if necessary. The cost of such repairs at each dry-docking are
difficult to predict with certainty and can be substantial. Our
established processes have enabled us to make on average six
dry-dockings per year over the last five years with a minimal
impact on schedule. There are some years when we have more than
the average of six dry-dockings annually. In addition, our
vessels may have to be dry-docked in the event of accidents or
other unforeseen damage. Our insurance may not cover all of
these costs. Large unpredictable repair and dry-docking expenses
could significantly decrease our profits.
Loss of Key
Personnel Could Adversely Affect Our Business.
Our future success will depend, in significant part, upon the
continued services of Charles G. Raymond, our Chairman of the
Board, President and Chief Executive Officer, Michael T. Avara,
our Senior Vice President, Chief Financial Officer, John V.
Keenan, our President, Horizon Lines, LLC, and Brian W. Taylor,
our President, Horizon Logistics, LLC. The loss of the services
of any of these executive officers could adversely affect our
future operating results because of their experience and
knowledge of our business and customer relationships. If key
employees depart, we may have to incur significant costs to
replace them and our ability to execute our business model could
be impaired if we cannot replace them in a timely manner. We do
not expect to maintain key person insurance on any of our
executive officers.
We are Subject
to, and May in the Future Be Subject to, Disputes, or Legal or
Other Proceedings, That Could Have a Material Adverse Effect on
Us.
The nature of our business exposes us to the potential for
disputes, or legal or other proceedings, from time to time
relating to labor and employment matters, personal injury and
property damage, environmental matters and other matters, as
discussed in the other risk factors disclosed in this
Form 10-K.
In addition, as a common carrier, our tariffs, rates, rules and
practices in dealing with our customers are governed by
extensive and complex foreign, federal, state and local
regulations which are the subject of disputes or administrative
and/or
judicial proceedings from time to time. These disputes,
individually or collectively, could harm our business by
distracting our management from the operation of our business.
If these disputes develop into proceedings, these proceedings,
individually or collectively, could involve significant
expenditures by us or result in significant changes to our
tariffs, rates, rules and practices in dealing with our
customers that could have a material adverse effect on our
future revenue and profitability.
22
Our Cash Flows
and Capital Resources May Be Insufficient to Make Required
Payments on Our Substantial Indebtedness and Future
Indebtedness.
As of December 20, 2009, on a consolidated basis, we had
(i) $542.5 million of outstanding funded long-term
debt (exclusive of outstanding letters of credit with an
aggregate face amount of $11.1 million),
(ii) approximately $202.4 million of aggregate trade
payables, accrued liabilities and other balance sheet
liabilities (other than the long-term debt referred to above)
and (iii) a funded
debt-to-equity
ratio of approximately 5.4:1.0.
Because we have substantial debt, we require significant amounts
of cash to fund our debt service obligations. Our ability to
generate cash to meet scheduled payments or to refinance our
obligations with respect to our debt depends on our financial
and operating performance which, in turn, is subject to
prevailing economic and competitive conditions and to the
following financial and business factors, some of which may be
beyond our control:
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operating difficulties;
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increased operating costs;
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increased fuel costs;
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general economic conditions;
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decreased demand for our services;
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market cyclicality;
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tariff rates;
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prices for our services;
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the actions of competitors;
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regulatory developments; and
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delays in implementing strategic projects.
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If our cash flow and capital resources are insufficient to fund
our debt service obligations, we could face substantial
liquidity problems and might be forced to reduce or delay
capital expenditures, dispose of material assets or operations,
seek to obtain additional equity capital, or restructure or
refinance our indebtedness. Such alternative measures may not be
successful and may not permit us to meet our scheduled debt
service obligations. In particular, in the event that we are
required to dispose of material assets or operations to meet our
debt service obligations, we cannot be sure as to the timing of
such dispositions or the proceeds that we would realize from
those dispositions. The value realized from such dispositions
will depend on market conditions and the availability of buyers,
and, consequently, any such disposition may not, among other
things, result in sufficient cash proceeds to repay our
indebtedness. Also, the senior credit facility contains
covenants that may limit our ability to dispose of material
assets or operations or to restructure or refinance our
indebtedness. Further, we cannot provide assurance that we will
be able to restructure or refinance any of our indebtedness or
obtain additional financing, given the uncertainty of prevailing
market conditions from time to time, our high levels of
indebtedness and the various debt incurrence restrictions
imposed by the senior credit facility. If we are able to
restructure or refinance our indebtedness or obtain additional
financing, the economic terms on which such indebtedness is
restructured, refinanced or obtained may not be favorable to us.
We may incur substantial indebtedness in the future. The terms
of the senior credit facility permit us to incur or guarantee
additional indebtedness under certain circumstances. As of
December 20, 2009, we had approximately $113.9 million
of additional borrowing availability under the revolving credit
facility, subject to compliance with the financial and other
covenants and the other terms set forth therein. Based on our
leverage ratio, borrowing availability under the revolving
credit facility was
23
$98.4 million as of December 20, 2009. Our incurrence
of additional indebtedness would intensify the risk that our
future cash flow and capital resources may not be sufficient for
payments of interest on and principal of our substantial
indebtedness.
Financial and
Other Covenants Under Our Current and Future Indebtedness Could
Significantly Impair Our Ability to Operate Our
Business.
Our senior credit facility contains covenants that, among other
things, restrict the ability of us and our subsidiaries to:
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dispose of assets;
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incur additional indebtedness, including guarantees;
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prepay other indebtedness or amend other debt instruments;
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pay dividends or make investments, loans or advances;
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create liens on assets;
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enter into sale and lease-back transactions;
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engage in mergers, acquisitions or consolidations;
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change the business conducted by them; and
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engage in transactions with affiliates.
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In addition, under the senior credit facility, we are required
to comply with financial covenants, comprised of leverage and
interest coverage ratio requirements. Our ability to comply with
these covenants will depend on our ongoing financial and
operating performance, which in turn will be subject to economic
conditions and to financial, market and competitive factors,
many of which are beyond our control, and will be substantially
dependent on our financial and operating performance which, in
turn, is subject to prevailing economic and competitive
conditions and to various financial and business factors,
including the DOJ investigation and related lawsuits and those
discussed in the other risk factors disclosed in this
Form 10-K,
some of which may be beyond our control.
Under our senior credit facility we are required, subject to
certain exceptions, to make mandatory prepayments of amounts
under the senior credit facility with all or a portion of the
net proceeds of certain asset sales and events of loss, certain
debt issuances, certain equity issuances and a portion of their
excess cash flow. Our circumstances at the time of any such
prepayment, particularly our liquidity and ability to access
funds, cannot be anticipated at this time. Any such prepayment
could, therefore, have a material adverse effect on us.
Mandatory prepayments are first applied to the outstanding term
loans and, after all of the term loans are paid in full, then
applied to reduce the loans under the revolving credit facility
with corresponding reductions in revolving credit facility
commitments.
Our
Substantial Indebtedness and Future Indebtedness Could
Significantly Impair Our Operating and Financial
Condition.
The required payments on our substantial indebtedness and future
indebtedness, as well as the restrictive covenants contained in
the senior credit facility could significantly impair our
operating and financial condition. For example, these required
payments and restrictive covenants could:
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make it difficult for us to satisfy our debt obligations;
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make us more vulnerable to general adverse economic and industry
conditions;
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limit our ability to obtain additional financing for working
capital, capital expenditures, acquisitions and other general
corporate requirements;
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expose us to interest rate fluctuations because the interest
rate on the debt under our revolving credit facility is variable;
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require us to dedicate a substantial portion of our cash flow
from operations to payments on our debt, thereby reducing the
availability of our cash flow for operations and other purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate; and
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place us at a competitive disadvantage compared to competitors
that may have proportionately less debt.
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We may incur substantial indebtedness in the future. Our
incurrence of additional indebtedness would intensify the risks
described above.
Our Secured
Credit Facility Exposes Us to the Variability of Interest
Rates.
The term loan and revolving credit portions of our senior credit
facility bear interest at variable rates. As of
December 20, 2009, we had outstanding a $112.5 million
term loan and $100.0 million under the revolving credit
facility, which bear interest at variable rates. The interest
rates applicable to the senior credit facility vary with the
prevailing corporate base rate offered by the administrative
agent under the senior credit facility or with LIBOR. If these
rates were to increase significantly, our ability to borrow
additional funds may be reduced and the risks related to our
substantial indebtedness would intensify. Each quarter point
change in interest rates would result in a $0.3 million
change in annual interest expense on the revolving credit
facility. Accordingly, a significant rise in interest rates
would adversely affect our financial results.
If
Non-U.S.
Citizens Own More Than 19.9% of Our Stock, We May Not Have the
Funds or the Ability to Redeem Any Excess Shares and We Could Be
Forced to Suspend Our Jones Act Operations.
Our certificate of incorporation contains provisions voiding
transfers of shares of any class or series of our capital stock
that would result in
non-U.S. citizens,
in the aggregate, owning in excess of 19.9% of the shares of
such class or series. In the event that this transfer
restriction would be ineffective, our certificate of
incorporation provides for the automatic transfer of such excess
shares to a trust specified therein. These trust provisions also
apply to excess shares that would result from a change in the
status of a record or beneficial owner of shares of our capital
stock from a U.S. citizen to a
non-U.S. citizen.
In the event that these trust transfer provisions would also be
ineffective, our certificate of incorporation permits us to
redeem such excess shares. However, we may not be able to redeem
such excess shares because our operations may not have generated
sufficient excess cash flow to fund such redemption. If such a
situation occurs, there is no guarantee that we will be able to
obtain the funds necessary to affect such redemption on terms
satisfactory to us or at all. The senior credit facility permits
upstream payments from our subsidiaries, subject to exceptions,
to the Company to fund redemptions of excess shares.
If, for any of the foregoing reasons or otherwise, we are unable
to effect such a redemption when such ownership of shares by
non-U.S. citizens
is in excess of 25.0% of such class or series, or otherwise
prevent
non-U.S. citizens
in the aggregate from owning shares in excess of 25.0% of any
such class or series, or fail to exercise our redemption right
because we are unaware that such ownership exceeds such
percentage, we will likely be unable to comply with applicable
maritime laws. If all of the citizenship-related safeguards in
our certificate of incorporation fail at a time when ownership
of shares of any class or series of our stock is in excess of
25.0% of such class or series, we will likely be required to
suspend our Jones Act operations. Any such actions by
governmental authorities would have a severely detrimental
impact on our results of operations.
25
Our Share
Price Will Fluctuate.
Stock markets in general and our common stock in particular have
experienced significant price and volume volatility over the
past year. The market price and trading volume of our common
stock may continue to be subject to significant fluctuations due
not only to general stock market conditions but also to
variability in the prevailing sentiment regarding our operations
or business prospects, as well as potential further decline of
our common stock due to margin calls on loans secured by pledges
of our common stock.
We May Not
Have the Necessary Funds to Pay Dividends on Our Common Stock or
We May Elect Not to Pay Dividends on Our Common
Stock.
We require continuing, significant cash flow in order for us to
make payments of regular dividends to our stockholders. However,
we have no operations of our own and have derived, and will
continue to derive, all of our revenue and cash flow from our
subsidiaries. Our subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to
make funds available to us. They may not have sufficient funds
or assets to permit payments to us in amounts sufficient to fund
future dividend payments. Also, our subsidiaries are subject to
contractual restrictions (including with their secured and
unsecured creditors) that may limit their ability to upstream
cash indirectly or directly to us. Thus, there is a significant
risk that we may not have the requisite funds to make regular
dividend payments in the future. In addition, we may elect not
to pay dividends as a substantial portion of our future earnings
will be utilized to make payments of principal and interest on
our indebtedness and to fund the development and growth of our
business.
Environmental
Regulation and Climate Change
All of our operations are subject to various federal, state and
local environmental laws and regulations implemented principally
by the Environmental Protection Agency (the EPA),
the United States Department of Transportation, the United
States Coast Guard and state environmental regulatory agencies.
These regulations govern the management of hazardous wastes,
discharge of pollutants into the air, surface and underground
waters, including rivers, harbors and the
200-mile
exclusive economic zone of the United States, and the disposal
of certain substances.
The operation of our vessels is also subject to regulation under
various international and federal laws, as interpreted and
implemented by the United States Coast Guard (the Coast
Guard) and port state authorities in our
non-U.S. ports
of call, as well as certain state and local laws. Additionally,
our vessels are required to meet construction and repair
standards established by the American Bureau of Shipping (ABS),
Det Norske Veritas (DNV), the IMO
and/or the
Coast Guard, and to meet operational, security and safety
standards and regulations presently established by the Coast
Guard. The Coast Guard further licenses our seagoing supervisory
personnel and certifies our seamen.
Our marine operations are further subject to regulation by
various federal agencies or the successors to those agencies,
including the Surface Transportation Board (the successor
federal agency to the Interstate Commerce Commission), the
United States Department of Transportation Maritime
Administration (MARAD), the Federal Maritime
Commission and the Coast Guard. These regulatory authorities
have broad powers over operational safety, tariff filings of
freight rates, service contracts, certain mergers, contraband,
environmental contamination, financial reporting and homeland,
port and vessel security.
Our common and contract motor carrier operations are regulated
by the United States Surface Transportation Board and various
state agencies. The Companys drivers also must comply with
the safety and fitness regulations promulgated by the United
States Department of Transportation (DOT), including
certain regulations for drug and alcohol testing and hours of
service. The officers and unlicensed crew members employed
aboard our vessels must also comply with numerous safety and
fitness regulations promulgated by the Coast Guard, the DOT, and
the IMO, including certain regulations for drug testing and
hours of service.
26
The United
States Oil Pollution Act of 1990 and the Comprehensive
Environmental Response, Compensation and Liability
Act
In 1990, the Oil Pollution Act of 1990 (OPA) was
enacted to establish an extensive regulatory and liability
regime designed to protect the environment from the damage
caused by oil spills. OPA is applicable to all owners and
operators whose vessels trade with the United States or its
territories or possessions, or whose vessels operate in the
navigable waters of the United States, which include the United
States territorial sea and the 200 nautical mile exclusive
economic zone around the United States. Additionally, under
OPA, vessel owners, operators and bareboat charterers are
responsible parties and are jointly, severally and
strictly liable (unless the spill results solely from the act or
omission of a third party, an act of God or an act of war) for
all containment and
clean-up
costs and other damages arising from discharges or threatened
discharges of oil from their vessels. Damages are
defined broadly under OPA to include:
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natural resources damages and the costs of assessment thereof;
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damages for injury to, or economic losses resulting from the
destruction of, real and personal property;
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the net loss of taxes, royalties, rents, fees and profits by the
United States government, and any state or political subdivision
thereof;
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lost profits or impairment of earning capacity due to property
or natural resources damage;
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the net costs of providing increased or additional public
services necessitated by a spill response, such as protection
from fire, safety or other hazards; and
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the loss of subsistence use of natural resources.
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Effective July 31, 2009, the OPA regulations were amended
to increase the liability limits for responsible parties for any
vessel other than a tank vessel to $1,000 per gross ton or
$854,400, whichever is greater. These limits of liability do not
apply if an incident was directly caused by violation of
applicable federal safety, construction or operating regulations
or by a responsible partys gross negligence or willful
misconduct, or if the responsible party fails or refuses to
report the incident or to cooperate and assist in connection
with oil removal activities.
In 1980, the Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA) was adopted and is
applicable to the discharge of hazardous substances (other than
oil) whether on land or at sea. CERCLA also imposes liability
similarly to OPA and provides for cleanup, removal and natural
resource damage. Liability per vessel under CERCLA is limited to
the greater of $300 per gross ton or $5 million, unless the
incident is caused by gross negligence, willful misconduct, or a
violation of certain regulations, in which case liability is
unlimited.
OPA requires owners and operators of vessels to establish and
maintain with the Coast Guard evidence of financial
responsibility sufficient to meet their potential liabilities
under the OPA. Effective July 1, 2009, the Coast Guard
regulations requiring evidence of financial responsibility were
amended to conform the OPA financial responsibility requirements
to the July 2009 increases in liability limits. Current Coast
Guard regulations require evidence of financial responsibility
in the amount of $1,000 per gross ton for non-tank vessels,
which includes the OPA limitation on liability of $700 per gross
ton and the CERCLA liability limit of $300 per gross ton.
Congress enacted the Delaware River Protection Act
(DRPA) to increase OPA liability limits to levels
that would reflect a proper apportionment between responsible
parties and the National Pollution Fund. Congress was also
concerned that inflation would further erode responsible party
liability and shift the economic risk of oil spills to the
public. The DRPA therefore also required that OPA limits of
liability be adjusted not less than every three years to reflect
significant increases in the CPI in order to preserve the
polluter pays principle embodied by OPA.
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Under the regulations, vessel owners and operators may evidence
their financial responsibility by showing proof of insurance,
surety bond, self-insurance or guaranty. Under OPA, an owner or
operator of a fleet of vessels is required only to demonstrate
evidence of financial responsibility in an amount sufficient to
cover the vessels in the fleet having the greatest maximum
liability under OPA.
The Coast Guards regulations concerning certificates of
financial responsibility provide, in accordance with OPA, that
claimants may bring suit directly against an insurer or
guarantor that furnishes certificates of financial
responsibility. In the event that such insurer or guarantor is
sued directly, it is prohibited from asserting any contractual
defense that it may have had against the responsible party and
is limited to asserting those defenses available to the
responsible party and the defense that the incident was caused
by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of
financial responsibility under pre-OPA laws, including the major
protection and indemnity organizations, have declined to furnish
evidence of insurance for vessel owners and operators if they
are subject to direct actions or are required to waive insurance
policy defenses.
OPA specifically permits individual states to impose their own
liability regimes with regard to oil pollution incidents
occurring within their boundaries, and some states have enacted
legislation providing for unlimited liability for oil spills. In
some cases, states, which have enacted such legislation, have
not yet issued implementing regulations defining vessels
owners responsibilities under these laws. We intend to
comply with all applicable state regulations in the ports where
our vessels call.
We maintain Certificates of Financial Responsibility as required
by the Coast Guard for our vessels.
The United
States Clean Water Act
Enacted in 1972, the United States Clean Water Act
(CWA) prohibits the discharge of oil or hazardous
substances in navigable waters and imposes strict liability in
the form of penalties for any unauthorized discharges. The CWA
also imposes substantial liability for the costs of removal,
remediation and damages and complements the remedies available
under OPA and CERCLA.
The EPA historically exempted the discharge of ballast water and
other substances incidental to the normal operation of vessels
in the United States ports from the CWA permitting requirements.
On March 31, 2005, however, a United States District Court
ruled that the EPA exceeded its authority in creating an
exemption for ballast water. On September 18, 2006, the
court issued an order invalidating the exemption in the
EPAs regulations for all discharges incidental to the
normal operation of a vessel as of September 30, 2008, and
directing the EPA to develop a system for regulating all
discharges from vessels by that date. Under the courts
ruling, owners and operators of vessels visiting
United States ports also would be required to comply with
the CWA permitting program to be developed by the EPA or face
penalties.
The EPA has issued regulations implementing a Vessel
General Permit (VGP) that codifies best
management practices for the control of twenty-eight
listed, specific discharges, including ballast water, that occur
normally in the operation of a vessel. We have obtained and are
now operating each of our ships in accordance with its VGP; the
VGP requirements have increased our record keeping requirements
but have not otherwise expect a material impact on our
operations.
Several states have specified significant, additional
requirements in connection with such state mandated CWA
certifications relating to the VGP rules and regulations.
Currently implemented state requirements have not significantly
increased our compliance efforts but we cannot predict what
additional state requirements may come into effect in the future
and, therefore, the future effect of the VGP regulations.
Various states have also enacted legislation restricting ballast
water discharges and the introduction of non-indigenous species
considered to be invasive. These and any similar restrictions
enacted in the future could increase the costs of operating in
the relevant waters.
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The National
Invasive Species Act
The United States National Invasive Species Act
(NISA) was enacted in 1996 in response to growing
reports of harmful organisms being released into United States
waters through ballast water taken on by vessels in foreign
ports. The Coast Guard adopted regulations under NISA in July
2004 that impose mandatory ballast water management practices
for all vessels equipped with ballast water tanks entering
United States waters. These requirements can be met by
performing mid-ocean ballast exchange, by retaining ballast
water on board the vessel, or by using environmentally sound
alternative ballast water management methods approved by the
Coast Guard. Mid-ocean ballast exchange is the primary method
for compliance with the Coast Guard regulations, since holding
ballast water can prevent vessels from performing cargo
operations upon arrival in the United States, and alternative
methods are still under development. Vessels that are unable to
conduct mid-ocean ballast exchange due to voyage or safety
concerns may discharge minimum amounts of ballast water,
provided that they comply with recordkeeping requirements and
document the reasons they could not follow the required ballast
water management requirements. In the August 28, 2009
Federal register, the Coast Guard proposed to amend their
regulations on ballast water management by establishing
standards for the allowable concentration of living organisms in
ships ballast water discharged in US waters. As proposed
it is a two tier standard; the initial limits match those set
internationally by IMO in the Ballast Water Convention. These
limits are proposed to come into force by January 1, 2012.
Technology is available that will enable ships to meet these
discharge standards. The second tier standard is more stringent
and cannot be met using existing treatment technology. This
second tier, as proposed, would come into effect on
January 1, 2017
The United States House of Representatives recently passed a
bill that amends NISA by prohibiting the discharge of ballast
water unless it has been treated with specified methods or
acceptable alternatives. Similar bills have been introduced in
the United States Senate, but it cannot be predicted which bill,
if any, will be enacted into law. In the absence of federal
standards, states have enacted legislation or regulations to
address invasive species through ballast water and hull cleaning
management and permitting requirements. For instance, the State
of California has recently enacted legislation extending its
ballast water management program to regulate the management of
hull fouling organisms attached to vessels and
adopted regulations limiting the number of organisms in ballast
water discharges. Additionally, a United States District Court
dismissed challenges to the State of Michigans ballast
water management legislation mandating the use of various
techniques for ballast water treatment; this decision was
affirmed by the United States Court of Appeals for the Sixth
Circuit on November 21, 2008. Other states may proceed with
the enactment of similar requirements that could increase the
costs of operating in state waters.
The United
States Clean Air Act
In 1970, the United States Clean Air Act (as amended by the
Clean Air Act Amendments of 1977 and 1990, the CAA)
was enacted and required the EPA to promulgate standards
applicable to emissions of volatile organic compounds and other
air contaminants. The CAA also requires states to draft State
Implementation Plans (SIPs), which are designed to
attain national health-based air quality standards in primarily
major metropolitan
and/or
industrial areas. Several SIPs regulate emissions resulting from
vessel loading and unloading operations by requiring the
installation of vapor control equipment. The EPA and some
states, however, have each proposed more stringent regulations
of air emissions from ocean-going vessels. For example, the
California Air Resources Board of the State of California (the
CARB) has petitioned the EPA to permit California
clean-fuel regulations applicable to all vessels sailing within
24 nautical miles of the California coastline whose itineraries
call for them to enter any California ports, terminal
facilities, or internal or estuarine waters. Although currently
under a court challenge, and pending an EPA decision on
CARBs petition, these regulations are being enforced in
California.
The state of California is also implementing regulations that
will require vessels to either shut down the auxiliary engines
while in port in California and use electrical power supplied at
the dock or
29
implement alternatives means to significantly reduce emissions
from the vessels electric power generating equipment while
it is in port. Generally, a vessel will run its auxiliary
engines while at port in order to power lighting, ventilation,
pumps, communication and other onboard equipment. The emissions
from running auxiliary engines while at port may be contributors
to particulate matter in the ambient air. The purpose of the
regulations is to reduce the emissions from a vessel while it is
in port. The cost of reducing vessel emissions while at port may
be substantial if we determine that we cannot use or the ports
will not permit us to use electrical power supplied at the dock.
Alternatively, the ports may pass the cost of supplying
electrical power at the port to us, and we may incur additional
costs in connection with modifying our vessels to use electrical
power supplied at the dock.
International Law, the MARPOL (International Convention for the
Prevention of Pollution from Ships, 1973, as modified by the
Protocol of 1978 relating thereto) Convention, may, in the
future, require the use of low sulfur fuels worldwide in both
auxiliary and main propulsion diesel engines on ships. By
July 1, 2010, the MARPOL Amendments are expected to require
all diesel engines on ships built between 1990 and 2000 to meet
a Nitrous Oxide (NOx) standard of
17.0g-NOx/kW-hr.
On January 1, 2011 the NOx standard will be lowered to 14.4
g-NOx/kW-hr and on January 1, 2016 it will be further
lowered to 3.4 g-NOx/kW-hr, for vessels operating in a
designated Emission Control Area (ECA).
In addition, the current global sulfur cap of 4.5% Sulfur will
be reduced to 3.5% Sulfur in 2010 and further reduced to as low
as 0.5% sulfur as early as 2020, and no later than 2025,
depending upon recommendations made in connection with a MARPOL
fuel availability study scheduled for 2018. Under these MARPOL
Amendments, the current 1.5% maximum sulfur omission permitted
in designated Emission Control Areas (ECAs) will be reduced to
1.0% sulfur on July 1, 2010, and then further reduced to
0.1% sulfur on January 1, 2015. These sulfur limitations
will be applied to all subsequently approved ECAs under the
MARPOL Amendments. The EPA has received preliminary approval of
the IMO, in coordination with Environment Canada, to designate
all waters within 200 nautical miles of the U.S and
Canadian coasts as ECAs. Under EPA regulations the North
American ECA could go into force as early as 2012 limiting the
sulfur content in fuel that is burned as described above.
Beginning in 2016, NOx after-treatment requirements become
applicable in this ECA as well.
The Resource
Conservation and Recovery Act
Our operations occasionally generate and require the
transportation, treatment and disposal of both hazardous and
non-hazardous solid wastes that are subject to the requirements
of the United States Resource Conservation and Recovery Act
or comparable state, local or foreign requirements. In addition,
from time to time we arrange for the disposal of hazardous waste
or hazardous substances at offsite disposal facilities. If such
materials are improperly disposed of by third parties, we may
still be held liable for cleanup costs under applicable laws.
Endangered
Species Regulation
The Endangered Species Act, federal conservation regulations and
comparable state laws protect species threatened with possible
extinction. Protection of endangered species may include
restrictions on the speed of vessels in certain ocean waters and
may require us to change the routes of our vessels during
particular periods. For example, in an effort to prevent the
collision of vessels with the North Atlantic right whale,
federal regulations restrict the speed of vessels to ten knots
or less in certain areas along the Atlantic Coast of the
U.S. The reduced speed of our vessels and special routing
along the Atlantic Coast of our vessels is expected to result in
the use of additional fuel, which will affect our results of
operations.
30
Greenhouse Gas
Regulation
In February 2005, the Kyoto Protocol to the United Nations
Framework Convention on Climate Change (the Kyoto
Protocol) was enacted. Pursuant to the Kyoto Protocol,
adopting countries are required to implement national programs
to reduce emissions of certain gases, generally referred to as
greenhouse gases, which are suspected of contributing to global
warming. In October 2007, the California Attorney General and a
coalition of environmental groups petitioned the EPA to regulate
greenhouse gas emissions from ocean-going vessels under the CAA.
Any passage of climate control legislation or other regulatory
initiatives in the United States that restrict emissions of
greenhouse gases could entail financial impacts on our
operations that cannot be predicted with certainty at this time.
The issue is being heavily debated within various international
regulatory bodies, such as the IMO, as well and climate control
measures that effect shipping could also be implemented on an
international basis potentially affecting our vessel operations.
Vessel
Security Regulations
Since September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security within the
United States. On November 25, 2002, the Maritime
Transportation Security Act of 2002 (the MTSA) came
into effect. To implement certain portions of the MTSA, in July
2003, the Coast Guard issued regulations requiring the
implementation of certain security requirements aboard vessels
operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to the
International Convention for the Safety of Life at Sea
(SOLAS) created a new chapter of the convention
dealing specifically with maritime security. The new chapter
came into effect in July 2004 and imposes various detailed
security obligations on vessels and port authorities, most of
which are contained in the newly created International Ship and
Port Facilities Security Code (the ISPS Code). Among
the various requirements are:
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on-board installation of automatic information systems to
enhance
vessel-to-vessel
and
vessel-to-shore
communications;
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on-board installation of ship security alert systems;
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the development of vessel and facility security plans;
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the implementation of a Transportation Workers Identification
Credential program; and
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compliance with flag state security certification requirements.
|
The Coast Guard regulations, intended to align with
international maritime security standards, exempt
non-United
States vessels from MTSA vessel security measures provided such
vessels have on board a valid International Ship Security
Certificate that attests to the vessels compliance with
SOLAS security requirements and the ISPS Code as ratified by the
ships flag state. Vessels native to the United States,
however, are not exempted from the security measures addressed
by the MTSA, SOLAS and the ISPS Code. We have implemented the
various security measures addressed by the MTSA, SOLAS and the
ISPS Code.
|
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Item 1B.
|
Unresolved
Staff Comments
|
None.
31
We lease all of our facilities, including our terminal and
office facilities located at each of the ports upon which our
vessels call, as well as our central sales and administrative
offices and regional sales offices. The following table sets
forth the locations, descriptions, and square footage of our
significant facilities as of December 20, 2009:
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Square
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Location
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Description of Facility
|
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Footage(1)
|
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Anchorage, Alaska
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Stevedoring building and various terminal and related property
|
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1,429,425
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Charlotte, North Carolina
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Corporate headquarters
|
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28,900
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Chicago, Illinois
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Regional sales office
|
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1,929
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|
Compton, California
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Terminal supervision office and warehouse
|
|
|
176,676
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|
Dedeo, Guam
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Terminal and related property
|
|
|
108,425
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|
Dominican Republic
|
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Operations office
|
|
|
1,500
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|
Dutch Harbor, Alaska
|
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Office and various terminal and related property
|
|
|
723,641
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|
Elizabeth, New Jersey
|
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Terminal supervision and sales office
|
|
|
4,994
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|
Honolulu, Hawaii
|
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Terminal property and office
|
|
|
97,124
|
(2)
|
Houston, Texas
|
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Terminal supervision and sales office
|
|
|
166
|
|
Irving, Texas
|
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Operations center
|
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51,989
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Jacksonville, Florida
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Terminal supervision, sales office & warehousing
|
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15,943
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Kenilworth, New Jersey
|
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Ocean shipping services office
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12,110
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Kodiak, Alaska
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Office and various terminal and related property
|
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265,232
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Laredo, Texas
|
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Warehousing and office
|
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56,800
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Lexington, North Carolina
|
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Warehousing and office
|
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|
23,984
|
|
Oakland, California
|
|
Office and various terminal and related property
|
|
|
279,131
|
|
Phoenix, Arizona
|
|
Warehousing and office
|
|
|
1,751
|
|
Piti, Guam
|
|
Office and various terminal and related property
|
|
|
24,837
|
|
Renton, Washington
|
|
Regional sales office
|
|
|
9,146
|
|
San Francisco, California
|
|
Warehousing and office
|
|
|
19,900
|
|
San Juan, Puerto Rico
|
|
Office and various terminal and related property
|
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|
3,521,479
|
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Sparks, Nevada
|
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Warehousing
|
|
|
20,000
|
|
Tacoma, Washington
|
|
Office and various terminal and related property
|
|
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797,192
|
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|
(1) |
|
Square footage for marine terminal facilities excludes common
use areas used by other terminal customers and us. |
|
(2) |
|
Excludes 1,647,952 square feet of terminal property, which
we have the option to use and pay for on an as-needed basis. |
|
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Item 3.
|
Legal
Proceedings
|
On April 17, 2008, we received a grand jury subpoena and
search warrant from the U.S. District Court for the Middle
District of Florida seeking information regarding an
investigation by the Antitrust Division of the Department of
Justice (the DOJ) into possible antitrust violations
in the domestic ocean shipping business. Subsequently, the DOJ
expanded the timeframe covered by the subpoena. We are currently
providing documents to the DOJ in response to the subpoena. We
intend to cooperate fully with the DOJ in its investigation.
We have entered into a conditional amnesty agreement with the
DOJ under its Corporate Leniency Policy. The amnesty agreement
pertains to a single contract relating to ocean shipping
32
services provided to the United States Department of Defense.
The DOJ has agreed to not bring any criminal prosecution with
respect to that government contract as long as we, among other
things, continue our full cooperation in the investigation. The
amnesty does not bar a claim for damages that may be sought by
the DOJ under any applicable federal law or regulation.
On October 9, 2009, we received a Request for Information
and Production of Documents from the Puerto Rico Office of
Monopolistic Affairs. The request relates to an investigation
into possible price fixing and unfair competition in the Puerto
Rico domestic ocean shipping business. We are currently
providing documents in response to this request, and we intend
to cooperate fully in this investigation.
Subsequent to the commencement of the DOJ investigation, a
number of purported class action lawsuits were filed against us
and other domestic shipping carriers. Fifty-seven cases have
been filed in the following federal district courts: eight in
the Southern District of Florida, six in the Middle District of
Florida, twenty in the District of Puerto Rico, eleven in the
Northern District of California, two in the Central District of
California, one in the District of Oregon, eight in the Western
District of Washington, and one in the District of Alaska.
Nineteen of the foregoing district court cases that related to
ocean shipping services in the Puerto Rico tradelane were
consolidated into a single multidistrict litigation
(MDL) proceeding in the District of Puerto Rico. All
of the foregoing district court cases that related to ocean
shipping services in the Hawaii and Guam tradelanes were
consolidated into MDL proceedings in the Western District of
Washington. One district court case remains in the District of
Alaska, relating to the Alaska tradelane.
Each of the federal district court cases purports to be on
behalf of a class of individuals and entities who directly, or
indirectly in one case, purchased domestic ocean shipping
services from the various domestic ocean carriers. The
complaints allege price-fixing in violation of the Sherman Act
and seek treble monetary damages, costs, attorneys fees,
and an injunction against the allegedly unlawful conduct.
On June 11, 2009, we entered into a settlement agreement
with the plaintiffs in the Puerto Rico MDL litigation. Under the
settlement agreement, which is subject to Court approval, we
have agreed to pay $20.0 million and to certain base-rate
freezes to resolve claims for alleged antitrust violations in
the Puerto Rico tradelane. We paid $5.0 million into an
escrow account pursuant to the terms of the settlement agreement
and will be required to pay $5.0 million within
90 days after preliminary approval of the settlement
agreement by the district court and $10.0 million within
five business days after final approval of the settlement
agreement by the district court.
The base-rate freeze component of the settlement agreement
provides that class members who have contracts in the Puerto
Rico trade with us as of the effective date of the final
settlement agreement would have the option, in lieu of receiving
cash, to have their base rates frozen for a period
of two years. The base-rate freeze would run for two years from
the expiration of the contract in effect on the effective date
of the final settlement agreement. All class members would be
eligible to share in the $20.0 million cash component, but
only contract customers of ours would be eligible to elect the
base-rate freeze in lieu of receiving cash. We have the right to
terminate the settlement agreement under certain circumstances.
On July 8, 2009, the plaintiffs filed a motion for
preliminary approval of the settlement agreement in the Puerto
Rico MDL litigation. Several hearings on the motion for
preliminary approval of the settlement agreement have been held
where the Court has heard the objections of certain non-settling
defendants. We are awaiting the Courts decision.
On March 20, 2009, we filed a motion to dismiss the claims
in the Hawaii and Guam MDL litigation. The plaintiffs filed a
response to our motion to dismiss on April 20, 2009, and we
filed a reply on May 8, 2009. On August 18, 2009, the
District Court for the Western District of Washington entered an
order dismissing, without prejudice, the Hawaii and Guam MDL
litigation. In dismissing the complaint, however, the plaintiffs
were granted thirty days to amend their complaint, and we and
the plaintiffs agreed to extend the time to file an amended
complaint to November 16, 2009. Subsequently, the Court
granted the plaintiffs until May 10, 2010 to file an
amended complaint. We and the plaintiffs have agreed to stay
discovery in the Alaska litigation. We intend to vigorously
defend against these purported class action lawsuits.
33
In addition, on July 9, 2008, a complaint was filed by
Caribbean Shipping Services, Inc. in the Circuit Court,
4th Judicial Circuit in and for Duval County, Florida,
against us and other domestic shipping carriers alleging
price-fixing in violation of the Florida Antitrust Act and the
Florida Deceptive and Unlawful Trade Practices Act. The
complaint seeks treble damages, injunctive relief, costs and
attorneys fees. The case is not brought as a class action.
This case is pending discovery.
Through December 20, 2009, we have incurred approximately
$22.9 million in legal and professional fees associated
with the DOJ investigation and the antitrust related litigation.
In addition, we have paid $5.0 million into an escrow
account pursuant to the terms of the Puerto Rico MDL settlement
agreement. Further, a reserve of $15.0 million related to
the expected future payments pursuant to the terms of the
settlement of the Puerto Rico MDL litigation has been included
in other accrued liabilities on our consolidated balance sheet.
We are unable to predict the outcome of the Hawaii and Guam MDL
litigation, the Alaska
class-action
litigation and the Florida Circuit Court litigation. We have not
made a provision for any of these claims in the accompanying
financial statements. It is possible that the outcome of these
proceedings could have a material adverse effect on our
financial condition, cash flows and results of operations.
In addition, in connection with the DOJ investigation, it is
possible that we could suffer criminal prosecution and be
required to pay a substantial fine. We have not made a provision
for any possible fines or penalties in the accompanying
financial statements, and we can give no assurance that the
final resolution of the DOJ investigation will not result in
significant liability and will not have a material adverse
effect on our financial condition, cash flows and results of
operations.
On December 31, 2008, a securities class action lawsuit was
filed by the City of Roseville Employees Retirement System
in the United States District Court for the District of
Delaware, naming us and six current and former employees,
including our Chief Executive Officer, as defendants. We filed a
motion to dismiss and the Court granted the motion to dismiss on
November 13, 2009; however, the plaintiffs were granted
eleven days to file an amended complaint. We and the plaintiffs
agreed to extend the time to file the amended complaint, and the
plaintiffs filed their amended complaint on December 23,
2009. The amended complaint added two of our current and former
employees as defendants.
The amended complaint purports to be on behalf of purchasers of
our common stock. The complaint alleges, among other things,
that we made material misstatements and omissions in connection
with alleged price-fixing in our shipping business in Puerto
Rico in violation of antitrust laws. We are preparing a response
to the amended complaint. We are unable to predict the outcome
of this lawsuit; however, we believe that we have appropriate
disclosure practices and intend to vigorously defend against the
lawsuits.
On May 13, 2009, we were served with a complaint filed by a
shareholder in Delaware Chancery Court seeking production of
certain books and records pursuant to Section 220 of the
Delaware General Corporation law. We have reached an agreement
on the scope of the required document production and produced
the required documents. Subsequently, the suit was dismissed.
In the ordinary course of business, from time to time, we become
involved in various legal proceedings. These relate primarily to
claims for loss or damage to cargo, employees personal
injury claims, and claims for loss or damage to the person or
property of third parties. We generally maintain insurance,
subject to customary deductibles or self-retention amounts,
and/or
reserves to cover these types of claims. We also, from time to
time, become involved in routine employment-related disputes and
disputes with parties with which we have contractual relations.
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Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
There were no matters submitted to a vote of security holders
through the solicitation of proxies or otherwise during the
fourth quarter of fiscal 2009.
34
Part II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
The Companys Common Stock is traded on the New York Stock
Exchange under the ticker symbol HRZ. As of January 29,
2010, there were approximately 2,656 holders of record of
the Common Stock. The following table sets forth the intraday
high and low sales price of the Companys common stock on
the New York Stock Exchange for the fiscal periods presented.
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Cash Dividend
|
2010
|
|
High
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Low
|
|
Declared
|
|
First Quarter (through January 29, 2010)
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$
|
6.54
|
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$
|
4.70
|
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$
|
0.05
|
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2009
|
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High
|
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Low
|
|
Cash Dividend
|
|
First Quarter
|
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$
|
4.73
|
|
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$
|
2.44
|
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$
|
0.11
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Second Quarter
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$
|
6.33
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$
|
3.00
|
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$
|
0.11
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Third Quarter
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$
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6.92
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$
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3.08
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$
|
0.11
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Fourth Quarter
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$
|
6.92
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$
|
5.00
|
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$
|
0.11
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2008
|
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High
|
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Low
|
|
Cash Dividend
|
|
First Quarter
|
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$
|
23.50
|
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|
$
|
15.73
|
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$
|
0.11
|
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Second Quarter
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$
|
20.29
|
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$
|
10.02
|
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$
|
0.11
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Third Quarter
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|
$
|
13.78
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$
|
8.38
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$
|
0.11
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Fourth Quarter
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$
|
11.60
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$
|
1.95
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$
|
0.11
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On January 28, 2010, our Board of Directors declared a
quarterly cash dividend of $0.05 per share for our common stock,
which is payable on March 15, 2010 to holders of record at
the close of business on March 1, 2010. We have regularly
paid quarterly dividends as set forth in the table above. We
currently expect that cash dividends comparable to the most
recent declaration will continue to be paid in the future
although we have no commitment to do so and can provide no
assurance this will occur.
During the fourth quarter of 2009, there were no purchases of
shares of the Companys common stock, by or on behalf of
the Company or any affiliated purchaser as defined
by
Rule 10b-18(a)(3)
of the Securities Exchange Act of 1934.
Equity
Compensation Plan Information
The information required by this item will be included in the
Companys proxy statement to be filed for the Annual
Meeting of Stockholders to be held on June 1, 2010, and is
incorporated herein by reference.
35
Total Return
Comparison Graph
The below graph compares the cumulative total shareholder return
of the public common stock of Horizon Lines, Inc. to the
cumulative total returns of the Dow Jones U.S. Industrial
Transportation Index and the S&P 500 Index for the period
in which the Companys stock has been publicly traded.
Cumulative total returns assume reinvestment of dividends.
Comparison of
Cumulative Total Return*
Notwithstanding anything to the contrary set forth in any of our
filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might
incorporate other filings with the Securities and Exchange
Commission, including this annual report on
Form 10-K,
in whole or in part, the Total Return Comparison Graph shall not
be deemed incorporated by reference into any such filings.
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|
* |
Comparison graph is based upon $100 invested in the given
average or index at the close of trading on September 26,
2005 and $100 invested in the Companys stock by the
opening bell on September 27, 2005, as well as the
reinvestment of dividends.
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9/27/2005
|
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12/25/2005
|
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12/24/2006
|
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12/23/2007
|
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|
12/21/2008
|
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|
12/20/2009
|
Horizon Lines, Inc.
|
|
|
|
100.00
|
|
|
|
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125.90
|
|
|
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281.50
|
|
|
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|
200.00
|
|
|
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|
50.60
|
|
|
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72.90
|
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Dow Jones U.S. Industrial
Transportation Index
|
|
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100.00
|
|
|
|
|
118.30
|
|
|
|
|
122.52
|
|
|
|
|
132.05
|
|
|
|
|
98.98
|
|
|
|
|
123.89
|
|
|
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S&P 500 Index
|
|
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|
100.00
|
|
|
|
|
104.36
|
|
|
|
|
116.05
|
|
|
|
|
122.11
|
|
|
|
|
73.04
|
|
|
|
|
90.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Item 6.
|
Selected
Financial Data
|
The five year selected financial data below should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations, included
in this
Form 10-K,
and our consolidated financial statements and the related notes
appearing in Item 15 of this
Form 10-K.
We have a 52- or 53-week fiscal year (every sixth or seventh
year) that ends on the Sunday before the last Friday in
December. Each of the years presented below consisted of
52 weeks.
Selected Financial Data is as follows (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Ended
|
|
|
Ended
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Dec. 21,
|
|
|
Dec. 23,
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Dec. 20,
|
|
|
2008
|
|
|
2007
|
|
|
Dec. 24,
|
|
|
Dec. 25,
|
|
|
|
2009
|
|
|
(As Adjusted)(1)
|
|
|
(As Adjusted)(1)
|
|
|
2006
|
|
|
2005(2)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
1,158,481
|
|
|
$
|
1,304,259
|
|
|
$
|
1,206,515
|
|
|
$
|
1,156,892
|
|
|
$
|
1,096,156
|
|
Settlement of class action lawsuit
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
1,867
|
|
|
|
25,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
1,001
|
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
18,838
|
|
|
|
27,016
|
|
|
|
95,173
|
|
|
|
95,971
|
|
|
|
46,654
|
|
Interest expense, net(3)
|
|
|
39,675
|
|
|
|
41,399
|
|
|
|
44,875
|
|
|
|
48,552
|
|
|
|
51,357
|
|
Loss on modification/early extinguishment of debt
|
|
|
50
|
|
|
|
|
|
|
|
38,546
|
|
|
|
581
|
|
|
|
13,154
|
|
Income tax expense (benefit)(4)
|
|
|
10,367
|
|
|
|
(11,728
|
)
|
|
|
(15,152
|
)
|
|
|
(25,332
|
)
|
|
|
438
|
|
Net (loss) income
|
|
|
(31,272
|
)
|
|
|
(2,593
|
)
|
|
|
26,825
|
|
|
|
72,357
|
|
|
|
(18,321
|
)
|
Accretion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,073
|
|
Net (loss) income applicable to common stockholders
|
|
|
(31,272
|
)
|
|
|
(2,593
|
)
|
|
|
26,825
|
|
|
|
72,357
|
|
|
|
(23,394
|
)
|
Net (loss) income per share applicable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.81
|
|
|
$
|
2.16
|
|
|
$
|
(1.05
|
)
|
Diluted
|
|
$
|
(1.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.79
|
|
|
$
|
2.14
|
|
|
$
|
(1.05
|
)
|
Number of shares used in calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,450,975
|
|
|
|
30,278,573
|
|
|
|
33,327,567
|
|
|
|
33,551,335
|
|
|
|
22,376,797
|
|
Diluted
|
|
|
30,450,975
|
|
|
|
30,278,573
|
|
|
|
33,864,818
|
|
|
|
33,772,341
|
|
|
|
22,381,756
|
|
Cash dividends declared
|
|
$
|
13,397
|
|
|
$
|
13,273
|
|
|
$
|
14,653
|
|
|
$
|
14,764
|
|
|
$
|
3,690
|
|
Cash dividends declared per common share
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 21,
|
|
|
Dec. 23,
|
|
|
|
|
|
|
|
|
|
Dec. 20,
|
|
|
2008
|
|
|
2007
|
|
|
Dec. 24,
|
|
|
Dec. 25,
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
(As Adjusted)
|
|
|
2006
|
|
|
2005(1)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,419
|
|
|
$
|
5,487
|
|
|
$
|
6,276
|
|
|
$
|
93,949
|
|
|
$
|
41,450
|
|
Total assets
|
|
|
818,510
|
|
|
|
872,629
|
|
|
|
920,886
|
|
|
|
945,029
|
|
|
|
927,319
|
|
Long term debt, including capital lease obligations, net of
current portion(3)
|
|
|
496,105
|
|
|
|
526,259
|
|
|
|
525,571
|
|
|
|
503,850
|
|
|
|
527,905
|
|
Total debt, including capital lease obligations
|
|
|
514,855
|
|
|
|
532,811
|
|
|
|
532,108
|
|
|
|
510,788
|
|
|
|
530,575
|
|
Stockholders equity(5)(6)
|
|
|
101,278
|
|
|
|
136,836
|
|
|
|
183,409
|
|
|
|
208,277
|
|
|
|
151,760
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Dec. 20,
|
|
|
Dec. 21,
|
|
|
Dec. 23,
|
|
|
Dec. 24,
|
|
|
Dec. 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005(1)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(7)
|
|
$
|
77,330
|
|
|
$
|
89,883
|
|
|
$
|
121,909
|
|
|
$
|
160,452
|
|
|
$
|
100,381
|
|
Capital expenditures(8)
|
|
|
13,050
|
|
|
|
39,149
|
|
|
|
31,426
|
|
|
|
21,288
|
|
|
|
41,234
|
|
Vessel dry-docking payments
|
|
|
14,735
|
|
|
|
13,913
|
|
|
|
21,414
|
|
|
|
16,815
|
|
|
|
16,038
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
57,498
|
|
|
|
89,368
|
|
|
|
54,837
|
|
|
|
115,524
|
|
|
|
76,376
|
|
Investing activities(8)(9)
|
|
|
(11,813
|
)
|
|
|
(38,847
|
)
|
|
|
(59,387
|
)
|
|
|
(19,340
|
)
|
|
|
(38,817
|
)
|
Financing activities(5)(9)
|
|
|
(44,753
|
)
|
|
|
(51,310
|
)
|
|
|
(83,123
|
)
|
|
|
(43,685
|
)
|
|
|
(52,875
|
)
|
|
|
|
(1) |
|
As discussed in Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations,
reported amounts for the years ended December 23, 2007 and
December 21, 2008 have been adjusted for retrospective
application of changes in accounting for certain convertible
notes and restricted stock share-based payments awards as
participating securities. |
|
(2) |
|
We completed an initial public offering during 2005 and used the
proceeds to repurchase certain indebtedness, pay related
premiums, redeem outstanding preferred stock, and pay related
transaction expenses. |
|
(3) |
|
During the fourth quarter of 2005, utilizing proceeds from the
initial public offering, we repurchased $53.0 million and
$43.2 million of the 9% senior notes and
11% senior discount notes, respectively. During 2007, we
completed a private placement of $330.0 million aggregate
principal amount of 4.25% convertible senior notes due 2012 and
entered into a credit agreement providing for a
$250.0 million five year revolving credit facility and a
$125.0 million term loan with various financial lenders. We
utilized a portion of the proceeds from these transactions to
(i) repay the borrowings outstanding under the Prior Senior
Credit Facility (as defined below) and (ii) purchase the
outstanding principal and pay associated premiums of the
9% senior notes and 11% senior discount notes
purchased in our tender offer. |
|
(4) |
|
During 2006, we elected the application of a tonnage tax instead
of the federal corporate income tax on income from our
qualifying shipping activities. This 2006 election of the
tonnage tax was made in connection with the filing of our 2005
federal corporate income tax return. We accounted for this
election as a change in the tax status of its qualifying
shipping activities. The impact of this tonnage tax election
resulted in a decrease in income tax expense of approximately
$43.5 million during the year ended December 24, 2006.
Approximately $11.0 million, or $0.33 per share, and
$18.8 million, or $0.56 per share, relate to the 2005
reduction in income tax expense and revaluation of the deferred
taxes related to the application of tonnage tax to qualifying
activities, respectively. We modified our trade routes between
the U.S. west coast and Guam and Asia during 2007. As such, our
shipping activities associated with these modified trade routes
became qualified shipping activities, and thus the income from
these vessels is excluded from gross income in determining
federal income tax liability. During 2007, we recorded a
$7.7 million tax benefit due to the revaluation of deferred
taxes related to the qualified shipping income expected to be
generated by the new vessels and related to a change in estimate
resulting from refinements in the methodology for computing
secondary activities and cost allocations for tonnage tax
purposes. During the second quarter of 2009, we determined that
it was unclear as to the timing of when we will generate
sufficient taxable income to realize our deferred tax assets.
Accordingly, we recorded a full valuation allowance against our
deferred tax assets. |
|
(5) |
|
In connection with the financing of the Acquisition-Related
Transactions, we issued and sold 8,391,180 shares of our
Series A preferred stock in July 2004. No dividends accrued
on these shares. During October 2004, an additional 1,898,730
Series A preferred shares were issued and sold. During
December 2004, 5,315,912 Series A preferred shares were
redeemed for $53.2 million. In connection with the initial
public offering, we redeemed all of our shares of non-voting
$.01 par value Series A Preferred Stock for
$62.2 million. |
|
(6) |
|
Concurrent with the issuance of the 4.25% convertible senior
notes, we entered into note hedge transactions whereby we have
the option to receive shares of our common stock when the share
price is between certain amounts and the we sold warrants to
financial institutions whereby the |
38
|
|
|
|
|
financial institutions have the option to receive shares when
the share price is above certain levels. The cost of the note
hedge transactions to us was approximately $52.5 million
and we received proceeds of $11.9 million related to the
sale of the warrants. We recorded a $19.1 million income
tax benefit related to the cost of the hedge transaction that
was subsequently fully reserved as part of recording a full
valuation allowance against our deferred tax assets. |
|
(7) |
|
EBITDA is defined as net income plus net interest expense,
income taxes, depreciation and amortization. We believe that in
addition to GAAP based financial information, EBITDA and
Adjusted EBITDA are meaningful disclosures for the following
reasons: (i) EBITDA and Adjusted EBITDA are components 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 us to maintain
certain interest expense coverage and leverage ratios, which
contain EBITDA and Adjusted EBITDA as components, and restrict
certain cash payments if certain ratios are not met, subject to
certain exclusions, and our management team uses EBITDA and
Adjusted EBITDA to monitor compliance with such covenants,
(iii) EBITDA and Adjusted EBITDA are components of the
measure used by our management team to make
day-to-day
operating decisions, (iv) EBITDA and Adjusted EBITDA are
components of the measure used by our management to facilitate
internal comparisons to competitors results and the marine
container shipping and logistics industry in general and
(v) the payment of discretionary bonuses to certain members
of our management is contingent upon, among other things, the
satisfaction by Horizon Lines of certain targets, which contain
EBITDA and Adjusted EBITDA as components. We acknowledge that
there are limitations when using EBITDA and Adjusted EBITDA.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP
and do not purport to be an alternative to net income as a
measure of operating performance or to cash flows from operating
activities as a measure of liquidity. Additionally, EBITDA and
Adjusted EBITDA are not intended to be a measure of free cash
flow for managements discretionary use, as it does not
consider certain cash requirements such as tax payments and debt
service requirements. Because all companies do not use identical
calculations, this presentation of EBITDA and Adjusted EBITDA
may not be comparable to other similarly titled measures of
other companies. The EBITDA amounts presented below contain
certain charges that our management team excludes when
evaluating our operating performance, for making
day-to-day
operating decisions and that have historically been excluded
from EBITDA to arrive at Adjusted EBITDA when determining the
payment of discretionary bonuses. A reconciliation of net (loss)
income to EBITDA and Adjusted EBITDA is included below (in
thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Ended
|
|
|
Ended
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Dec. 21,
|
|
|
Dec. 23,
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Dec. 20,
|
|
|
2008
|
|
|
2007
|
|
|
Dec. 24,
|
|
|
Dec. 25,
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
(As Adjusted)
|
|
|
2006
|
|
|
2005
|
|
|
Net (loss) income
|
|
$
|
(31,272
|
)
|
|
$
|
(2,593
|
)
|
|
$
|
26,825
|
|
|
$
|
72,357
|
|
|
$
|
(18,321
|
)
|
Interest expense, net
|
|
|
39,675
|
|
|
|
41,399
|
|
|
|
44,875
|
|
|
|
48,552
|
|
|
|
51,357
|
|
Income tax expense (benefit)
|
|
|
10,367
|
|
|
|
(11,728
|
)
|
|
|
(15,152
|
)
|
|
|
(25,332
|
)
|
|
|
438
|
|
Depreciation and amortization
|
|
|
58,560
|
|
|
|
62,805
|
|
|
|
65,361
|
|
|
|
64,875
|
|
|
|
66,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
77,330
|
|
|
$
|
89,883
|
|
|
$
|
121,909
|
|
|
$
|
160,452
|
|
|
$
|
100,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Department of Justice antitrust investigation costs
|
|
|
12,192
|
|
|
|
10,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of class action lawsuit
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
1,867
|
|
|
|
25,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
1,001
|
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other severance charges
|
|
|
306
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on modification/ extinguishment of debt
|
|
|
50
|
|
|
|
|
|
|
|
38,546
|
|
|
|
581
|
|
|
|
13,154
|
|
Transaction related expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,032
|
|
|
|
2,200
|
|
Compensation charges(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,953
|
|
Management fees(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
112,746
|
|
|
$
|
130,018
|
|
|
$
|
160,455
|
|
|
$
|
163,065
|
|
|
$
|
144,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
(a) |
|
The adjustment represents non-cash stock-based compensation
charges which we incurred during the year ended
December 25, 2005 related to the issuance and sale of
common stock, including restricted common stock, to non-employee
directors and to members of management. All of these shares
vested in full upon the consummation of the initial public
offering completed during 2005. |
|
(b) |
|
The adjustment represents management fees paid to Castle Harlan
and to an entity that was associated with the party that was the
primary stockholder of Horizon Lines Holding prior to the
Acquisition-Related Transactions. Upon the completion of the
Acquisition-Related Transactions, the Company, Horizon Lines and
Horizon Lines Holding entered into a new management agreement
with Castle Harlan. On September 7, 2005, as a result of an
amendment of such agreement and a related payment to Castle
Harlan of $7.5 million under such amended agreement, the
provisions of such agreement were terminated, except as to
expense reimbursement and indemnification and related
obligations of the Company, Horizon Lines and Horizon Lines
Holding. |
|
|
|
(8) |
|
Includes the acquisition of the rights and beneficial interests
of the sole owner participant in two separate trusts, the assets
of which consist primarily of two vessels, for
$25.2 million during the year ended December 25, 2005. |
|
(9) |
|
Financing activities during 2005 included the proceeds from the
initial public offering and the use of proceeds therefrom. The
proceeds and cash generated from operations were used to redeem
debt and preferred shares, and to pay associated redemption
premiums and related transaction expenses. Investing activities
during 2007 include the acquisition of HSI and Aero Logistics.
Financing activities during 2007 include our private placement
of $330.0 million aggregate principal amount of 4.25%
convertible senior notes due 2012 and credit agreement providing
for a $250.0 million five year revolving credit facility
and a $125.0 million term loan with various financial
lenders. We utilized a portion of the proceeds from these
transactions to (i) repay $192.8 million of borrowings
outstanding under the Prior Senior Credit Facility (as defined
below), (ii) purchase the outstanding principal and pay
associated premiums of the 9% senior notes and
11% senior discount notes purchased in our tender offer and
(iii) purchase 1,000,000 shares of our common stock.
Also during 2007, our Board of Directors approved a stock
repurchase program under which we acquired 1,172,000 shares
of our common stock at a total cost of $20.6 million.
During 2008, we completed our share repurchase program by
acquiring an additional 1,627,500 at a total cost of
$29.4 million. |
40
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis of our consolidated
financial condition and results of operations should be read in
conjunction with Selected Consolidated and Combined Financial
Data and our annual audited consolidated financial statements
and related notes thereto included elsewhere in this
Form 10-K.
The following discussion includes forward-looking statements
that involve certain risks and uncertainties. For additional
information regarding forward looking statements, see the Safe
Harbor Statement on page (i) of this
Form 10-K.
Executive
Overview
The ongoing challenging economic conditions continued to
negatively impact our results of operations during 2009.
Although we experienced some moderation in volumes towards the
end of 2009, our markets were impacted by weakness in consumer
spending, tourism, and commercial construction. Throughout 2009,
we remained focused on cost containment with the goal of
prudently managing our business.
Operating revenue decreased as a result of lower container
volumes along with lower fuel surcharges, slightly offset by
unit revenue improvements resulting from general rate increases
and cargo mix upgrades. General rate increases are typically
implemented in order to mitigate contractual expense increases.
Terminal services revenue declined as a result of lower exports.
The decrease in operating expense during the year ended
December 20, 2009 is primarily due to lower fuel prices,
lower container volumes, and a decrease in selling, general and
administrative expenses, largely due to the reduction in
workforce and lower stock-based compensation expense. Operating
expense for the year ended December 20, 2009 includes a
$20 million accrual for the potential settlement of the
Puerto Rico MDL litigation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating revenue
|
|
$
|
1,158,481
|
|
|
$
|
1,304,259
|
|
|
$
|
1,206,515
|
|
Operating expense
|
|
|
1,139,643
|
|
|
|
1,277,243
|
|
|
|
1,111,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
18,838
|
|
|
$
|
27,016
|
|
|
$
|
95,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio
|
|
|
98.4
|
%
|
|
|
97.9
|
%
|
|
|
92.1
|
%
|
Revenue containers (units)
|
|
|
257,625
|
|
|
|
276,282
|
|
|
|
285,880
|
|
General
We believe that we are the nations leading Jones Act
container shipping and integrated logistics company, accounting
for approximately 37% of total U.S. marine container
shipments from the continental U.S. to Alaska, Puerto Rico
and Hawaii, constituting the three non-contiguous Jones Act
markets, and to Guam and Micronesia. Under the Jones Act, all
vessels transporting cargo between U.S. ports must, subject
to limited exceptions, be built in the U.S., registered under
the U.S. flag, manned by predominantly U.S. crews, and
owned and operated by
U.S.-organized
companies that are controlled and 75% owned by
U.S. citizens. We own or lease 20 vessels, 15 of which
are fully qualified Jones Act vessels, and approximately 18,500
cargo containers. We also provide comprehensive shipping and
logistics services in our markets, including rail, trucking,
warehousing, distribution and non-vessel operating common
carrier (NVOCC) operations. We have long-term access
to terminal facilities in each of our ports, operating our
terminals in Alaska, Hawaii, and Puerto Rico and contracting for
terminal services in the seven ports in the continental
U.S. and in the ports in Guam, Yantian and Xiamen, China
and Kaohsiung, Taiwan.
41
History and
Transactions
Our long operating history dates back to 1956, when
Sea-Land
pioneered the marine container shipping industry and established
our business. In 1958, we introduced container shipping to the
Puerto Rico market and in 1964 we pioneered container shipping
in Alaska with the first year-round scheduled vessel service. In
1987, we began providing container shipping services between the
U.S. west coast and Hawaii and Guam through our acquisition
from an existing carrier of all of its vessels and certain other
assets that were already serving that market. Today, as the only
Jones Act vessel operator with an integrated organization
serving Alaska, Puerto Rico, and Hawaii, we are uniquely
positioned to serve our customers that require shipping and
logistics services in more than one of these markets.
Horizon Lines, Inc., a Delaware corporation, (the
Company and together with its subsidiaries,
we) operates as a holding company for Horizon Lines,
LLC (Horizon Lines), a Delaware limited liability
company and wholly-owned subsidiary, Horizon Logistics Holdings,
LLC (Horizon Logistics), a Delaware limited
liability company and wholly-owned subsidiary, Horizon Lines of
Puerto Rico, Inc. (HLPR), a Delaware corporation and
wholly-owned subsidiary, and Hawaii Stevedores, Inc., a Hawaii
corporation (HSI).
In December 1999, CSX Corporation, the former parent of
Sea-Land
Domestic Shipping, LLC (SLDS), sold the
international marine container operations of
Sea-Land to
the A.P. Møller Maersk Group (Maersk) and SLDS
continued to be owned and operated by CSX Corporation as CSX
Lines, LLC. On February 27, 2003, Horizon Lines Holding
Corp. (HLHC) (which at the time was indirectly
majority-owned by Carlyle-Horizon Partners, L.P.) acquired from
CSX Corporation, 84.5% of CSX Lines, LLC, and 100% of CSX Lines
of Puerto Rico, Inc., which together with Horizon Logistics and
HSI constitute our business today. CSX Lines, LLC is now known
as Horizon Lines, LLC and CSX Lines of Puerto Rico, Inc. is now
known as Horizon Lines of Puerto Rico, Inc. The Company was
formed as an acquisition vehicle to acquire, on July 7,
2004, the equity interest in HLHC. The Company was formed at the
direction of Castle Harlan Partners IV. L.P. (CHP
IV), a private equity investment fund managed by Castle
Harlan, Inc. (Castle Harlan). In 2005, the Company
completed its initial public offering. Subsequent to the initial
public offering, the Company completed three secondary
offerings, including a secondary offering (pursuant to a shelf
registration) whereby CHP IV and other affiliated private equity
investment funds managed by Castle Harlan divested their
ownership in the Company.
Basis of
Presentation
The accompanying consolidated financial statements include the
consolidated accounts of the Company as of December 20,
2009, December 21, 2008 and December 23, 2007 and for
the fiscal years ended December 20, 2009, December 21,
2008 and December 23, 2007. Certain prior period balances
have been reclassified to conform to current period
presentation. In addition, as noted below, certain prior period
balances have been adjusted to conform to recent accounting
pronouncements.
Fiscal
Year
We have a 52- or 53-week (every sixth or seventh year) fiscal
year that ends on the Sunday before the last Friday in December.
The fiscal years ended December 20, 2009, December 21,
2008 and December 23, 2007 each consisted of 52 weeks.
Critical
Accounting Policies
We prepare our financial statements in conformity with
accounting principles generally accepted in the United States of
America. The preparation of our financial statements requires us
to make estimates and assumptions in the reported amounts of
revenues and expenses during the reporting period and in
reporting the amounts of assets and liabilities, and disclosures
of contingent assets and liabilities at the date of our
financial statements. Since many of these estimates and
assumptions are
42
based on future events which cannot be determined with
certainty, the actual results could differ from these estimates.
We believe that the application of our critical accounting
policies, and the estimates and assumptions inherent in those
policies, are reasonable. These accounting policies and
estimates are periodically re-evaluated and adjustments are made
when facts or circumstances dictate a change. Historically, we
have found the application of accounting policies to be
appropriate and actual results have not differed materially from
those determined using necessary estimates.
We believe the following accounting principles are critical
because they involve significant judgments, assumptions, and
estimates used in the preparation of our financial statements.
Revenue
Recognition
We account for transportation revenue based upon method two
under Emerging Issues Task Force
No. 91-9
Revenue and Expense Recognition for Freight Services in
Process. Under this method we record transportation
revenue for the cargo when shipped and an expense accrual for
the corresponding costs to complete delivery when the cargo
first sails from its point of origin. We believe that this
method of revenue recognition does not result in a material
difference in reported net income on an annual or quarterly
basis as compared to recording transportation revenue between
accounting periods based upon the relative transit time within
each respective period with expenses recognized as incurred. We
recognize revenue and related costs of sales for our terminal
and other services upon completion of services.
We recognize revenue from logistics operations as service is
rendered. Gross revenue consists of the total dollar value of
services purchased by shippers. Revenue and the associated costs
for the following services are recognized upon proof of delivery
of freight: truck brokerage, rail brokerage, expedited
international air, expedited domestic ground services, and
drayage. Horizon Logistics also offers warehousing/long-term
storage for which revenue is recognized based upon warehouse
space occupied during the reporting period.
Allowance for
Doubtful Accounts and Revenue Adjustments
We maintain an allowance for doubtful accounts based upon the
expected collectability of accounts receivable reflective of our
historical collection experience. In circumstances in which we
are aware of a specific customers inability to meet its
financial obligation (for example, bankruptcy filings, accounts
turned over for collection or litigation), we record a specific
reserve for the bad debts against amounts due. For all other
customers, we recognize reserves for these bad debts based on
the length of time the receivables are past due and other
customer specific factors including, type of service provided,
geographic location and industry. We monitor our collection risk
on an ongoing basis through the use of credit reporting
agencies. Accounts are written off after all means of
collection, including legal action, have been exhausted. We do
not require collateral from our trade customers.
In addition, we maintain an allowance for revenue adjustments
consisting of amounts reserved for billing rate changes that are
not captured upon load initiation. These adjustments generally
arise: (1) when the sales department contemporaneously
grants small rate changes (spot quotes) to customers
that differ from the standard rates in the system; (2) when
freight requires dimensionalization or is reweighed resulting in
a different required rate; (3) when billing errors occur;
and (4) when data entry errors occur. When appropriate,
permanent rate changes are initiated and reflected in the
system. These revenue adjustments are recorded as a reduction to
revenue.
Casualty and
Property Insurance Reserves
We purchase insurance coverage for our exposures related to
employee injuries (state workers compensation and
compensation under the Longshore and Harbor workers
compensation Act), vessel collisions and allisions, property
loss and damage, third party liability, and cargo loss and
43
damage. Most insurance policies include a deductible applicable
to each incident or vessel voyage and deductibles can change
from year to year as policies are renewed or replaced. Our
current insurance program includes deductibles ranging from $0
to $2,000,000. In most cases, our claims personnel work directly
with our insurers claims professionals or our third-party
claim administrators to continually update the anticipated
residual exposure for each claim. In this process, we evaluate
and monitor each claim individually, and use resources such as
historical experience, known trends, and third-party estimates
to determine the appropriate reserves for potential liability.
Changes in the perceived severity of previously reported claims,
significant changes in medical costs, and legislative changes
affecting the administration of our plans could significantly
impact the determination of appropriate reserves.
Goodwill and
Other Identifiable Intangible Assets
Goodwill is reviewed annually, or when events or circumstances
dictate, more frequently. The impairment review for goodwill
consists of a two- step process of first determining the fair
value of the reporting unit and comparing it to the carrying
value of the net assets allocated to the reporting unit. If the
fair value of the reporting unit exceeds the carrying value, no
further analysis or write-down of goodwill is required. If the
fair value of the reporting unit is less than the carrying value
of the net assets, the implied fair value of the reporting unit
is allocated to all the underlying assets and liabilities,
including both recognized and unrecognized tangible and
intangible assets, based on their fair value. If necessary,
goodwill is then written down to its implied fair value. The
indefinite-life intangible asset impairment review consists of a
comparison of the fair value of the indefinite-life intangible
asset with its carrying amount. If the carrying amount exceeds
its fair value, an impairment loss is recognized in an amount
equal to that excess. If the fair value exceeds its carrying
amount, the indefinite-life intangible asset is not considered
impaired.
The fair value of a reporting unit is based on quoted market
prices, if available. Quoted market prices are often not
available for individual reporting units. Accordingly, we base
the fair value of a reporting unit on an expected present value
technique. The expected present value technique for a reporting
unit consists of estimating expected future cash flows
discounted using a rate commensurate with the business risk. The
estimation of fair value utilizing discounted expected future
cash flows includes numerous uncertainties which require our
significant judgment when making assumptions of expected
revenue, operating costs, marketing, selling and administrative
expenses, as well as assumptions regarding the overall shipping
and logistics industries, competition, and general economic and
business conditions, among other factors.
The majority of the customer contracts and trademarks on the
balance sheet as of December 20, 2009 were valued on
July 7, 2004, as part of the Acquisition-Related
Transactions, using the income appraisal methodology. The income
appraisal methodology includes a determination of the present
value of future monetary benefits to be derived from the
anticipated income, or ownership, of the subject asset. The
value of our customer contracts includes the value expected to
be realized from existing contracts as well as from expected
renewals of such contracts and is calculated using unweighted
and weighted total undiscounted cash flows as part of the income
appraisal methodology. The value of our trademarks and service
marks is based on various factors including the strength of the
trade or service name in terms of recognition and generation of
pricing premiums and enhanced margins. We amortize customer
contracts and trademarks and service marks on a straight-line
method over the estimated useful life of four to fifteen years.
Long-lived assets are reviewed annually, or more frequently if
events or changes in circumstances indicate that the carrying
amount of these assets may not be fully recoverable. The
assessment of possible impairment is based on our ability to
recover the carrying value of our asset based on our estimate of
its undiscounted future cash flows. If these estimated future
cash flows are less than the carrying value of the asset, an
impairment charge would be recognized for the difference between
the assets estimated fair value and its carrying value.
The determination of fair value is based on quoted market prices
in active markets, if available. Such quoted market prices are
often not available for our identifiable intangible assets.
Accordingly,
44
we base fair value on projected future cash flows discounted at
a rate determined by management to be commensurate with the
business risk. The estimation of fair value utilizing discounted
forecasted cash flows includes numerous uncertainties which
require our significant judgment when making assumptions of
revenues, operating costs, marketing, selling and administrative
expenses, as well as assumptions regarding the overall shipping
and logistics industries, competition, and general economic and
business conditions, among other factors.
Vessel
Dry-docking
Under U.S. Coast Guard Rules, administered through the
American Bureau of Shippings alternative compliance
program, all vessels must meet specified seaworthiness standards
to remain in service carrying cargo between U.S. marine
terminals. Vessels must undergo regular inspection, monitoring
and maintenance, referred to as dry-docking, to maintain the
required operating certificates. These dry-dockings generally
occur every two and a half years, or twice every five years. The
costs of these scheduled dry-dockings are customarily deferred
and amortized over a
30-month
period beginning with the accounting period following the
vessels release from dry-dock because dry-dockings enable
the vessel to continue operating in compliance with
U.S. Coast Guard requirements.
We also take advantage of vessel dry-dockings to perform normal
repair and maintenance procedures on our vessels. These routine
vessel maintenance and repair procedures are expensed as
incurred. In addition, we will occasionally, during a vessel
dry-docking, replace vessel machinery or equipment and perform
procedures that materially enhance capabilities of a vessel. In
these circumstances, the expenditures are capitalized and
depreciated over the estimated useful lives.
Income
Taxes
Deferred tax assets represent expenses recognized for financial
reporting purposes that may result in tax deductions in the
future and deferred tax liabilities represent expense recognized
for tax purposes that may result in financial reporting expenses
in the future. Certain judgments, assumptions and estimates may
affect the carrying value of the valuation allowance and income
tax expense in the consolidated financial statements. We record
an income tax valuation allowance when the realization of
certain deferred tax assets, net operating losses and capital
loss carryforwards is not likely. In conjunction with the
election of tonnage tax, we revalued our deferred taxes to
accurately reflect the rates at which we expect such items to
reverse in future periods.
The application of income tax law is inherently complex. As
such, we are required to make many assumptions and judgments
regarding our income tax positions and the likelihood whether
such tax positions would be sustained if challenged.
Interpretations and guidance surrounding income tax laws and
regulations change over time. As such, changes in our
assumptions and judgments can materially affect amounts
recognized in the consolidated financial statements.
Stock-Based
Compensation
The value of each equity-based award is estimated on the date of
grant using the Black-Scholes option-pricing model. The
Black-Scholes model takes into account volatility in the price
of our stock, the risk-free interest rate, the estimated life of
the equity-based award, the closing market price of our stock
and the exercise price. Due to the relatively short period of
time since our stock became publicly traded, we base our
estimates of stock price volatility on the average of
(i) our historical stock price over the period in which it
has been publicly traded and (ii) historical volatility of
similar entities commensurate with the expected term of the
equity-based award; however, this estimate is neither predictive
nor indicative of the future performance of our stock. The
estimates utilized in the Black-Scholes calculation involve
inherent uncertainties and the application of management
judgment. In addition, we are required to estimate the expected
forfeiture rate and only recognize expense for those options
expected to vest.
45
Property and
Equipment
We capitalize property and equipment as permitted or required by
applicable accounting standards, including replacements and
improvements when costs incurred for those purposes extend the
useful life of the asset. We charge maintenance and repairs to
expense as incurred. Depreciation on capital assets is computed
using the straight-line method and ranges from 3 to
40 years. Our management makes assumptions regarding future
conditions in determining estimated useful lives and potential
salvage values. These assumptions impact the amount of
depreciation expense recognized in the period and any gain or
loss once the asset is disposed.
We evaluate each of our long-lived assets for impairment using
undiscounted future cash flows relating to those assets whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. When undiscounted
future cash flows are not expected to be sufficient to recover
the carrying amount of an asset, the asset is written down to
its fair value.
Recent Accounting
Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued SFAS No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles
(SFAS 168). SFAS 168 establishes the FASB
Accounting Standards Codification (Codification) as
the single source of authoritative GAAP to be applied by
nongovernmental entities, except for the rules and interpretive
releases of the SEC under authority of federal securities laws,
which are sources of authoritative GAAP for SEC registrants. All
guidance contained in the Codification carries an equal level of
authority. The Codification does not change GAAP. Instead, it
takes the thousands of individual pronouncements that currently
comprise GAAP and reorganizes them into approximately 90
accounting Topics, and displays all Topics using a consistent
structure. Contents in each Topic are further organized first by
Subtopic, then Section and finally Paragraph. The Paragraph
level is the only level that contains substantive content.
Citing particular content in the Codification involves
specifying the unique numeric path to the content through the
Topic, Subtopic, Section and Paragraph structure. FASB suggests
that all citations begin with FASB ASC, where ASC
stands for Accounting Standards Codification. SFAS 168, now
included within FASB ASC 105 is effective for interim and annual
periods ending after September 15, 2009. The adoption of
FASB ASC 105 did not have an impact on our consolidated results
of operations and financial position, but changes the
referencing system for accounting standards.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS 167), now included within FASB ASC 810.
FASB ASC 810 amends the evaluation criteria to identify the
primary beneficiary of a variable interest entity and requires
ongoing reassessment of whether an enterprise is the primary
beneficiary of the variable interest entity. FASB ASC 810 is
effective for fiscal years beginning after November 15,
2009, and interim periods within those years. We are in the
process of determining the impact the adoption of FASB ASC 810
will have on our results of operations and financial position.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets, an Amendment
of FASB Statement No. 140
(SFAS 166), now included within FASB ASC 860.
FASB ASC 860 amends the derecognition guidance in FASB Statement
No. 140 and eliminates the exemption from consolidation for
qualifying special-purpose entities. FASB ASC 860 is effective
for fiscal years beginning after November 15, 2009, and
interim periods within those years. We are in the process of
determining the impact the adoption of FASB ASC 860 will have on
our results of operations and financial position
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events (SFAS 165), now
referred to as FASB ASC 855 Subsequent Events
(FASB ASC 855). FASB ASC 855 establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date, but before the financial
statements are issued or are available to be issued. FASB ASC
855 requires the disclosure of the date through which an entity
has evaluated subsequent events and the basis for that
46
date. This disclosure is intended to alert all users of
financial statements that an entity has not evaluated subsequent
events after that date in the set of financial statements being
presented. FASB ASC 855 is effective on a prospective basis for
interim or annual periods ending after June 15, 2009. The
adoption of FASB ASC 855 did not have an impact on our
consolidated results of operations and financial position.
In May 2008, the FASB issued Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments that may be
Settled in Cash Upon Conversion, now included within FASB
ASC 470 Debt with Conversion and Other Options
(FASB ASC 470). FASB ASC
470-20
requires that the liability and equity components of convertible
debt instruments that may be settled in cash upon conversion
(including partial cash settlement) be separately accounted for
in a manner that reflects an issuers nonconvertible debt
borrowing rate. As a result, the liability component would be
recorded at a discount reflecting its below market coupon
interest rate, and the liability component would be accreted to
its par value over its expected life, with the rate of interest
that reflects the market rate at issuance being reflected in the
results of operations. This change in methodology affects the
calculations of net income and earnings per share, but does not
increase our cash interest payments. FASB ASC
470-20 is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Retrospective application to all
periods presented is required and early adoption is prohibited.
Our convertible notes payable are within the scope of FASB ASC
470-20. We
have adopted the provisions of FASB ASC
470-20, and
as such, have adjusted the reported amounts in our Statements of
Operations for the years ended December 21, 2008 and
December 23, 2007 and our Balance Sheet as of
December 21, 2008 and December 23, 2007 as follows (in
thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 21, 2008
|
|
Year Ended December 23, 2007
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
|
|
Reported
|
|
Adjustments
|
|
Adjusted
|
|
Reported
|
|
Adjustments
|
|
Adjusted
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
32,498
|
|
|
$
|
8,901
|
|
|
$
|
41,399
|
|
|
$
|
41,672
|
|
|
$
|
3,203
|
|
|
$
|
44,875
|
|
Income tax (benefit) expense
|
|
|
(8,479
|
)
|
|
|
(3,249
|
)
|
|
|
(11,728
|
)
|
|
|
(13,983
|
)
|
|
|
(1,169
|
)
|
|
|
(15,152
|
)
|
Net income (loss)
|
|
|
3,059
|
|
|
|
(5,652
|
)
|
|
|
(2,593
|
)
|
|
|
28,859
|
|
|
|
(2,034
|
)
|
|
|
26,825
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.10
|
|
|
|
(0.19
|
)
|
|
|
(0.09
|
)
|
|
|
0.87
|
|
|
|
(0.06
|
)
|
|
|
0.81
|
|
Diluted
|
|
|
0.10
|
|
|
|
(0.19
|
)
|
|
|
(0.09
|
)
|
|
|
0.85
|
|
|
|
(0.06
|
)
|
|
|
0.79
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
126,697
|
|
|
$
|
(1,155
|
)
|
|
$
|
125,542
|
|
|
$
|
152,031
|
|
|
$
|
(1,495
|
)
|
|
$
|
150,536
|
|
Deferred tax assets
|
|
|
23,992
|
|
|
|
(13,323
|
)
|
|
|
10,669
|
|
|
|
4,060
|
|
|
|
(4,060
|
)
|
|
|
|
|
Total assets
|
|
|
887,107
|
|
|
|
(14,478
|
)
|
|
|
872,629
|
|
|
|
926,441
|
|
|
|
(5,555
|
)
|
|
|
920,886
|
|
Long-term debt, net of current
|
|
|
563,916
|
|
|
|
(37,657
|
)
|
|
|
526,259
|
|
|
|
572,469
|
|
|
|
(46,898
|
)
|
|
|
525,571
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,512
|
|
|
|
12,512
|
|
Additional paid in capital
|
|
|
168,779
|
|
|
|
30,865
|
|
|
|
199,644
|
|
|
|
163,760
|
|
|
|
30,865
|
|
|
|
194,625
|
|
Retained earnings
|
|
|
29,780
|
|
|
|
(7,686
|
)
|
|
|
22,094
|
|
|
|
39,994
|
|
|
|
(2,034
|
)
|
|
|
37,960
|
|
Total liabilities and stockholders equity
|
|
|
887,107
|
|
|
|
(14,478
|
)
|
|
|
872,629
|
|
|
|
926,441
|
|
|
|
(5,555
|
)
|
|
|
920,886
|
|
In June 2008, the FASB issued Staff Position
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, now
included within FASB ASC 260 Earnings Per Share
(FASB ASC 260). FASB ASC
260-10-45
concludes that unvested share-based payment awards that contain
rights to receive non-forfeitable dividends or dividend
equivalents (whether paid or unpaid) are participating
securities, and thus, should be included in the two-class method
of computing earnings per share (EPS). FASB ASC
260-10-45 is
effective
47
for fiscal years beginning after December 15, 2008, and
interim periods within those years. Retrospective application to
all periods presented is required and early application is
prohibited. We have adopted the provisions of FASB ASC
260-10-45
and as such, have adjusted the reported amounts of basic and
diluted shares outstanding for the years ended December 21,
2008 and December 23, 2007 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 21, 2008
|
|
|
Year Ended December 23, 2007
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share
|
|
|
29,963
|
|
|
|
315
|
|
|
|
30,278
|
|
|
|
33,221
|
|
|
|
107
|
|
|
|
33,328
|
|
Effect of dilutive securities
|
|
|
368
|
|
|
|
(123
|
)
|
|
|
245
|
|
|
|
638
|
|
|
|
(101
|
)
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share
|
|
|
30,331
|
|
|
|
192
|
|
|
|
30,523
|
|
|
|
33,859
|
|
|
|
6
|
|
|
|
33,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, now included within FASB ASC 815. FASB ASC 815
requires companies with derivative instruments to disclose
information that should enable financial statement users to
understand how and why a company uses derivative instruments,
how derivative instruments and related hedged items are
accounted for under FASB ASC 815 and how derivative instruments
and related hedged items affect a companys financial
position, financial performance and cash flows. FASB ASC 815 is
effective for financial statements issued for fiscal years
beginning after November 15, 2008. As this statement
relates only to disclosure requirements, the adoption did not
have an impact on our results of operations or financial
position.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, now included within FASB ASC 810
Consolidation (FASB ASC 810). FASB ASC
810 establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated. FASB ASC
810 also establishes reporting requirements that provide
sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the
noncontrolling owners. The adoption did not have an impact on
our results of operations or financial position.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, now included within FASB ASC
805 Business Combinations (FASB ASC
805). FASB ASC 805 establishes principles and requirements
for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. FASB ASC 805 also establishes disclosure
requirements which will enable users to evaluate the nature and
financial effects of the business combination. This standard is
effective for fiscal years beginning after December 15,
2008 and early adoption is prohibited. The adoption did not have
an impact on our results of operations or financial position.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FASB Statement
No. 115, now included within FASB ASC 825
Financial Instruments (FASB ASC 825).
FASB ASC 825 allows an entity the irrevocable option to elect
fair value for the initial and subsequent measurement of certain
financial assets and liabilities under an
instrument-by-instrument
election. Subsequent measurements for the financial assets and
liabilities an entity elects to measure at fair value will be
recognized in the results of operations. FASB ASC 825 also
establishes additional disclosure requirements. This standard is
effective for fiscal years beginning after November 15,
2007. Effective for fiscal year 2008, we have adopted the
provisions of FASB ASC 825. The adoption did not have an impact
on our results of operations and financial position.
48
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, now referred to as FASB ASC
820. FASB ASC 820 addresses how companies should measure fair
value when they are required to use a fair value measure for
recognition or disclosure purposes under generally accepted
accounting principles. As a result of FASB ASC 820 there is now
a common definition of fair value to be used throughout GAAP.
The FASB believes that the new standard will make the
measurement of fair value more consistent and comparable and
improve disclosures about those measures. The provisions of FASB
ASC 820 were to be effective for fiscal years beginning after
November 15, 2007. On February 6, 2008, the FASB
agreed to defer the effective date for one year for certain
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). Effective
for fiscal 2008, we have adopted FASB ASC 820 except as it
applies to those nonfinancial assets and nonfinancial
liabilities. The adoption did not have an impact on our results
of operations and financial position.
Shipping
Rates
We publish tariffs with rates rules and practices for all three
of our Jones Act trade routes. These tariffs are subject to
regulation by the Surface Transportation Board
(STB). However, in the case of our Puerto Rico and
Alaska trade routes, we primarily ship containers on the basis
of confidential negotiated transportation service contracts that
are not subject to rate regulation by the STB. We also publish
tariffs for transportation of international cargo which are
subject to regulation by the Federal Maritime Commission
(FMC).
Seasonality
Our container volumes are subject to seasonal trends common in
the transportation industry. Financial results in the first
quarter are normally lower due to reduced loads during the
winter months. Volumes typically build to a peak in the third
quarter and early fourth quarter, which generally results in
higher revenues, improved margins, and increased earnings and
cash flows.
Results of
Operations
Operating
Revenue Overview
We derive our revenue primarily from providing comprehensive
shipping and logistics services to and from the continental
U.S. and Alaska, Puerto Rico, Hawaii and Guam. We charge
our customers on a per load basis and price our services based
primarily on the length of inland and ocean cargo transportation
hauls, type of cargo, and other requirements such as shipment
timing and type of container. In addition, we assess fuel
surcharges on a basis consistent with industry practice and at
times may incorporate these surcharges into our basic
transportation rates. There is occasionally a timing disparity
between volatility in our fuel costs and related adjustments to
our fuel surcharges (or the incorporation of adjusted fuel
surcharges into our base transportation rates) that may result
in variances in our fuel recovery.
During 2009, over 85% of our revenue was generated from our
shipping and logistics services in markets where the marine
trade is subject to the Jones Act or other U.S. maritime
laws. The balance of our revenue is derived from (i) vessel
loading and unloading services that we provide for vessel
operators at our terminals, (ii) agency services that we
provide for third-party shippers lacking administrative
presences in our markets, (iii) vessel space charter income
from third-parties in trade lanes not subject to the Jones Act,
(iv) management of vessels owned by third-parties,
(v) warehousing services for third-parties, and
(vi) other non-transportation services.
As used in this
Form 10-K,
the term revenue containers refers to containers
that are transported for a charge, as opposed to empty
containers.
49
Cost of
Services Overview
Our cost of services consist primarily of vessel operating
costs, marine operating costs, inland transportation costs, land
costs and rolling stock rent. Our vessel operating costs consist
primarily of vessel fuel costs, crew payroll costs and benefits,
vessel maintenance costs, space charter costs, vessel insurance
costs and vessel rent. We view our vessel fuel costs as subject
to potential fluctuation as a result of changes in unit prices
in the fuel market. Our marine operating costs consist of
stevedoring, port charges, wharfage and various other costs to
secure vessels at the port and to load and unload containers to
and from vessels. Our inland transportation costs consist
primarily of the costs to move containers to and from the port
via rail, truck or barge. Our land costs consist primarily of
maintenance, yard and gate operations, warehousing operations
and terminal overhead in the terminals in which we operate.
Rolling stock rent consists primarily of rent for street
tractors, yard equipment, chassis, gensets and various dry and
refrigerated containers.
Year Ended
December 20, 2009 Compared to Year Ended December 21,
2008
Horizon Lines
Segment
Horizon Lines provides container shipping services and terminal
services primarily in the U.S. domestic Jones Act trades,
operating a fleet of 20
U.S.-flag
containerships and five port terminals linking the continental
U.S. with Alaska, Hawaii, Guam, Micronesia, Asia and Puerto
Rico. The amounts presented below exclude all intercompany
transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating revenue
|
|
$
|
1,120,796
|
|
|
$
|
1,267,844
|
|
|
|
(11.6
|
)%
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
|
|
|
355,287
|
|
|
|
439,552
|
|
|
|
(19.2
|
)%
|
Marine
|
|
|
210,322
|
|
|
|
205,906
|
|
|
|
2.1
|
%
|
Inland
|
|
|
177,432
|
|
|
|
205,866
|
|
|
|
(13.8
|
)%
|
Land
|
|
|
138,296
|
|
|
|
148,449
|
|
|
|
(6.8
|
)%
|
Rolling stock rent
|
|
|
37,048
|
|
|
|
44,075
|
|
|
|
(15.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
918,385
|
|
|
|
1,043,848
|
|
|
|
(12.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
44,301
|
|
|
|
44,537
|
|
|
|
(0.5
|
)%
|
Amortization of vessel dry-docking
|
|
|
13,694
|
|
|
|
17,162
|
|
|
|
(20.2
|
)%
|
Selling, general and administrative
|
|
|
93,420
|
|
|
|
100,177
|
|
|
|
(6.7
|
)%
|
Settlement of class action lawsuit
|
|
|
20,000
|
|
|
|
|
|
|
|
100.0
|
%
|
Impairment of assets
|
|
|
1,867
|
|
|
|
6,030
|
|
|
|
(69.0
|
)%
|
Restructuring costs
|
|
|
752
|
|
|
|
3,126
|
|
|
|
(75.9
|
)%
|
Miscellaneous expense, net
|
|
|
1,059
|
|
|
|
2,857
|
|
|
|
(62.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
1,093,478
|
|
|
|
1,217,737
|
|
|
|
(10.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
27,318
|
|
|
$
|
50,107
|
|
|
|
(45.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio
|
|
|
97.6
|
%
|
|
|
96.0
|
%
|
|
|
1.6
|
%
|
Revenue containers (units)
|
|
|
257,625
|
|
|
|
276,282
|
|
|
|
(6.8
|
)%
|
50
Operating Revenue. Operating revenue decreased
$147.0 million, or 11.6%, and accounted for approximately
96.7% of consolidated operating revenue. This revenue decrease
can be attributed to the following factors (in thousands):
|
|
|
|
|
Bunker and intermodal fuel surcharges decline
|
|
$
|
(79,226
|
)
|
Revenue container volume decrease
|
|
|
(60,487
|
)
|
Non-transportation services decrease
|
|
|
(19,485
|
)
|
General rate increases
|
|
|
12,150
|
|
|
|
|
|
|
Total operating revenue decrease
|
|
$
|
(147,048
|
)
|
|
|
|
|
|
The revenue container volume declines are primarily due to soft
market conditions in all of our tradelanes and are partially
offset by general rate increases. General rate increases are
implemented to mitigate rising contractual costs. Bunker and
intermodal fuel surcharges, which are included in our
transportation revenue, accounted for approximately
11.5% of total revenue in the year ended December 20,
2009 and approximately 16.4% of total revenue in the year ended
December 21, 2008. We adjust our bunker and intermodal fuel
surcharges as a result of changes in the cost of bunker fuel for
our vessels, in addition to diesel fuel fluctuations passed on
to us by our truck, rail, and barge service providers. Fuel
surcharges are evaluated regularly as the price of fuel
fluctuates, and we may at times incorporate these surcharges
into our base transportation rates that we charge. The decrease
in non-transportation revenue is primarily due to lower space
charter revenue resulting from a decline in fuel surcharges, a
reduction in terminal services and the expiration of certain
government contracts.
Cost of Services. The $125.5 million
reduction in cost of services is primarily due to lower fuel
costs as a result of a decrease in fuel prices and a decline in
inland costs as a result of lower container volumes and reduced
expenses associated with our cost control efforts.
Vessel expense, which is not primarily driven by revenue
container volume, decreased $84.3 million for the year
ended December 20, 2009. This decrease can be attributed to
the following factors (in thousands):
|
|
|
|
|
Vessel fuel costs decline
|
|
$
|
(81,014
|
)
|
Vessel space charter expense decrease
|
|
|
(1,655
|
)
|
Labor and other vessel operating decrease
|
|
|
(1,596
|
)
|
|
|
|
|
|
Total vessel expense decrease
|
|
$
|
(84,265
|
)
|
|
|
|
|
|
The $81.0 million reduction in fuel costs is comprised of a
$73.2 million decrease due to fuel prices and a
$7.8 million decline due to lower daily consumption as a
result of lower active vessel operating days, changes in vessel
deployment, and our focus on both departure and arrival schedule
integrity lowering overall consumption. The decline in labor and
other vessel operating expense is due to a decrease in the
expense accrual for voyages in progress at the end of the year
and the recovery of certain employer-paid payroll taxes,
partially offset by more operating days in 2009 due to 3 more
dry-dockings as compared to 2008. We continue to incur labor
expenses associated with the vessels in dry-dock, while at the
same time incurring expenses associated with the spare vessel
deployed to serve as dry-dock relief.
Marine expense is comprised of the costs incurred to bring
vessels into and out of port, and to load and unload containers.
The types of costs included in marine expense are stevedoring
and associated benefits, pilotage fees, tug fees, government
fees, wharfage fees, dockage fees, and line handler fees. Marine
expense of $210.3 million for the year ended
December 20, 2009 increased $4.4 million as compared
to the year ended December 21, 2008 as the increases in
multi-employer plan benefit assessments for our west coast union
employees and contractual rate increases were partially offset
by a decrease in marine expense related to lower container
volumes.
Inland expense decreased to $177.4 million for the year
ended December 20, 2009 compared to $205.9 million
during the year ended December 21, 2008. The
$28.5 million decrease in inland expense is primarily due
to lower fuel costs, lower container volumes, and our cost
control efforts.
51
Land expense is comprised of the costs included within the
terminal for the handling, maintenance and storage of
containers, including yard operations, gate operations,
maintenance, warehouse and terminal overhead.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Land expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance
|
|
$
|
49,414
|
|
|
$
|
53,692
|
|
|
|
(8.0
|
)%
|
Terminal overhead
|
|
|
52,447
|
|
|
|
58,046
|
|
|
|
(9.6
|
)%
|
Yard and gate
|
|
|
29,154
|
|
|
|
28,636
|
|
|
|
1.8
|
%
|
Warehouse
|
|
|
7,281
|
|
|
|
8,075
|
|
|
|
(9.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total land expense
|
|
$
|
138,296
|
|
|
$
|
148,449
|
|
|
|
(6.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vessel related maintenance expenses decreased primarily due
to lower fuel costs. Terminal overhead decreased primarily due
to lower utilities expense, a decline in compensation costs as a
result of the reduction in workforce, and a decrease in
severance charges related to certain union employees who elected
early retirement. Yard and gate expense is comprised of the
costs associated with moving cargo into and out of the terminal
facility and the costs associated with the storage of equipment
and revenue loads in the terminal facility. Yard and gate
expenses increased primarily as a result of $0.2 million
due to a one-time stevedoring revenue opportunity, a
$0.2 million write down of certain prepaid capital
expenditures related to our San Juan, Puerto Rico port
redevelopment project as a result of the bankruptcy filing of
the general contractor, and $0.2 million of rate increases
in the monitoring of refrigerated containers.
Rolling stock expense decreased $7.0 million or 15.9%
during the year ended December 20, 2009 as compared to the
year ended December 21, 2008. This decrease is primarily
due to the off-hire of certain leased container units and
increased efficiencies in association with our cost control
efforts.
Depreciation and Amortization. Depreciation
and amortization was $44.3 million during the year ended
December 20, 2009 compared to $44.5 million for the
year ended December 21, 2008. The decrease in
depreciation-owned vessels is due to certain vessel assets
becoming fully depreciated and no longer subject to depreciation
expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation owned vessels
|
|
$
|
9,186
|
|
|
$
|
9,627
|
|
|
|
(4.6
|
)%
|
Depreciation and amortization other
|
|
|
14,810
|
|
|
|
14,605
|
|
|
|
1.4
|
%
|
Amortization of intangible assets
|
|
|
20,305
|
|
|
|
20,305
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
44,301
|
|
|
$
|
44,537
|
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of vessel dry-docking
|
|
$
|
13,694
|
|
|
$
|
17,162
|
|
|
|
(20.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Vessel
Dry-docking. Amortization of vessel dry-docking
was $13.7 million during the year ended December 20,
2009 compared to $17.2 million for the year ended
December 21, 2008. Amortization of vessel dry-docking
fluctuates based on the timing of dry-dockings, the number of
dry-dockings that occur during a given period, and the amount of
expenditures incurred during the dry-dockings. Dry-dockings
generally occur every two and a half years and historically we
have dry-docked approximately six vessels per year.
Selling, General and Administrative. Selling,
general and administrative costs decreased to $93.4 million
for the year ended December 20, 2009 compared to
$100.2 million for the year ended
52
December 21, 2008, a decline of $6.8 million or 6.7%.
This decrease is comprised of a $4.3 million reduction in
consultant fees incurred during 2008 related to our process
re-engineering initiative, $5.6 million related to the
reduction in workforce, and $0.6 million decline in
stock-based compensation expense, partially offset by
$1.5 million of higher expenses related to the antitrust
investigation and related legal proceedings, $3.0 million
related to our performance incentive plan, and $1.0 million
increase in legal fees unrelated to the antitrust investigation.
Settlement of Class Action Lawsuit. On
June 11, 2009, we entered into a settlement agreement with
the plaintiffs in the Puerto Rico MDL litigation. Under the
settlement agreement, which has not yet been approved by the
Court, we have agreed to pay $20.0 million and to certain
base-rate freezes, to resolve claims for alleged antitrust
violations in the Puerto Rico tradelane.
Impairment Charge. Impairment of assets of
$1.9 million during the year ended December 20, 2009
related to a write-down of the carrying value of our spare
vessels. Impairment of assets during the year ended
December 21, 2008 included $3.3 million and
$2.7 million related to our spare vessels and certain owned
and leased equipment, respectively.
Restructuring Charge. Restructuring costs of
$0.8 million during the year ended December 20, 2009
included $0.7 million and $0.1 million related to
severance costs and other costs associated with our workforce
reduction initiative, respectively. The $0.7 million of
severance costs included $0.5 million related to the
acceleration of certain stock-based compensation awards.
Restructuring costs during the year ended December 21, 2008
included $3.0 million and $0.1 million related to
severance costs and contract termination and legal costs,
respectively.
Miscellaneous Expense, Net. Miscellaneous
expense, net decreased $1.8 million during the years ended
December 20, 2009 compared to the year ended
December 21, 2008 primarily as a result of lower bad debt
expense during 2009 due to a decrease in revenue.
Horizon Logistics
Segment
Horizon Logistics manages integrated logistics service
offerings, including rail, trucking and distribution operations.
The amounts presented below exclude all intercompany
transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating revenue
|
|
$
|
37,685
|
|
|
$
|
36,415
|
|
|
|
3.5
|
%
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inland
|
|
|
29,732
|
|
|
|
27,446
|
|
|
|
8.3
|
%
|
Land
|
|
|
6,163
|
|
|
|
2,998
|
|
|
|
105.6
|
%
|
Rolling stock rent
|
|
|
635
|
|
|
|
383
|
|
|
|
65.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
36,530
|
|
|
|
30,827
|
|
|
|
18.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
565
|
|
|
|
1,106
|
|
|
|
(48.9
|
)%
|
Selling, general and administrative
|
|
|
8,811
|
|
|
|
8,029
|
|
|
|
9.7
|
%
|
Impairment of assets
|
|
|
|
|
|
|
19,385
|
|
|
|
(100.0
|
)%
|
Restructuring costs
|
|
|
249
|
|
|
|
118
|
|
|
|
111.0
|
%
|
Miscellaneous expense, net
|
|
|
10
|
|
|
|
41
|
|
|
|
(75.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
46,165
|
|
|
|
59,506
|
|
|
|
(22.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(8,480
|
)
|
|
$
|
(23,091
|
)
|
|
|
(63.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenue. Horizon Logistics operating
revenue accounted for approximately 3.3% of consolidated
operating revenue. Revenue increased to $37.7 million
during the year ended
53
December 20, 2009 compared to $36.4 million during the
year ended December 21, 2008. This increase is primarily
due to the NVOCC and brokerage operations expansion, partially
offset by a decline in the demand for our expedited logistics
service offering.
Cost of Services. Cost of services increased
to $36.5 million for the year ended
December 20, 2009 compared to $30.8 million for
the year ended December 21, 2008, an increase of
$5.7 million. The increase in cost of services is primarily
due to the expansion of lower margin service offerings.
Depreciation and Amortization. Depreciation
and amortization was $0.6 million during the year ended
December 20, 2009 compared to $1.1 million for the
year ended December 21, 2008. The decrease in amortization
is due to the impairment of the customer relationship intangible
asset during the fourth quarter of 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation other
|
|
$
|
239
|
|
|
$
|
111
|
|
|
|
115,3
|
%
|
Amortization of intangible assets
|
|
|
326
|
|
|
|
995
|
|
|
|
(67.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
565
|
|
|
$
|
1,106
|
|
|
|
(48.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative. Selling,
general and administrative costs increased to $8.8 million
for the year ended December 20, 2009 compared to
$8.0 million for the year ended December 21, 2008, an
increase of $0.8 million. This increase is primarily due to
increased personnel costs, including $0.4 million related
to our performance incentive plan and $0.5 million related
to headcount additions in 2009.
Impairment of Assets. Impairment of assets
during the year ended December 21, 2008 included
$17.7 million and $1.7 million related to goodwill and
customer contracts acquired, respectively.
Unallocated
Expenses
Interest Expense, Net. Interest expense, net
of $39.7 million for the year ended
December 20, 2009 was lower compared to
$41.4 million during the year ended December 21, 2008.
The decrease in interest expense due to the lower outstanding
balance on the revolving line of credit and lower LIBOR base
rates was partially offset by the higher credit spread
percentage rate resulting from the June 2009 amendment to our
Senior Credit Facility.
Income Tax Expense. The effective tax rate for
the years ended December 20, 2009 and December 21,
2008 was (49.6)% and 81.9%, respectively. During the second
quarter of 2009, we determined that it was unclear as to the
timing of when we will generate sufficient taxable income to
realize our deferred tax assets. Accordingly, we recorded a
valuation allowance against our deferred tax assets. Although we
have recorded a valuation allowance against our deferred tax
assets, it does not affect our ability to utilize our deferred
tax assets to offset future taxable income. Until such time that
we determine it is more likely than not that we will generate
sufficient taxable income to realize our deferred tax assets,
income tax benefits associated with future period losses will be
fully reserved. As such, the Companys federal and state
tax rates are expected to effectively be 0% and 1%-2%,
respectively, during those periods.
During 2006, we elected the application of tonnage tax. Prior to
recording a valuation allowance against our deferred tax assets,
the effective tax rate was impacted by our income from
qualifying shipping activities as well as the income from our
non-qualifying shipping activities and will fluctuate based on
the ratio of income from qualifying and non-qualifying
activities and the relative size of our consolidated income
(loss) before income taxes.
54
Year Ended
December 21, 2008 Compared to Year Ended December 23,
2007
Horizon Lines
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Operating revenue
|
|
$
|
1,267,844
|
|
|
$
|
1,190,922
|
|
|
|
6.5
|
%
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
|
|
|
439,552
|
|
|
|
368,728
|
|
|
|
19.2
|
%
|
Marine
|
|
|
205,906
|
|
|
|
198,927
|
|
|
|
3.5
|
%
|
Inland
|
|
|
205,866
|
|
|
|
197,642
|
|
|
|
4.2
|
%
|
Land
|
|
|
148,449
|
|
|
|
132,284
|
|
|
|
12.2
|
%
|
Rolling stock rent
|
|
|
44,075
|
|
|
|
45,284
|
|
|
|
(2.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
1,043,848
|
|
|
|
942,865
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
44,537
|
|
|
|
41,669
|
|
|
|
6.9
|
%
|
Amortization of vessel dry-docking
|
|
|
17,162
|
|
|
|
17,491
|
|
|
|
(1.9
|
)%
|
Selling, general and administrative
|
|
|
100,177
|
|
|
|
85,638
|
|
|
|
17.0
|
%
|
Impairment of assets
|
|
|
6,030
|
|
|
|
|
|
|
|
100.0
|
%
|
Restructuring costs
|
|
|
3,126
|
|
|
|
|
|
|
|
100.0
|
%
|
Miscellaneous expense, net
|
|
|
2,857
|
|
|
|
847
|
|
|
|
237.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
1,217,737
|
|
|
|
1,088,510
|
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
50,107
|
|
|
$
|
102,412
|
|
|
|
(51.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio
|
|
|
96.0
|
%
|
|
|
91.4
|
%
|
|
|
4.6
|
%
|
Revenue containers (units)
|
|
|
276,282
|
|
|
|
285,880
|
|
|
|
(3.4
|
)%
|
Operating Revenue. Operating revenue increased
$76.9 million, or 6.5%, and accounted for approximately
97.2% of consolidated operating revenue. This revenue increase
can be attributed to the following factors (in thousands):
|
|
|
|
|
Bunker and intermodal fuel surcharges included in rates
|
|
$
|
63,711
|
|
General rate increases
|
|
|
29,918
|
|
Increase in other non-transportation services
|
|
|
11,517
|
|
Revenue related to acquisitions
|
|
|
6,932
|
|
Revenue container volume decrease
|
|
|
(35,156
|
)
|
|
|
|
|
|
Total operating revenue increase
|
|
$
|
76,922
|
|
|
|
|
|
|
The revenue container volume decline is primarily due to
deteriorating market conditions in Puerto Rico and Hawaii and is
partially offset by general rate increases. Bunker and
intermodal fuel surcharges, which are included in our
transportation revenue, accounted for approximately 16.4% of
total revenue in the year ended December 21, 2008 and
approximately 12.1% of total revenue in the year ended
December 23, 2007. We adjusted our bunker and intermodal
fuel surcharges several times throughout 2008 and 2007 as a
result of fluctuations in the cost of fuel for our vessels, in
addition to fuel fluctuations passed on to us by our truck,
rail, and barge service providers. Fuel surcharges are evaluated
regularly as the price of fuel fluctuates, and we may at times
incorporate these surcharges into our base transportation rates
that we charge. The increase in non-transportation revenue is
primarily due to higher space charter revenue resulting from an
increase in fuel surcharges, offset by a decrease in terminal
services.
55
Cost of Services. The $101.0 million
increase in cost of services is primarily due to an increase in
fuel costs as a result of an increase in fuel prices, which is
partially offset by reduced expenses associated with lower
container volumes and reduced expenses associated with our cost
control efforts.
Vessel expense, which is not primarily driven by revenue
container volume, increased $70.8 million for the year
ended December 21, 2008. This increase can be attributed to
the following factors (in thousands):
|
|
|
|
|
Vessel fuel costs increase
|
|
$
|
64,231
|
|
Vessel lease expense increase
|
|
|
8,394
|
|
Labor and other vessel operating decreases
|
|
|
(1,801
|
)
|
|
|
|
|
|
Total vessel expense increase
|
|
$
|
70,824
|
|
|
|
|
|
|
The $64.2 million increase in fuel costs is comprised of
$75.3 million increase in fuel prices offset by an
$11.1 million decrease due to lower fuel consumption,
despite an increase in vessel operating days. The decrease in
labor and other vessel operating expense is due to lower
operating expenses associated with less dry-dockings in 2008 and
$3.5 million related to certain one-time expenses
associated with the activation of the new vessels during the
year ended December 23, 2007. We continue to incur labor
expenses associated with vessels that are in dry-dock, while
also incurring expenses associated with the spare vessels
deployed to serve as dry-dock relief. The reductions were
partially offset by higher vessel lay up costs of
$1.2 million during the year ended December 21, 2008
and a supplementary premium call related to our protection and
indemnity insurance policy totaling $1.3 million for the
year ended December 21, 2008.
Marine expense is comprised of the costs incurred to bring
vessels into and out of port, and to load and unload containers.
The types of costs included in marine expense are stevedoring
and benefits, pilotage fees, tug fees, government fees, wharfage
fees, dockage fees, and line handler fees. Marine expense
increased to $205.9 million for the year ended
December 21, 2008 from $198.9 million for the year
ended December 23, 2007. The increase in marine expenses
can be attributed to increased stevedoring costs related to
contractual rate increases and services provided to third
parties as a result of the acquisition of HSI, partially offset
by lower container volumes.
Inland expense increased to $205.9 million for the year
ended December 21, 2008 from $197.6 million for the
year ended December 23, 2007, an increase of
$8.3 million or 4.2%. The increase in inland expense is due
to $12.8 million in higher fuel costs and contractual rates
increases, offset slightly by lower container volumes.
Land expense is comprised of the costs included within the
terminal for the handling, maintenance and storage of
containers, including yard operations, gate operations,
maintenance, warehouse and terminal overhead.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Land expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance
|
|
$
|
53,692
|
|
|
$
|
50,440
|
|
|
|
6.4
|
%
|
Terminal overhead
|
|
|
58,046
|
|
|
|
50,522
|
|
|
|
14.9
|
%
|
Yard and gate
|
|
|
28,636
|
|
|
|
23,647
|
|
|
|
21.1
|
%
|
Warehouse
|
|
|
8,075
|
|
|
|
7,675
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total land expense
|
|
$
|
148,449
|
|
|
$
|
132,284
|
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vessel related maintenance expenses increased primarily due
to $3.1 million of additional fuel expenses. In addition,
$0.7 million of maintenance expenses incurred by HSI was
offset by a decrease in overall repair expenses. The decrease in
overall repair expenses is associated with lower
56
volumes and our cost control efforts. Terminal overhead
increased primarily due to the acquisition of HSI, an increase
in rent expense as a result of the move to our warehouse to
Compton, California, a severance charge for several union
employees who elected early retirement, and labor and other
inflationary increases. Yard and gate expense is comprised of
the costs associated with moving cargo into and out of the
terminal facility and the costs associated with the storage of
equipment and revenue loads in the terminal facility. Yard and
gate expenses increased primarily due to rate increases in the
monitoring of refrigerated containers.
Depreciation and Amortization. Depreciation
and amortization was $44.5 million during the year ended
December 21, 2008 compared to $41.7 million for the
year ended December 23, 2007. The increase in depreciation
and amortization-other is primarily due the timing of the
purchase and sale of our containers. The increase in
amortization of intangible assets is due to the amortization of
the intangible assets recorded in conjunction with the
acquisition of HSI.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation owned vessels
|
|
$
|
9,627
|
|
|
$
|
9,996
|
|
|
|
(3.7
|
)%
|
Depreciation and amortization other
|
|
|
14,605
|
|
|
|
11,743
|
|
|
|
24.4
|
%
|
Amortization of intangible assets
|
|
|
20,305
|
|
|
|
19,930
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
44,537
|
|
|
$
|
41,669
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of vessel dry-docking
|
|
$
|
17,162
|
|
|
$
|
17,491
|
|
|
|
(1.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Vessel
Dry-docking. Amortization of vessel dry-docking
during the year ended December 21, 2008 was flat compared
to the year ended December 23, 2007. Amortization of vessel
dry-docking fluctuates based on the timing of dry-dockings, the
number of dry-dockings that occur during a given period, and the
amount of expenditures incurred during the dry-dockings.
Dry-dockings generally occur every two and a half years and
historically we have dry-docked approximately six vessels per
year on average.
Selling, General and Administrative. Selling,
general and administrative costs increased to
$100.2 million for the year ended December 21, 2008
compared to $85.6 million for the year ended
December 23, 2007, an increase of $14.6 million or
17.0%. This increase is comprised of $10.7 million of
expenses related to the Department of Justice antitrust
investigation and related legal proceedings and an increase of
approximately $2.0 million in the accrual related to a
discretionary performance-based payout.
Impairment of Assets. Impairment of assets
included $3.3 million and $2.7 million related to our
spare vessels and certain owned and leased equipment,
respectively.
Restructuring Costs. Restructuring costs
included $3.0 million and $0.1 million related to
severance costs and contract termination and legal costs,
respectively.
Miscellaneous Expense, Net. Miscellaneous
expense, net increased $2.0 million during the year ended
December 21, 2008 compared to the year ended
December 23, 2007 primarily as a result of an increase in
bad debt expense due to higher revenue and lower gain on the
sale of assets during 2008.
57
Horizon Logistics
Segment
Horizon Logistics manages integrated logistics service
offerings, including rail, trucking and distribution operations.
The amounts presented below exclude all intercompany
transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating revenue
|
|
$
|
36,415
|
|
|
$
|
15,593
|
|
|
|
133.5
|
%
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inland
|
|
|
27,446
|
|
|
|
8,373
|
|
|
|
227.8
|
%
|
Land
|
|
|
2,998
|
|
|
|
2,671
|
|
|
|
12.2
|
%
|
Rolling stock rent
|
|
|
383
|
|
|
|
97
|
|
|
|
294.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
30,827
|
|
|
|
11,141
|
|
|
|
176.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,106
|
|
|
|
6,201
|
|
|
|
(82.2
|
)%
|
Selling, general and administrative
|
|
|
8,029
|
|
|
|
5,340
|
|
|
|
50.4
|
%
|
Impairment of assets
|
|
|
19,385
|
|
|
|
|
|
|
|
100.0
|
%
|
Restructuring costs
|
|
|
118
|
|
|
|
|
|
|
|
100.0
|
%
|
Miscellaneous expense, net
|
|
|
41
|
|
|
|
150
|
|
|
|
(72.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
59,506
|
|
|
|
22,832
|
|
|
|
160.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(23,091
|
)
|
|
$
|
(7,239
|
)
|
|
|
(219.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenue. Horizon Logistics operating
revenue accounted for approximately 2.8% of consolidated
operating revenue. Approximately $18.9 million of the
$20.8 million increase during the year ended
December 21, 2008 is due to the acquisition of Aero
Logistics.
Cost of Services. Cost of services increased
to $30.8 million for the year ended
December 21, 2008 compared to $11.1 million for
the year ended December 23, 2007, an increase of
$19.7 million. The increase in cost of services is
primarily due to increased inland expenses as a result of the
acquisition of Aero Logistics.
Depreciation and Amortization. Depreciation
and amortization was $1.1 million during the year ended
December 21, 2008 compared to $6.2 million for the
year ended December 23, 2007. The decrease in
depreciation-other is due to certain capitalized software assets
becoming fully depreciated and no longer subject to depreciation
expense. The increase in amortization of intangible assets is
due to the amortization of the intangible assets recorded in
conjunction with the acquisition of Aero Logistics.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation other
|
|
$
|
111
|
|
|
$
|
5,893
|
|
|
|
(98.1
|
)%
|
Amortization of intangible assets
|
|
|
995
|
|
|
|
308
|
|
|
|
223.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
1,106
|
|
|
$
|
6,201
|
|
|
|
(82.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative. Selling,
general and administrative costs increased to $8.0 million
for the year ended December 21, 2008 compared to
$5.3 million for the year ended December 23, 2007, an
increase of $2.7 million. This increase is due to the ramp
up of activities and personnel within the logistics segment,
including the acquisition of Aero Logistics.
58
Impairment of Assets. Impairment of assets
included $17.7 million and $1.7 million related to
goodwill and customer contracts acquired, respectively.
Unallocated
Expenses
Interest Expense, Net. Interest expense, net
decreased to $41.4 million for the year ended
December 21, 2008 from $44.9 million for the year
ended December 23, 2007, a decrease of $3.5 million or
7.7%. This decrease is a result of the August 2007 refinancing
and the related lower interest rates payable on the outstanding
debt.
Loss on Early Extinguishment of Debt. Loss on
early extinguishment of debt was $38.5 million for the year
ended December 23, 2007. The loss on extinguishment of debt
is due to the write off of net deferred financing costs and
premiums paid in connection with the tender offer for the
9% senior notes and 11% senior discount notes and the
extinguishment of the prior senior credit facility.
Income Tax Benefit. The effective tax rate for
the years ended December 21, 2008 and December 23,
2007 was 81.9% and (129.8)%, respectively. During 2006, we
elected the application of tonnage tax. We modified our trade
routes between the U.S. west coast and Guam and Asia during
the first quarter of 2007. As such, our shipping activities
associated with these modified trade routes became qualified
shipping activities, and thus the income from these vessels is
excluded from gross income in determining federal income tax
liability. During 2007, we recorded a $7.3 million tax
benefit related to a revaluation of the deferred taxes
associated with the activities now subject to tonnage tax as a
result of the modified trade routes and related to a change in
estimate resulting in refinements in our methodology for
computing secondary activities and cost allocations for tonnage
tax purposes. The effective tax rate is impacted by our income
from qualifying shipping activities as well as the income from
our non-qualifying shipping activities and will fluctuate based
on the ratio of income from qualifying and non-qualifying
activities and the relative size of our consolidated income
(loss) before income taxes.
Liquidity and
Capital Resources
Our principal sources of funds have been (i) earnings
before non-cash charges and (ii) borrowings under debt
arrangements. Our principal uses of funds have been
(i) capital expenditures on our container fleet, our
terminal operating equipment, improvements to our owned and
leased vessel fleet, and our information technology systems,
(ii) vessel dry-docking expenditures, (iii) working
capital consumption, (iv) principal and interest payments
on our existing indebtedness, (v) dividend payments to our
common stockholders, (vi) acquisitions, (vii) share
repurchases, (viii) premiums associated with the tender
offer, and (ix) purchases of equity instruments in
conjunction with the Notes. Cash totaled $6.4 million at
December 20, 2009. As of December 20, 2009, total
unused borrowing capacity under the revolving credit facility
was $113.9 million, after taking into account
$100.0 million outstanding under the revolver and
$11.1 million utilized for outstanding letters of credit.
Based on our leverage ratio, borrowing availability under the
revolving credit facility was $98.4 million as of
December 20, 2009.
59
Operating
Activities
Net cash provided by operating activities was $57.5 million
for the year ended December 20, 2009 compared to
$89.4 million for the year ended December 21, 2008, a
decrease of $31.9 million. The decrease in cash provided by
operating activities is primarily due to the following (in
thousands):
|
|
|
|
|
Earnings adjusted for non-cash charges
|
|
$
|
(35,635
|
)
|
Increase in payments related to Department of Justice antitrust
investigation and related legal proceedings
|
|
|
(4,447
|
)
|
Increase in payments related to restructuring and early
termination of leased assets
|
|
|
(6,213
|
)
|
Increase in accrual for settlement of class action lawsuit
|
|
|
15,000
|
|
Increase in accounts receivable collections
|
|
|
5,909
|
|
Other decreases in working capital, net
|
|
|
(6,484
|
)
|
|
|
|
|
|
|
|
$
|
(31,870
|
)
|
|
|
|
|
|
Net cash provided by operating activities increased by
$34.6 million to $89.4 million for the year ended
December 21, 2008 from $54.8 million for the year
ended December 23, 2007. Net earnings adjusted for
depreciation, amortization, deferred income taxes, accretion and
other non-cash operating activities, which includes non-cash
stock-based compensation expense, resulted in cash flow
generation of $92.3 million for the year ended
December 21, 2008 compared to $131.6 million for the
year ended December 23, 2007, a decrease of
$39.3 million. The reduction in cash provided by operating
activities is primarily related to a $21.1 million decrease
in vessel rent payments in excess of accruals, a decrease of
$10.5 million in performance incentive payments in excess
of accruals, an $18.5 million decrease in accounts
receivable, and a $15.0 million decrease in materials and
supplies.
Investing
Activities
Net cash used in investing activities was $11.8 million for
the year ended December 20, 2009 compared to
$38.8 million for the year ended December 21, 2008.
The reduction is primarily related to a $26.1 million
decrease in capital spending. Capital expenditures during the
years ended December 20, 2009 and December 21, 2008
include $2.5 million and $14.1 million, respectively,
of progress payments for three new cranes in our Anchorage,
Alaska terminal.
Net cash used in investing activities was $38.8 million for
the year ended December 21, 2008 compared to
$59.4 million for the year ended December 23, 2007.
The reduction is primarily related to a $31.1 million
decrease in the purchases of businesses, partially offset by a
$2.8 million decrease in proceeds from the sale of
equipment increase and a $7.7 million increase in capital
expenditures, which includes $14.1 million of progress
payments for three new cranes in our Anchorage, Alaska terminal.
Financing
Activities
Net cash used in financing activities during the year ended
December 20, 2009 was $44.8 million compared to
$51.3 million for the year ended December 21, 2008.
The net cash used in financing activities during the year ended
December 20, 2009 included $28.0 million of net debt
repayments and $13.4 million of dividends to stockholders.
In addition, during the year ended December 20, 2009, we
paid $3.5 million in financing costs related to fees
associated with the amendment to the Senior Credit Facility.
Net cash used in financing activities during the year ended
December 21, 2008 was $51.3 million compared to
$83.1 million for the year ended December 23, 2007.
The net cash used in financing activities during the year ended
December 21, 2008 included $8.5 million of net
repayments made on the Senior Credit Facility,
$13.3 million of dividends to stockholders and
$29.3 million to complete the stock repurchase program.
During the year December 23 2007, we refinanced our debt
structure. We
60
used the proceeds provided by the Senior Credit Facility (as
defined below) and the Notes (as defined below) to
(i) repay $192.8 million of borrowings outstanding
under the prior senior credit facility (ii) purchase the
outstanding principal and pay associated premiums of the
9% senior notes and 11% senior discount notes
purchased in our tender offer, and (iii) purchase
1,000,000 shares of our common stock. Concurrent with the
issuance of the Notes, we entered into hedge transactions
whereby, under certain circumstances, we have the option to
receive shares of our common stock, and we sold warrants whereby
certain financial institutions have the option to receive shares
of our common stock. Our cost of the note hedge transactions was
approximately $52.5 million and we received proceeds of
$11.9 million related to the sale of the warrants. The net
cash used in financing activities during the year ended
December 23, 2007 also includes a $25.0 million
prepayment under the Prior Senior Credit Facility,
$14.7 million of dividends to stockholders,
$20.7 million of treasury stock purchased under the stock
repurchase program, and $4.5 million in long-term debt
payments related to the outstanding indebtedness secured by
mortgages on the Horizon Enterprise and the Horizon Pacific.
Stock Repurchase
Program
On November 19, 2007, our Board of Directors authorized the
Company to commence a stock repurchase program to buy back up to
$50.0 million worth of our common stock. The program
allowed us to purchase shares through open market repurchases
and privately negotiated transactions at a price of $26.00 per
share or less until the programs expiration on
December 31, 2008. We acquired 1,172,700 shares at a
total cost of $20.7 million under this program during the
fourth quarter of 2007. We completed our share repurchase
program in the first quarter of 2008, acquiring an additional
1,627,500 shares at a total cost of $29.3 million.
Capital
Requirements and Liquidity
Continued uncertainty in the credit markets has made financing
terms for borrowers less attractive and in certain cases has
resulted in the unavailability of certain types of debt
financing. Although these factors may make it difficult or
expensive for us to access credit markets, we have access to
credit. We believe we have sufficient liquidity to meet our
current needs and are closely managing our cash flows, including
capital spending, based on current and anticipated volume
levels. We will defer or limit capital additions where
economically feasible. Based upon our current level of
operations, we believe that cash flow from operations and
available cash, together with borrowings available under the
senior credit facility, will be adequate to meet our liquidity
needs throughout 2010. During 2010, we expect to spend
approximately $20.0 million and $25.0 million on
capital expenditures and dry-docking expenditures, respectively.
Such capital expenditures will include terminal infrastructure
and equipment, continued redevelopment of our San Juan,
Puerto Rico terminal, and vessel regulatory, modification, and
maintenance initiatives. We intend to utilize our cash flows for
working capital needs, to make debt repayments, to fund the
potential settlement of the Puerto Rico MDL, and to pay
dividends. Our term loan payments increase from
$6.3 million in 2009 to $18.8 million in 2010.
Although, we currently expect that cash dividends will continue
to be paid in the future, we have no commitment to do so and can
provide no assurance this will occur. Due to the seasonality
within our business, we will utilize borrowings under the senior
credit facility in the first half of 2010, but plan to repay
such borrowings in the second half of the year.
61
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual obligations as of December 20, 2009 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Obligations
|
|
|
2010
|
|
|
2011-2012
|
|
|
2013-2014
|
|
|
2014
|
|
|
Principal and operating lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior credit facility
|
|
$
|
212,500
|
|
|
$
|
18,750
|
|
|
$
|
193,750
|
|
|
$
|
|
|
|
$
|
|
|
4.25% convertible senior notes
|
|
|
330,000
|
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
Operating leases(1)
|
|
|
580,349
|
|
|
|
107,389
|
|
|
|
132,062
|
|
|
|
167,453
|
|
|
|
173,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,122,849
|
|
|
|
126,139
|
|
|
|
655,812
|
|
|
|
167,453
|
|
|
|
173,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest obligations:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior credit facility
|
|
|
26,770
|
|
|
|
10,132
|
|
|
|
16,638
|
|
|
|
|
|
|
|
|
|
4.25% convertible senior notes
|
|
|
42,075
|
|
|
|
14,025
|
|
|
|
28,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
68,845
|
|
|
|
24,157
|
|
|
|
44,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments(3)
|
|
|
28,383
|
|
|
|
23,663
|
|
|
|
4,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
1,220,077
|
|
|
$
|
173,959
|
|
|
$
|
705,220
|
|
|
$
|
167,453
|
|
|
$
|
173,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
$
|
11,086
|
|
|
$
|
11,086
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The above contractual obligations table does not include the
residual guarantee related to our transaction with Ship Finance
Limited. If Horizon Lines does not elect to purchase the vessels
at the end of the initial twelve year period and the vessel
owners sell the vessels for less than a specified amount,
Horizon Lines is responsible for paying the amount of such
shortfall which will not exceed $3.8 million per vessel.
Such residual guarantee has been recorded at its fair value of
approximately $0.2 million as a liability. |
|
(2) |
|
Included in contractual obligations are scheduled interest
payments. Interest payments on the term loan portion of the
senior credit facility are fixed and based on the interest rate
swap (as defined below). Interest payments on the revolver
portion of the senior credit facility are variable and are based
as of December 20, 2009 upon the London Inter-Bank Offered
Rate (LIBOR) plus 3.25%. The three-month LIBOR /swap curve has
been utilized to estimate interest payments on the senior credit
facility. Interest on the 4.25% convertible senior notes is
fixed and is paid semi-annually on February 15 and August 15 of
each year, until maturity on August 15, 2012. |
|
(3) |
|
Other commitments includes the purchase commitment related to
the Anchorage, Alaska cranes, restructuring liabilities, and
pending settlement of the class action lawsuit. |
We are not a party to any off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future
effect on our financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Long-Term
Debt
Senior Credit
Facility
On August 8, 2007, we entered into a credit agreement (the
Senior Credit Facility) secured by substantially all
our owned assets. On June 11, 2009, the Senior Credit
Facility was amended resulting in a reduction in the size of the
revolving credit facility from $250.0 million to
$225.0 million. The terms of the Senior Credit Facility
also provide for a $20.0 million swingline subfacility and
a $50.0 million letter of credit subfacility.
The amendment to the Senior Credit Facility is intended to
provide us the flexibility that we need to effect the settlement
of the Puerto Rico class action litigation and to incur other
antitrust related
62
litigation expenses. The amendment revises the definition of
Consolidated EBITDA by allowing for certain charges, including
(i) the Puerto Rico settlement and (ii) litigation
expenses related to antitrust litigation matters in an amount
not to exceed $25 million in the aggregate and
$15 million over a
12-month
period, to be added back to the calculation of Consolidated
EBITDA. In addition, the Senior Credit Facility was amended to
(i) increase the spread over LIBOR and Prime based rates by
150 bps, (ii) increase the range of fees on the unused
portion of the commitment, (iii) eliminate the
$150 million incremental facility, (iv) modify the
definition of Consolidated EBITDA to eliminate the term
non-recurring charges, and (v) incorporate
other structural enhancements, including a step-down in the
secured leverage ratio and further limitations on the ability to
make certain restricted payments. As a result of the amendment
to the Senior Credit Facility, we paid $3.5 million in
financing costs and recorded a loss on modification of debt of
$0.1 million.
We have made quarterly principal payments on the term loan of
approximately $1.6 million since December 31, 2007.
Effective December 31, 2009, quarterly payments will
increase to $4.7 million through September 30, 2011,
at which point quarterly payments will increase to
$18.8 million until final maturity on August 8, 2012.
The interest rate payable under the Senior Credit Facility
varies depending on the types of advances or loans we select.
Borrowings under the Senior Credit Facility bear interest
primarily at LIBOR-based rates plus a spread which ranges from
2.75% to 3.5% (LIBOR plus 3.25% as of December 20,
2009) depending on our ratio of total secured debt to
EBITDA (as defined in the Senior Credit Facility). We also have
the option to borrow at Prime plus a spread which ranges from
1.75% to 2.5% (Prime plus 2.25% as of December 20, 2009).
The weighted average interest rate at December 20, 2009 was
approximately 5.1%, which includes the impact of the interest
rate swap (as defined below). We also pay a variable commitment
fee on the unused portion of the commitment, ranging from 0.375%
to 0.50% (0.50% as of December 20, 2009).
The Senior Credit Facility contains customary affirmative and
negative covenants and warranties, including two financial
covenants with respect to our leverage and interest coverage
ratio and limits the level of dividends and stock repurchases in
addition to other restrictions. It also contains customary
events of default, subject to grace periods. We were in
compliance with all such covenants as of December 20, 2009
and expect to be in compliance during 2010.
Derivative
Instruments
On March 31, 2008, we entered into an Interest Rate Swap
Agreement (the swap) with Wachovia Bank, National
Association, a current subsidiary of Wells Fargo &
Co., (Wachovia) in the notional amount of
$121.9 million. The swap expires on August 8, 2012.
Under the swap, the Company and Wachovia have agreed to exchange
interest payments on the notional amount on the last business
day of each calendar quarter. We have agreed to pay a 3.02%
fixed interest rate, and Wachovia has agreed to pay a floating
interest rate equal to the three-month LIBOR rate. The critical
terms of the swap agreement and the term loan are the same,
including the notional amounts, interest rate reset dates,
maturity dates and underlying market indices. The purpose of
entering into this swap is to protect us against the risk of
rising interest rates by effectively fixing the base interest
rate payable related to our term loan.
The swap has been designated as a cash flow hedge of the
variability of the cash flows due to changes in LIBOR and has
been deemed to be highly effective. Accordingly, we record the
fair value of the swap as an asset or liability on our
consolidated balance sheet, and any unrealized gain or loss is
included in accumulated other comprehensive (loss) income. As of
December 20, 2009, we recorded a liability of
$4.5 million, of which $0.7 million is included in
other accrued liabilities and $3.8 million is included in
other long-term liabilities, in the accompanying consolidated
balance sheet. We also recorded $0.2 million and
$3.9 million in other comprehensive income (loss) for the
years ended December 20, 2009 and December 21, 2008,
respectively. No hedge ineffectiveness was recorded during the
years ended December 20, 2009 and December 21, 2008.
If the hedge was deemed ineffective, or extinguished by either
counterparty, any accumulated gains or losses remaining in other
comprehensive income would be fully recorded in interest expense
during the period.
63
4.25% Convertible
Senior Notes
On August 8, 2007, we issued $330.0 million aggregate
principal amount of 4.25% Convertible Senior Notes due 2012
(the Notes). The Notes are general unsecured
obligations of the Company and rank equally in right of payment
with all of our other existing and future obligations that are
unsecured and unsubordinated. The Notes bear interest at the
rate of 4.25% per annum, which is payable in cash semi-annually
on February 15 and August 15 of each year. The Notes mature on
August 15, 2012, unless earlier converted, redeemed or
repurchased in accordance with their terms prior to
August 15, 2012. Holders of the Notes may require us to
repurchase the Notes for cash at any time before August 15,
2012 if certain fundamental changes occur.
Each $1,000 of principal of the Notes will initially be
convertible into 26.9339 shares of our common stock, which
is the equivalent of $37.13 per share, subject to adjustment
upon the occurrence of specified events set forth under the
terms of the Notes. Upon conversion, we would pay the holder the
cash value of the applicable number of shares of our common
stock, up to the principal amount of the note. Amounts in excess
of the principal amount, if any, may be paid in cash or in
stock, at our option. Holders may convert their Notes into our
common stock as follows:
|
|
|
|
|
Prior to May 15, 2012, if during any calendar quarter, and
only during such calendar quarter, if the last reported sale
price of our common stock for at least 20 trading days in a
period of 30 consecutive trading days ending on the last trading
day of the preceding calendar quarter exceeds 120% of the
applicable conversion price in effect on the last trading day of
the immediately preceding calendar quarter;
|
|
|
|
During any five business day period prior to May 15, 2012,
immediately after any five consecutive trading day period (the
measurement period) in which the trading price per
$1,000 principal amount of notes for each day of such
measurement period was less than 98% of the product of the last
reported sale price of our common stock on such date and the
conversion rate on such date;
|
|
|
|
If, at any time, a change in control occurs or if we are a party
to a consolidation, merger, binding share exchange or transfer
or lease of all or substantially all of its assets, pursuant to
which the Companys common stock would be converted into
cash, securities or other assets; or
|
|
|
|
At any time after May 15, 2012 through the fourth scheduled
trading day immediately preceding August 15, 2012.
|
Holders who convert their Notes in connection with a change in
control may be entitled to a make-whole premium in the form of
an increase in the conversion rate. In addition, upon a change
in control, liquidation, dissolution or de-listing, the holders
of the Notes may require us to repurchase for cash all or any
portion of their Notes for 100% of the principal amount plus
accrued and unpaid interest. As of December 20, 2009, none
of the conditions allowing holders of the Notes to convert or
requiring us to repurchase the Notes had been met. We may not
redeem the Notes prior to maturity.
Concurrent with the issuance of the Notes, we entered into note
hedge transactions with certain financial institutions whereby
if we are required to issue shares of our common stock upon
conversion of the Notes, we have the option to receive up to
8.9 million shares of our common stock when the price of
our common stock is between $37.13 and $51.41 per share upon
conversion, and we sold warrants to the same financial
institutions whereby the financial institutions have the option
to receive up to 17.8 million shares of our common stock
when the price of our common stock exceeds $51.41 per share upon
conversion. The separate note hedge and warrant transactions
were structured to reduce the potential future share dilution
associated with the conversion of Notes. The cost of the note
hedge transactions to the Company was approximately
$52.5 million which has been accounted for as an equity
transaction. We recorded a $19.1 million income tax benefit
related to the cost of the hedge transaction that was
subsequently fully reserved as part of recording a full
valuation allowance against
64
our deferred tax assets. We received proceeds of
$11.9 million related to the sale of the warrants, which
has also been classified as equity.
The Notes and the warrants sold in connection with the hedge
transactions will have no impact on diluted earnings per share
until the price of the Companys common stock exceeds the
conversion price (initially $37.13 per share) because the
principal amount of the Notes will be settled in cash upon
conversion. Prior to conversion of the Notes or exercise of the
warrants, we will include the effect of the additional shares
that may be issued if our common stock price exceeds the
conversion price, using the treasury stock method. The call
options purchased as part of the note hedge transactions are
anti-dilutive and therefore will have no impact on earnings per
share.
Goodwill
We review our goodwill, intangible assets and long-lived assets
for impairment whenever events or changes in circumstances
indicate that the carrying amounts of these assets may not be
recoverable, and also review goodwill annually.
As of December 20, 2009, the carrying value of goodwill
related to our Horizon Lines and Horizon Logistics segments was
$314.2 million and $2.9 million, respectively.
Earnings estimated to be generated related to our Horizon Lines
segment are expected to support the carrying value of its
goodwill. Our Horizon Logistics business is currently facing the
challenges of building and expanding a business during difficult
economic times. If these overall economic conditions worsen or
continue for an extended period of time, we may be required to
record an additional impairment charge against the carrying
value of the goodwill related to our Horizon Logistics segment.
Performance
Metrics
In addition to EBITDA and Adjusted EBITDA, we use various other
non-GAAP measures such as adjusted net income, and adjusted net
income per share. We believe that in addition to GAAP based
financial information, the non-GAAP amounts presented below are
meaningful disclosures for the following reasons: (i) each
are components of the measure used by our board of directors and
management team to evaluate our operating performance,
(ii) each are components of the measure used by our
management team to make
day-to-day
operating decisions, (iii) each are components of the
measures used by our management to facilitate internal
comparisons to competitors results and the marine
container shipping and logistics industry in general,
(iv) results excluding certain costs and expenses provide
useful information for the understanding of the ongoing
operations with the impact of significant special items, and
(v) the payment of discretionary bonuses to certain members
of our management is contingent upon, among other things, the
satisfaction by Horizon Lines of certain targets, which contain
the non-GAAP measures as components. We acknowledge that there
are limitations when using non-GAAP measures. The measures below
are not recognized terms under GAAP and do not purport to be an
alternative to net income as a measure of operating performance
or to cash flows from operating activities as a measure of
liquidity. Similar to the amounts presented for EBITDA and
Adjusted EBITDA, because all companies do not use identical
calculations, the amounts below may not be comparable to other
similarly titled measures of other companies.
65
The tables below present a reconciliation of net loss to
adjusted net income and net loss per share to adjusted net
income per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net loss
|
|
$
|
(31,272
|
)
|
|
$
|
(2,593
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Settlement of class action lawsuit
|
|
|
20,000
|
|
|
|
|
|
Anti-trust legal expenses
|
|
|
12,192
|
|
|
|
10,711
|
|
Impairment charge
|
|
|
1,867
|
|
|
|
25,415
|
|
Restructuring charge
|
|
|
1,001
|
|
|
|
3,244
|
|
Loss on modification of debt
|
|
|
50
|
|
|
|
|
|
Union severance
|
|
|
306
|
|
|
|
765
|
|
Tax valuation allowance
|
|
|
10,523
|
|
|
|
|
|
Tax impact of adjustments
|
|
|
(194
|
)
|
|
|
(12,364
|
)
|
|
|
|
|
|
|
|
|
|
Total adjustments:
|
|
|
45,745
|
|
|
|
27,771
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
|
|
$
|
14,473
|
|
|
$
|
25,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net loss per share
|
|
$
|
(1.03
|
)
|
|
$
|
(0.09
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Settlement of class action lawsuit
|
|
|
0.66
|
|
|
|
|
|
Anti-trust legal expenses
|
|
|
0.40
|
|
|
|
0.35
|
|
Impairment charge
|
|
|
0.06
|
|
|
|
0.84
|
|
Restructuring charge
|
|
|
0.03
|
|
|
|
0.11
|
|
Union severance
|
|
|
0.01
|
|
|
|
0.03
|
|
Tax valuation allowance
|
|
|
0.34
|
|
|
|
|
|
Tax impact of adjustments
|
|
|
|
|
|
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
Total adjustments:
|
|
|
1.50
|
|
|
|
0.91
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income per share
|
|
$
|
0.47
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
Outlook
We expect conditions in the markets where we operate to remain
challenging in 2010. Some of our market economies are beginning
to exhibit possible signs of modest recovery, which could be
further fueled by the federal economic stimulus program. While
we see the potential for volume stabilization and slight rate
improvement given this scenario, we also expect ongoing fuel
price volatility and increased contractual labor costs and
benefits assessments through 2010. Based on these expectations,
we will continue to aggressively manage costs, maintain
liquidity, and closely manage cash flow. We also anticipate some
ongoing antitrust-related legal fees as we continue to cooperate
with the DOJ in its ongoing investigation. And like last year,
we expect that first-half comparisons will be more difficult
than in the second half, due to higher fuel prices, flat
container rates and increased dry-dock costs. We see the
potential for volumes to begin strengthening in line with
seasonal and economic firming trends in the second half of the
year. Lastly, we are continuing to review our Maersk agreements
in anticipation of their scheduled expiration in
December 2010. Key among these agreements are arrangements
in which we pay Maersk for terminal services at ports in
66
the continental United States, and those whereby Maersk pays
Horizon Lines for space on our vessels that run between Asia and
the U.S. West Coast.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Our primary interest rate exposure relates to the Senior Credit
Facility. As of December 20, 2009, we had outstanding a
$112.5 million term loan and $100.0 million under the
revolving credit facility, which bear interest at variable rates.
On March 31, 2008, the Company entered into an Interest
Rate Swap Agreement (the swap) with Wachovia Bank,
National Association, a current subsidiary of Wells
Fargo & Co., (Wachovia) in the notional
amount of $121.9 million. The swap expires on
August 8, 2012. Under the swap, the Company and Wachovia
have agreed to exchange interest payments on the notional amount
on the last business day of each calendar quarter. The Company
has agreed to pay a 3.02% fixed interest rate, and Wachovia has
agreed to pay a floating interest rate equal to the three-month
LIBOR rate. The critical terms of the swap agreement and the
term loan are the same, including the notional amounts, interest
rate reset dates, maturity dates and underlying market indices.
The purpose of entering into this swap is to protect the Company
against the risk of rising interest rates by effectively fixing
the base interest rate payable related to its term loan.
Interest rate differentials paid or received under the swap are
recognized as adjustments to interest expense. The Company does
not hold or issue interest rate swap agreements for trading
purposes. In the event that the counter-party fails to meet the
terms of the interest rate swap agreement, the Companys
exposure is limited to the interest rate differential.
Each quarter point change in interest rates or spread would
result in a $0.3 million change in annual interest expense
on the revolving credit facility.
We maintain a policy for managing risk related to exposure to
variability in interest rates, fuel prices and other relevant
market rates and prices which includes entering into derivative
instruments in order to mitigate our risks.
Our exposure to market risk for changes in interest rates is
limited to our senior credit facility and one of our operating
leases. The interest rate for our senior credit facility is
currently indexed to LIBOR of one, two, three, or six months as
selected by us, or the Alternate Base Rate as defined in the
senior credit facility. One of our operating leases is currently
indexed to LIBOR of one month.
In addition, at times we utilize derivative instruments tied to
various indexes to hedge a portion of our quarterly exposure to
bunker fuel price increases. These instruments consist of fixed
price swap agreements. We do not use derivative instruments for
trading purposes. Credit risk related to the derivative
financial instruments is considered minimal and is managed by
requiring high credit standards for its counterparties.
Changes in fair value of derivative financial instruments are
recorded as adjustments to the assets or liabilities being
hedged in the statement of operations or in accumulated other
comprehensive income (loss), depending on whether the derivative
is designated and qualifies for hedge accounting, the type of
hedge transaction represented and the effectiveness of the hedge.
67
The table below provides information about our funded debt
obligations indexed to LIBOR. The principal cash flows are in
thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
December 20,
|
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
2009(1)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
330,000
|
|
|
$
|
|
|
|
$
|
330,000
|
|
|
$
|
265,452
|
|
Average interest rate
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate
|
|
$
|
18,750
|
|
|
$
|
18,750
|
|
|
$
|
175,000
|
|
|
$
|
|
|
|
$
|
212,500
|
|
|
$
|
212,500
|
|
Average interest rate
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
96,094
|
|
|
$
|
73,828
|
|
|
$
|
18,750
|
|
|
$
|
|
|
|
$
|
112,500
|
|
|
$
|
112,500
|
|
Average pay rate
|
|
|
3.2
|
%
|
|
|
3.2
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
0.6
|
%
|
|
|
1.1
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We receive the arithmetic average of the reference price
calculated using the unweighted method of averaging. |
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
See index in Item 15 of this annual report on
Form 10-K.
Quarterly information (unaudited) is presented in a Note to the
consolidated financial statements.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
68
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We maintain disclosure controls and procedures designed to
ensure information required to be disclosed in Company reports
filed under the Securities Exchange Act of 1934, as amended
(the Exchange Act), is recorded, processed,
summarized, and reported within the time periods specified in
the Securities and Exchange Commissions rules and forms.
Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed
in Company reports filed under the Exchange Act is accumulated
and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures pursuant
to
Rule 13a-15(b)
of the Exchange Act as of December 20, 2009. Based on that
evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and
procedures are effective as of December 20, 2009.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
under the Securities Exchange Act of 1934. Pursuant to the rules
and regulations of the Securities and Exchange Commission,
internal control over financial reporting is a process designed
by, or under the supervision of, our principal executive and
principal financial officers, and effected by our board of
directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States. Due to inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Further, because of changes in conditions,
effectiveness of internal control over financial reporting may
vary over time.
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our internal control over financial reporting
as of December 20, 2009 based on the control criteria
established in a report entitled Internal Control
Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on such evaluation management has concluded that our
internal control over financial reporting is effective as of
December 20, 2009.
Ernst and Young LLP, our independent registered public
accounting firm, has issued an attestation report on the
effectiveness of the Companys internal controls over
financial reporting, which is on
page F-2
of this Annual Report on
Form 10-K.
Changes in
Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during our fiscal quarter ending December 20,
2009, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
69
Part III
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant
|
The information required by this item as to the Companys
executive officers, directors, director nominees, audit
committee financial expert, audit committee, and procedures for
stockholders to recommend director nominees will be included in
the Companys proxy statement to be filed for the Annual
Meeting of Stockholders to be held on June 1, 2010, and is
incorporated by reference herein. The information required by
this item as to compliance by the Companys directors,
executive officers and certain beneficial owners of the
Companys Common Stock with Section 16(a) of the
Securities Exchange Act of 1934 also will be included in said
proxy statement and also is incorporated herein by reference.
The Company has adopted a Code of Business Conduct and Ethics
that governs the actions of all Company employees, including
officers and directors. The Code of Business Conduct and Ethics
is posted within the Investor Relations section of the
Companys internet website at www.horizonlines.com. The
Company will provide a copy of the Code of Business Conduct and
Ethics to any stockholder upon request. Any amendments to
and/or any
waiver from a provision of any of the Code of Business Conduct
and Ethics granted to any director, executive officer or any
senior financial officer, must be approved by the Board of
Directors and will be disclosed on the Companys internet
website as soon as reasonably practical following the amendment
or waiver. The information contained on or connected to the
Companys internet website is not incorporated by reference
into this
Form 10-K
and should not be considered part of this or any other report
that the Company files with or furnishes to the Securities and
Exchange Commission.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item will be included in the
Companys proxy statement to be filed for the Annual
Meeting of Stockholders to be held on June 1, 2010, and is
incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item will be included in the
Companys proxy statement to be filed for the Annual
Meeting of Stockholders to be held on June 1, 2010, and is
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information required by this item will be included in the
Companys proxy statement to be filed for the Annual
Meeting of Stockholders to be held on June 1, 2010, and is
incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item will be included in the
Companys proxy statement to be filed for the Annual
Meeting of Stockholders to be held on June 1, 2010, and is
incorporated herein by reference.
70
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1) Financial Statements:
Horizon Lines,
Inc.
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-1
|
|
Consolidated Financial Statements for the fiscal year ended
December 20, 2009:
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-42
|
|
(a)(2) Exhibits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
|
|
Date of First
|
|
Exhibit
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Filing
|
|
Number
|
|
Herewith
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of the
Registrant.
|
|
S-1
|
|
333-123073
|
|
9/22/05
|
|
3.1
|
|
|
|
3
|
.1.1
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation
|
|
8-K
|
|
001-32627
|
|
6/5/07
|
|
3.1
|
|
|
|
3
|
.1.2
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation
|
|
10-K
|
|
001-32627
|
|
2/5/09
|
|
|
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the Registrant.
|
|
8-K
|
|
001-32627
|
|
2/4/09
|
|
3.2
|
|
|
|
3
|
.3
|
|
Certificate of Amendment of Amended and Restated Certificates of
Incorporation of the Registrant.
|
|
8-K
|
|
001-32627
|
|
6/5/07
|
|
3.1
|
|
|
|
4
|
.1
|
|
Specimen of Common Stock Certificate.
|
|
S-1
|
|
333-123073
|
|
9/19/05
|
|
4.8
|
|
|
|
4
|
.2
|
|
Indenture, dated August 8, 2007, by and among Horizon
Lines, Inc. and The Bank of New York Trust Company, N.A.,
as Trustee.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
4.3
|
|
|
|
4
|
.3
|
|
Form of Note (included in Exhibit 4.7).
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
4.4
|
|
|
|
10
|
.1
|
|
Preferential Usage Agreement dated December 1, 1985,
between the Municipality of Anchorage, Alaska and Horizon Lines
of Alaska, LLC (formerly known as CSX Lines of Alaska, LLC, as
successor in interest to SL Service, Inc. (formerly known as
Sea-Land
Service, Inc.), pursuant to a consent to general assignment and
assumption, dated September 5, 2002), as amended by the
Amendment to Preferential Usage Agreement dated January 31,
1991, Second Amendment to December 1, 1985 Preferential
Usage Agreement dated June 20, 1996, and Third Amendment to
December 1, 1985 Preferential Usage Agreement dated
January 7, 2003.
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.10
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
|
|
Date of First
|
|
Exhibit
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Filing
|
|
Number
|
|
Herewith
|
|
|
10
|
.2
|
|
Amended and Restated Guarantee and Indemnity Agreement dated as
of February 27, 2003, by and among HLH, LLC, Horizon Lines,
LLC, CSX Corporation, CSX Alaska Vessel Company, LLC and SL
Service, Inc., as supplemented by the joinder agreements, dated
as of July 7, 2004, of Horizon Lines Holding Corp., Horizon
Lines of Puerto Rico, Inc., Falconhurst, LLC, Horizon Lines
Ventures, LLC, Horizon Lines of Alaska, LLC, Horizon Lines of
Guam, LLC, Horizon Lines Vessels, LLC, Horizon Services Group,
LLC, Sea Readiness, LLC, Sea-Logix, LLC, S-L Distribution
Services, LLC and SL Payroll Services, LLC.
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.26
|
|
|
|
*10
|
.3
|
|
Amended and Restated Put/Call Agreement, dated as of
September 20, 2005, by and among Horizon Lines, Inc. and
other parties thereto.
|
|
8-K
|
|
001-32627
|
|
10/24/05
|
|
99.4
|
|
|
|
*10
|
.4
|
|
Form of Restricted Stock Award Agreement.
|
|
8-K
|
|
001-32627
|
|
4/30/08
|
|
10.1
|
|
|
|
10
|
.5
|
|
International Intermodal Agreement
5124-5024,
dated as of March 1, 2002, between Horizon Lines, LLC,
Horizon Lines of Puerto Rico, Inc., Horizon Lines of Alaska, LLC
and CSX Intermodal, Inc.
|
|
S-4
|
|
333-123681
|
|
6/23/05
|
|
10.14
|
|
|
|
10
|
.6
|
|
Sub-Bareboat
Charter Party Respecting 3 Vessels, dated as of
February 27, 2003, in relation to
U.S.-flag
vessels Horizon Anchorage, Horizon Tacoma and Horizon Kodiak,
between CSX Alaska Vessel Company, LLC, as charterer, and
Horizon Lines, LLC, as
sub-charterer.
|
|
S-4
|
|
333-123681
|
|
3/30/05
|
|
10.15
|
|
|
|
10
|
.7
|
|
TP1 Space Charter and Transportation Service Contract, dated
May 9, 2004, between A.P. Møller-Maersk A/S and
Horizon Lines, LLC.
|
|
S-4
|
|
333-123681
|
|
6/23/05
|
|
10.16
|
|
|
|
10
|
.8.1
|
|
Amendment No. 1 to TP1 Space Charter and Transportation
Service Contract, dated November 30, 2006 between A.P.
Møller-Maersk A/S and Horizon Lines, LLC.
|
|
10-K
|
|
001-32627
|
|
3/2/07
|
|
10.12.1
|
|
|
|
10
|
.8.2
|
|
Amendment No. 2 to TP1 Space Charter and Transportation
Service Contract, dated July 2, 2007 between A.P.
Møller-Maersk A/S and Horizon Lines, LLC.
|
|
10-Q
|
|
001-32627
|
|
7/27/07
|
|
10.12.2
|
|
|
|
10
|
.9
|
|
Container Interchange Agreement, dated April 1, 2002,
between A.P. Møller-Maersk A/S, CSX Lines, LLC, CSX Lines
of Puerto Rico, Inc., CSX Lines of Alaska, LLC and Horizon Lines
of Alaska, LLC.
|
|
S-4
|
|
333-123681
|
|
3/20/05
|
|
10.17
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
|
|
Date of First
|
|
Exhibit
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Filing
|
|
Number
|
|
Herewith
|
|
|
10
|
.9.1
|
|
Agreement Regarding the Container Interchange Agreement, dated
November 30, 2006, among A.P. Møller-Maersk A/S,
Horizon Lines, LLC, Horizon Lines of Puerto Rico, Inc. and
Horizon Lines of Alaska, LLC.
|
|
10-K
|
|
001-32627
|
|
3/2/07
|
|
10.13.1
|
|
|
|
10
|
.10
|
|
Stevedoring and Terminal Services Agreement, dated May 9,
2004, between APM Terminals, North America, Inc., Horizon Lines,
LLC and Horizon Lines of Alaska, LLC.
|
|
S-4
|
|
333-123681
|
|
3/30/05
|
|
10.18
|
|
|
|
10
|
.10.1
|
|
Amendment No. 2 to Stevedoring and Terminal Services
Agreement, dated November 30, 2006, among APM Terminals,
North America, Inc., Horizon Lines, LLC and Horizon Lines of
Alaska, LLC.
|
|
10-K
|
|
001-32627
|
|
3/2/07
|
|
10.14.1
|
|
|
|
10
|
.11.1
|
|
Assignment and Assumption Agreement dated as of
September 2, 1999, by and between
Sea-Land
Service, Inc. and
Sea-Land
Domestic Shipping, LLC.
|
|
S-4
|
|
333-123681
|
|
3/30/05
|
|
10.21
|
|
|
|
10
|
.12
|
|
Capital Construction Fund Agreement, dated March 29,
2004, between Horizon Lines, LLC and the United States of
America, represented by the Secretary of Transportation, acting
by and through the Maritime Administrator.
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.36
|
|
|
|
10
|
.13
|
|
Harbor Lease dated January 12, 1996, between Horizon Lines,
LLC (formerly known as CSX Lines, LLC, as successor in interest
to SL Services, Inc. (formerly known as
Sea-Land
Service, Inc.), pursuant to Consent to Two Assignments of Harbor
Lease
No. H-92-22,
dated February 14, 2003) and the State of Hawaii,
Department of Transportation, Harbors Division.
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.37
|
|
|
|
10
|
.14
|
|
Agreement dated May 16, 2002, between Horizon Lines of
Puerto Rico, Inc. (formerly known as CSX Lines of Puerto Rico,
Inc.) and The Puerto Rico Ports Authority.
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.38
|
|
|
|
10
|
.15
|
|
Agreement dated March 29, 2001, between Horizon Lines of
Puerto Rico, Inc. (formerly known as CSX Lines of Puerto Rico,
Inc.) and The Puerto Rico Ports Authority.
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.39
|
|
|
|
10
|
.16
|
|
Port of Kodiak Preferential Use Agreement dated April 12,
2002, between the City of Kodiak, Alaska and Horizon Lines of
Alaska, LLC (formerly known as CSX Lines of Alaska, LLC, as
successor in interest to CSX Lines, LLC, pursuant to Amendment
No. 1 to the Preferential Use Agreement, dated
April 12, 2002).
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.40
|
|
|
|
10
|
.16.1
|
|
Port of Kodiak Preferential Use Agreement dated January 1,
2005, between the City of Kodiak, Alaska and Horizon Lines of
Alaska, LLC.
|
|
S-1
|
|
333-123073
|
|
7/29/05
|
|
10.40.1
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
|
|
Date of First
|
|
Exhibit
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Filing
|
|
Number
|
|
Herewith
|
|
|
10
|
.17
|
|
Terminal Operation Contract dated May 2, 2002, between the
City of Kodiak, Alaska and Horizon Lines of Alaska, LLC
(formerly known as CSX Lines of Alaska, LLC).
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.41
|
|
|
|
10
|
.17.1
|
|
Terminal Operation Contract dated January 1, 2005, between
the City of Kodiak, Alaska and Horizon Lines of Alaska, LLC.
|
|
S-1
|
|
333-123073
|
|
7/29/05
|
|
10.41.1
|
|
|
|
10
|
.18
|
|
Sublease, Easement and Preferential Use Agreement dated
October 2, 1990, between the City of Unalaska and Horizon
Lines, LLC (formerly known as CSX Lines LLC), as successor in
interest to
Sea-Land
Service, Inc., together with the addendum thereto dated
October 2, 1990, as amended by the Amendment to Sublease,
Easement and Preferential Use Agreement dated May 31, 2000,
and Amendment #1 dated May 1, 2002.
|
|
S-1
|
|
333-123073
|
|
3/2/05
|
|
10.42
|
|
|
|
10
|
.18.1
|
|
Amendment #2 dated February 27, 2003 to Preferential Use
Agreement dated October 2, 1990 between the City of
Unalaska and Horizon Lines of Alaska, LLC (formerly known as CSX
Lines of Alaska, LLC).
|
|
S-1
|
|
333-123073
|
|
7/29/05
|
|
10.42.1
|
|
|
|
*10
|
.19
|
|
Form of Directors and Officers Indemnification
Agreement.
|
|
S-1
|
|
333-123073
|
|
9/19/05
|
|
10.43
|
|
|
|
10
|
.19.1
|
|
Form of Non-management Directors Indemnification Agreement
|
|
8-K
|
|
001-32627
|
|
7/18/08
|
|
10.1
|
|
|
|
*10
|
.20
|
|
Employment Agreement dated as of September 16, 2005,
between Horizon Lines, LLC and John V. Keenan.
|
|
S-1
|
|
333-123073
|
|
9/19/05
|
|
10.44
|
|
|
|
*10
|
.21.1
|
|
First Amendment to Employment Agreement dated as of
December 20, 2003, between Horizon Lines and John V. Keenan.
|
|
8-K
|
|
001-32627
|
|
12/21/05
|
|
10.44.1
|
|
|
|
*10
|
.22.1
|
|
Amended and Restated Equity Incentive Plan.
|
|
8-K
|
|
001-32627
|
|
12/19/08
|
|
10.1
|
|
|
|
*10
|
.23
|
|
Horizon Lines, Inc., Employee Stock Purchase Plan.
|
|
S-1
|
|
333-123073
|
|
9/19/05
|
|
10.46
|
|
|
|
*10
|
.24
|
|
Stock Option Award Agreement.
|
|
8-K
|
|
001-32627
|
|
4/11/06
|
|
10.1
|
|
|
|
10
|
.25
|
|
Bareboat Charter Agreement dated as of April 7, 2006, by
and among Horizon Lines Eagle and Horizon Lines, LLC.
|
|
S-1
|
|
333-134270
|
|
5/19/06
|
|
10.52
|
|
|
|
10
|
.26
|
|
Bareboat Charter Agreement dated as of April 7, 2006, by
and among Horizon Lines Falcon and Horizon Lines, LLC.
|
|
S-1
|
|
333-134270
|
|
5/19/06
|
|
10.53
|
|
|
|
10
|
.27
|
|
Bareboat Charter Agreement dated as of April 7, 2006, by
and among Horizon Lines Hunter and Horizon Lines, LLC.
|
|
S-1
|
|
333-134270
|
|
5/16/06
|
|
10.54
|
|
|
|
10
|
.28
|
|
Bareboat Charter Agreement dated as of April 7, 2006, by and
among Horizon Lines Tiger and Horizon Lines, LLC.
|
|
S-1
|
|
333-134270
|
|
5/19/06
|
|
10.55
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
|
|
Date of First
|
|
Exhibit
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Filing
|
|
Number
|
|
Herewith
|
|
|
10
|
.29
|
|
Bareboat Charter Agreement dated as of April 7, 2006, by and
among Horizon Lines Hawk and Horizon Lines, LLC.
|
|
S-1
|
|
333-134270
|
|
5/19/06
|
|
10.56
|
|
|
|
10
|
.30
|
|
Restricted Stock Agreement dated as of February 1, 2006, among
Horizon Lines, Inc. and John Handy.
|
|
S-1
|
|
333-134270
|
|
5/19/06
|
|
10.59
|
|
|
|
10
|
.31
|
|
Purchase Agreement, dated August 1, 2007, by and among Horizon
Lines, Inc. and Goldman, Sachs & Co., as representatives of
the Initial Purchasers.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.1
|
|
|
|
10
|
.32
|
|
Registration Rights Agreement, dated August 8, 2007, by and
among Horizon Lines, Inc. and Goldman, Sachs & Co., as
representatives of the Initial Purchasers.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.2
|
|
|
|
10
|
.33
|
|
Confirmation of Convertible Bond Hedge Transaction, dated as of
August 1, 2007, by and among Horizon Lines, Inc. and Goldman,
Sachs & Co.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.3
|
|
|
|
10
|
.34
|
|
Confirmation of Convertible Bond Hedge Transaction, dated as of
August 1, 2007, by and among Horizon Lines, Inc. and Bank of
America, N.A.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.4
|
|
|
|
10
|
.35
|
|
Confirmation of Convertible Bond Hedge Transaction, dated as of
August 1, 2007, by and among Horizon Lines, Inc. and Wachovia
Capital Markets, LLC, solely as agent of Wachovia Bank, National
Association.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.5
|
|
|
|
10
|
.36
|
|
Confirmation of Issuer Warrant Transaction, dated as of August
1, 2007, by and among Horizon Lines, Inc. and Goldman, Sachs
& Co.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.6
|
|
|
|
10
|
.37
|
|
Confirmation of Issuer Warrant Transaction, dated as of August
1, 2007, by and among Horizon Lines, Inc. and Bank of America,
N.A.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.7
|
|
|
|
10
|
.38
|
|
Confirmation of Issuer Warrant Transaction, dated as of August
1, 2007, by and among Horizon Lines, Inc. and Wachovia Capital
Markets, LLC, solely as agent of Wachovia Bank, National
Association.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.8
|
|
|
|
10
|
.39
|
|
Amendment to Confirmation of Issuer Warrant Transaction dated as
of August 3, 2007, by and among Horizon Lines, Inc. and Goldman,
Sachs & Co.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.9
|
|
|
|
10
|
.40
|
|
Amendment to Confirmation of Issuer Warrant Transaction dated as
of August 3, 2007, by and among Horizon Lines, Inc. and Bank of
America, N.A.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.10
|
|
|
|
10
|
.41
|
|
Amendment to Confirmation of Issuer Warrant Transaction dated as
of August 3, 2007, by and among Horizon Lines, Inc. and
Wachovia Capital Markets, LLC, solely as agent of Wachovia Bank,
National Association.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.11
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
|
|
Date of First
|
|
Exhibit
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Filing
|
|
Number
|
|
Herewith
|
|
|
10
|
.42
|
|
Credit Agreement, dated August 8, 2007, by and among
Horizon Lines, Inc., as Borrower; certain subsidiaries of the
Borrower for time to time parties thereto, as Guarantors; the
Lenders parties thereto; Wachovia Bank, National Association, as
Administrative Agent; Bank of America, N.A., as Syndication
Agent; and Goldman Sachs Credit Partners, L.P., LaSalle Bank,
National Association and JP Morgan Chase Bank, N.A., as Joint
Documentation Agents.
|
|
8-K
|
|
001-32627
|
|
8/13/07
|
|
10.12
|
|
|
|
10
|
.43
|
|
First Amendment to Credit Agreement, dated June 11, 2009
|
|
8-K
|
|
001-32627
|
|
6/12/09
|
|
10.2
|
|
|
|
10
|
.44
|
|
Settlement Agreement, dated June 11, 2009
|
|
8-K
|
|
001-32627
|
|
6/12/09
|
|
10.1
|
|
|
|
*10
|
.45
|
|
Restricted Stock Agreement between the Registrant and Charles G.
Raymond dated June 28, 2007.
|
|
8-K
|
|
001-32627
|
|
7/3/07
|
|
10.1
|
|
|
|
*10
|
.46
|
|
Form of Performance Grant Agreement for Charles G. Raymond.
|
|
8-K
|
|
001-32627
|
|
5/20/09
|
|
10.1
|
|
|
|
14
|
|
|
Code of Ethics.
|
|
10-K
|
|
001-32627
|
|
2/5/09
|
|
14
|
|
|
|
21
|
|
|
List of Subsidiaries of Horizon Lines, Inc.
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rules 13a-14
and 15d-14, as adopted pursuant to Section 302 of
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rules 13a-14
and 15d-14, as adopted pursuant to Section 302 of
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
* |
|
Exhibit represents a management contract or compensatory plan. |
|
|
|
Portions of this document were omitted and filed separately
pursuant to a request for confidential treatment in accordance
with Rule 406 of the Securities Act. |
|
|
|
Portions of this document were omitted and filed separately
pursuant to a request for confidential treatment in accordance
with
Rule 24b-2
of the Exchange Act. |
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrants have duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized, on the
4th
day of February 2010.
HORIZON LINES, INC.
|
|
|
|
By:
|
/s/ Charles
G. Raymond
|
Charles G. Raymond
Chairman, Chief Executive
Officer and President
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrants and in the capacities and
on the
4th
day of February 2010.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Charles
G. Raymond
Charles
G. Raymond
|
|
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
|
|
|
|
/s/ Michael
T. Avara
Michael
T. Avara
|
|
Senior Vice President and Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
|
|
|
|
/s/ James
G. Cameron
James
G. Cameron
|
|
Director
|
|
|
|
/s/ Vernon
E. Clark
Vernon
E. Clark
|
|
Director
|
|
|
|
/s/ Dan
A. Colussy
Dan
A. Colussy
|
|
Director
|
|
|
|
/s/ William
J. Flynn
William
J. Flynn
|
|
Director
|
|
|
|
/s/ Alex
J. Mandl
Alex
J. Mandl
|
|
Director
|
|
|
|
/s/ Norman
Y. Mineta
Norman
Y. Mineta
|
|
Director
|
|
|
|
/s/ Thomas
P. Storrs
Thomas
P. Storrs
|
|
Director
|
77
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Horizon Lines, Inc.
We have audited the accompanying consolidated balance sheets of
Horizon Lines, Inc. as of December 20, 2009 and
December 21, 2008, and the related consolidated statements
of operations, stockholders equity and cash flows for each
of the three years in the period ended December 20, 2009.
Our audits also included the financial statement schedule listed
in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Horizon Lines, Inc. at December 20,
2009 and December 21, 2008, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 20, 2009 in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial
statements, effective December 22, 2008 the Company adopted
Financial Accounting Standards Board Staff Position
No. 14-1,
Accounting for Convertible Debt Instruments that may be
Settled in Cash Upon Conversion, now included in FASB
ASC 470, Debt with Conversion Features, and
Financial Accounting Standards Board Staff Position
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, now
included in FASB ASC 260 Earnings Per Share,
and retrospectively adjusted all periods presented in the
consolidated financial statements referred to above.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Horizon Lines, Inc.s internal control over financial
reporting as of December 21, 2008, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 4, 2010 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
Charlotte, North Carolina
February 4, 2010
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Horizon Lines, Inc.
We have audited Horizon Lines, Inc.s internal control over
financial reporting as of December 20, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Horizon Lines,
Inc.s management is responsible for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting included in the accompanying Managements Report
on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Horizon Lines, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 20, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Horizon Lines, Inc. as of
December 20, 2009 and December 21, 2008, and the
related consolidated statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended December 20, 2009 and our report
dated February 4, 2010 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Charlotte, North Carolina
February 4, 2010
F-2
Horizon Lines,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,419
|
|
|
$
|
5,487
|
|
Accounts receivable, net of allowance
|
|
|
123,536
|
|
|
|
135,020
|
|
Prepaid vessel rent
|
|
|
4,580
|
|
|
|
4,471
|
|
Materials and supplies
|
|
|
30,254
|
|
|
|
23,644
|
|
Deferred tax asset
|
|
|
2,929
|
|
|
|
7,450
|
|
Other current assets
|
|
|
9,027
|
|
|
|
10,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
176,745
|
|
|
|
186,775
|
|
Property and equipment, net
|
|
|
193,438
|
|
|
|
208,453
|
|
Goodwill
|
|
|
317,068
|
|
|
|
317,068
|
|
Intangible assets, net
|
|
|
105,405
|
|
|
|
125,542
|
|
Deferred tax asset
|
|
|
|
|
|
|
10,669
|
|
Other long-term assets
|
|
|
25,854
|
|
|
|
24,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
818,510
|
|
|
$
|
872,629
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
43,257
|
|
|
$
|
41,947
|
|
Current portion of long-term debt
|
|
|
18,750
|
|
|
|
6,552
|
|
Accrued vessel rent
|
|
|
4,339
|
|
|
|
5,421
|
|
Other accrued liabilities
|
|
|
110,473
|
|
|
|
97,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
176,819
|
|
|
|
151,640
|
|
Long-term debt, net of current portion
|
|
|
496,105
|
|
|
|
526,259
|
|
Deferred rent
|
|
|
22,585
|
|
|
|
27,058
|
|
Deferred tax liability
|
|
|
4,248
|
|
|
|
|
|
Other long-term liabilities
|
|
|
17,475
|
|
|
|
30,836
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
717,232
|
|
|
|
735,793
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 30,500 authorized; no
shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 100,000 shares
authorized, 34,091 shares issued and 30,291 shares
outstanding at December 20, 2009 and 33,808 shares
issued and 30,008 shares outstanding at December 21,
2008
|
|
|
341
|
|
|
|
338
|
|
Treasury stock, 3,800 shares at cost
|
|
|
(78,538
|
)
|
|
|
(78,538
|
)
|
Additional paid in capital
|
|
|
196,900
|
|
|
|
199,644
|
|
(Accumulated deficit) retained earnings
|
|
|
(15,874
|
)
|
|
|
22,094
|
|
Accumulated other comprehensive loss
|
|
|
(1,551
|
)
|
|
|
(6,702
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
101,278
|
|
|
|
136,836
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
818,510
|
|
|
$
|
872,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
Horizon Lines,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
2007
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
(As Adjusted)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Operating revenue
|
|
$
|
1,158,481
|
|
|
$
|
1,304,259
|
|
|
$
|
1,206,515
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (excluding depreciation expense)
|
|
|
954,915
|
|
|
|
1,074,675
|
|
|
|
954,006
|
|
Depreciation and amortization
|
|
|
44,866
|
|
|
|
45,643
|
|
|
|
47,870
|
|
Amortization of vessel dry-docking
|
|
|
13,694
|
|
|
|
17,162
|
|
|
|
17,491
|
|
Selling, general and administrative
|
|
|
102,231
|
|
|
|
108,206
|
|
|
|
90,978
|
|
Settlement of class action lawsuit
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
Impairment charge
|
|
|
1,867
|
|
|
|
25,415
|
|
|
|
|
|
Restructuring charge
|
|
|
1,001
|
|
|
|
3,244
|
|
|
|
|
|
Miscellaneous expense
|
|
|
1,069
|
|
|
|
2,898
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
1,139,643
|
|
|
|
1,277,243
|
|
|
|
1,111,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
18,838
|
|
|
|
27,016
|
|
|
|
95,173
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
39,675
|
|
|
|
41,399
|
|
|
|
44,875
|
|
Loss on modification/early extinguishment of debt
|
|
|
50
|
|
|
|
|
|
|
|
38,546
|
|
Other expense (income), net
|
|
|
18
|
|
|
|
(62
|
)
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(20,905
|
)
|
|
|
(14,321
|
)
|
|
|
11,673
|
|
Income tax expense (benefit)
|
|
|
10,367
|
|
|
|
(11,728
|
)
|
|
|
(15,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,272
|
)
|
|
$
|
(2,593
|
)
|
|
$
|
26,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.81
|
|
Diluted
|
|
$
|
(1.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.79
|
|
Number of shares used in calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,451
|
|
|
|
30,278
|
|
|
|
33,328
|
|
Diluted
|
|
|
30,451
|
|
|
|
30,278
|
|
|
|
33,865
|
|
Cash dividends declared per share
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
Horizon Lines,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
2007
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
(As Adjusted)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,272
|
)
|
|
$
|
(2,593
|
)
|
|
$
|
26,825
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
24,235
|
|
|
|
24,343
|
|
|
|
27,631
|
|
Amortization of intangibles
|
|
|
20,631
|
|
|
|
21,300
|
|
|
|
20,239
|
|
Amortization of vessel dry-docking
|
|
|
13,694
|
|
|
|
17,162
|
|
|
|
17,491
|
|
Impairment charge
|
|
|
1,867
|
|
|
|
25,415
|
|
|
|
|
|
Restructuring charge
|
|
|
1,001
|
|
|
|
3,244
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
2,947
|
|
|
|
2,693
|
|
|
|
2,973
|
|
Deferred income taxes
|
|
|
10,396
|
|
|
|
(12,985
|
)
|
|
|
(15,152
|
)
|
Gain on equipment disposals
|
|
|
(154
|
)
|
|
|
(24
|
)
|
|
|
(171
|
)
|
Loss on early modification/extinguishment of debt
|
|
|
50
|
|
|
|
|
|
|
|
38,546
|
|
Accretion on 11% senior discount notes
|
|
|
|
|
|
|
|
|
|
|
6,062
|
|
Accretion on 4.25% convertible notes
|
|
|
10,011
|
|
|
|
8,901
|
|
|
|
3,204
|
|
Stock-based compensation
|
|
|
3,096
|
|
|
|
3,651
|
|
|
|
3,769
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
101
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
11,763
|
|
|
|
5,854
|
|
|
|
(12,653
|
)
|
Materials and supplies
|
|
|
(6,739
|
)
|
|
|
7,636
|
|
|
|
(7,368
|
)
|
Other current assets
|
|
|
1,245
|
|
|
|
23
|
|
|
|
(3,340
|
)
|
Accounts payable
|
|
|
1,310
|
|
|
|
1,625
|
|
|
|
11,106
|
|
Accrued liabilities
|
|
|
16,515
|
|
|
|
(2,721
|
)
|
|
|
(15,305
|
)
|
Vessel rent
|
|
|
(4,874
|
)
|
|
|
(4,883
|
)
|
|
|
(26,013
|
)
|
Vessel dry-docking payments
|
|
|
(14,735
|
)
|
|
|
(13,913
|
)
|
|
|
(21,414
|
)
|
Other assets/liabilities
|
|
|
(3,488
|
)
|
|
|
4,640
|
|
|
|
(1,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
57,498
|
|
|
|
89,368
|
|
|
|
54,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of equipment
|
|
|
(13,050
|
)
|
|
|
(39,149
|
)
|
|
|
(31,426
|
)
|
Purchases of businesses, net of cash acquired
|
|
|
|
|
|
|
(198
|
)
|
|
|
(31,323
|
)
|
Proceeds from sale of equipment
|
|
|
1,237
|
|
|
|
500
|
|
|
|
3,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(11,813
|
)
|
|
|
(38,847
|
)
|
|
|
(59,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing under revolving credit facility
|
|
|
64,000
|
|
|
|
78,000
|
|
|
|
163,500
|
|
Payments on revolving credit facility
|
|
|
(84,000
|
)
|
|
|
(80,000
|
)
|
|
|
(41,500
|
)
|
Payments of long-term debt
|
|
|
(7,968
|
)
|
|
|
(6,538
|
)
|
|
|
(517,167
|
)
|
Dividend to stockholders
|
|
|
(13,397
|
)
|
|
|
(13,273
|
)
|
|
|
(14,653
|
)
|
Payment of financing costs
|
|
|
(3,492
|
)
|
|
|
(139
|
)
|
|
|
(12,912
|
)
|
Common stock issued under employee stock purchase plan
|
|
|
104
|
|
|
|
38
|
|
|
|
29
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(29,330
|
)
|
|
|
(49,208
|
)
|
Payments on capital lease obligation
|
|
|
|
|
|
|
(81
|
)
|
|
|
(152
|
)
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
13
|
|
|
|
216
|
|
Tax deficiency from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(101
|
)
|
Proceeds from issuance of convertible notes
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
Borrowing of term loan
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
Purchase of call options
|
|
|
|
|
|
|
|
|
|
|
(52,541
|
)
|
Sale of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
11,958
|
|
Redemption premiums
|
|
|
|
|
|
|
|
|
|
|
(25,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(44,753
|
)
|
|
|
(51,310
|
)
|
|
|
(83,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
932
|
|
|
|
(789
|
)
|
|
|
(87,673
|
)
|
Cash at beginning of year
|
|
|
5,487
|
|
|
|
6,276
|
|
|
|
93,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
6,419
|
|
|
$
|
5,487
|
|
|
$
|
6,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
Horizon Lines,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital(1)
|
|
|
Deficit)(1)
|
|
|
Loss
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Stockholders equity at December 24, 2006
|
|
|
33,591
|
|
|
$
|
336
|
|
|
$
|
|
|
|
$
|
179,599
|
|
|
$
|
29,353
|
|
|
$
|
(1,011
|
)
|
|
$
|
208,277
|
|
Effect of the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,530
|
)
|
|
|
|
|
|
|
(3,530
|
)
|
Effects of changing pension plan measurement date pursuant to
FAS 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
8
|
|
|
|
(27
|
)
|
Exercise of stock options
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
Purchase of call spread options, net of tax benefits of $19,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,362
|
)
|
|
|
|
|
|
|
|
|
|
|
(33,362
|
)
|
Sale of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,958
|
|
|
|
|
|
|
|
|
|
|
|
11,958
|
|
Tax deficiency from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
Dividend to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,653
|
)
|
|
|
|
|
|
|
(14,653
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,769
|
|
|
|
|
|
|
|
|
|
|
|
3,769
|
|
Stock issued under Employee Stock Purchase Plan
|
|
|
62
|
|
|
|
1
|
|
|
|
|
|
|
|
1,479
|
|
|
|
|
|
|
|
|
|
|
|
1,480
|
|
Common stock repurchases
|
|
|
(2,172
|
)
|
|
|
|
|
|
|
(49,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,208
|
)
|
Effects of the adoption of FSP APB
14-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,865
|
|
|
|
|
|
|
|
|
|
|
|
30,865
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,825
|
|
|
|
|
|
|
|
26,825
|
|
Unrecognized actuarial gains, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
597
|
|
|
|
597
|
|
Amortization of pension and post-retirement benefit transition
obligation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity at December 23, 2007
|
|
|
31,502
|
|
|
|
337
|
|
|
|
(49,208
|
)
|
|
|
194,625
|
|
|
|
37,960
|
|
|
|
(305
|
)
|
|
|
183,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Vesting of restricted stock
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
Dividend to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,273
|
)
|
|
|
|
|
|
|
(13,273
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
3,651
|
|
Stock issued under Employee Stock Purchase Plan
|
|
|
118
|
|
|
|
1
|
|
|
|
|
|
|
|
1,389
|
|
|
|
|
|
|
|
|
|
|
|
1,389
|
|
Common stock repurchases
|
|
|
(1,628
|
)
|
|
|
|
|
|
|
(29,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,330
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,593
|
)
|
|
|
|
|
|
|
(2,593
|
)
|
Unrecognized actuarial losses, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,095
|
)
|
|
|
(4,095
|
)
|
Fair value of interest rate swap, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,402
|
)
|
|
|
(2,402
|
)
|
Amortization of pension and post-retirement benefit transition
obligation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity at December 21, 2008
|
|
|
30,008
|
|
|
|
338
|
|
|
|
(78,538
|
)
|
|
|
199,644
|
|
|
|
22,094
|
|
|
|
(6,702
|
)
|
|
|
136,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of restricted stock
|
|
|
121
|
|
|
|
1
|
|
|
|
|
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
Dividend to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,701
|
)
|
|
|
(6,696
|
)
|
|
|
|
|
|
|
(13,397
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,582
|
|
|
|
|
|
|
|
|
|
|
|
3,582
|
|
Stock issued under Employee Stock Purchase Plan
|
|
|
162
|
|
|
|
2
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
555
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,272
|
)
|
|
|
|
|
|
|
(31,272
|
)
|
Unrecognized actuarial gains, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,475
|
|
|
|
4,475
|
|
Fair value of interest rate swap, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
|
|
229
|
|
Amortization of pension and post-retirement benefit transition
obligation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity at December 20, 2009
|
|
|
30,291
|
|
|
$
|
341
|
|
|
$
|
(78,538
|
)
|
|
$
|
196,900
|
|
|
$
|
(15,874
|
)
|
|
$
|
(1,551
|
)
|
|
$
|
101,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted as a result of the retrospective adoption of FSP APB
14-1. |
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
Horizon Lines,
Inc.
|
|
1.
|
Basis of
Presentation and Operations
|
Horizon Lines, Inc. (the Company) operates as a
holding company for Horizon Lines, LLC (Horizon
Lines), a Delaware limited liability company and
wholly-owned subsidiary, Horizon Logistics Holdings, LLC
(Horizon Logistics), a Delaware limited liability
company and wholly-owned subsidiary, Hawaii Stevedores, Inc.
(HSI), a Hawaii corporation, and Horizon Lines of
Puerto Rico, Inc. (HLPR), a Delaware corporation and
wholly-owned subsidiary. Horizon Lines operates as a Jones Act
container shipping business with primary service to ports within
the continental United States, Puerto Rico, Alaska, Hawaii, and
Guam. Under the Jones Act, all vessels transporting cargo
between covered locations must, subject to limited exceptions,
be built in the U.S., registered under the U.S. flag,
manned by predominantly U.S. crews, and owned and operated
by
U.S.-organized
companies that are controlled and 75% owned by
U.S. citizens. Horizon Lines also offers terminal services.
Horizon Logistics manages integrated logistics service
offerings, including rail, trucking, warehousing, distribution,
and non-vessel operating common carrier (NVOCC)
services. HLPR operates as an agent for Horizon Lines in Puerto
Rico and also provides terminal services in Puerto Rico.
The accompanying consolidated financial statements include the
consolidated accounts of the Company and its majority owned
subsidiaries and the related consolidated statements of
operations, stockholders equity and cash flows. All
significant intercompany accounts and transactions have been
eliminated. Certain prior period balances have been reclassified
to conform to current period presentation. In addition, as noted
below, certain prior period balances have been adjusted to
conform to recent accounting pronouncements.
In June 2009, the Financial Accounting Standards Board
(FASB) issued SFAS No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles
(SFAS 168). SFAS 168 establishes the FASB
Accounting Standards Codification (Codification) as
the single source of authoritative GAAP to be applied by
nongovernmental entities, except for the rules and interpretive
releases of the SEC under authority of federal securities laws,
which are sources of authoritative GAAP for SEC registrants. All
guidance contained in the Codification carries an equal level of
authority. The Codification does not change GAAP. Instead, it
takes the thousands of individual pronouncements that currently
comprise GAAP and reorganizes them into approximately 90
accounting Topics, and displays all Topics using a consistent
structure. Contents in each Topic are further organized first by
Subtopic, then Section and finally Paragraph. The Paragraph
level is the only level that contains substantive content.
Citing particular content in the Codification involves
specifying the unique numeric path to the content through the
Topic, Subtopic, Section and Paragraph structure. FASB suggests
that all citations begin with FASB ASC, where ASC
stands for Accounting Standards Codification. SFAS 168, now
included within FASB ASC 105, is effective for interim and
annual periods ending after September 15, 2009. The
adoption of FASB ASC 105 did not have an impact on the
Companys consolidated results of operations and financial
position, but changes the referencing system for accounting
standards.
In May 2008, the FASB issued Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments that may be
Settled in Cash Upon Conversion, now included within FASB
ASC 470 Debt with Conversion and Other Options
(FASB ASC
470-20).
FASB ASC
470-20
requires that the liability and equity components of convertible
debt instruments that may be settled in cash upon conversion
(including partial cash settlement) be separately accounted for
in a manner that reflects an issuers nonconvertible debt
borrowing rate. As a result, the liability component would be
recorded at a discount reflecting its below market coupon
interest rate, and the liability component would be accreted to
its par value over its expected life, with the rate of interest
that reflects the market rate at issuance being reflected in the
results of operations. This change in methodology affects the
calculations of net income and earnings per share, but does not
increase the Companys cash interest
F-7
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
payments. FASB ASC
470-20 is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Retrospective application to all
periods presented is required and early adoption is prohibited.
The Notes (as defined in Note 10) are within the scope
of FASB ASC
470-20. The
Company has adopted the provisions of FASB ASC
470-20, and
as such, has adjusted the reported amounts in its Statements of
Operations for the years ended December 21, 2008 and
December 23, 2007 and its Balance Sheets as of
December 21, 2008 and December 23, 2007 as follows (in
thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 21, 2008
|
|
Year Ended December 23, 2007
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
|
|
Reported
|
|
Adjustments
|
|
Adjusted
|
|
Reported
|
|
Adjustments
|
|
Adjusted
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
32,498
|
|
|
$
|
8,901
|
|
|
$
|
41,399
|
|
|
$
|
41,672
|
|
|
$
|
3,203
|
|
|
$
|
44,875
|
|
Income tax (benefit) expense
|
|
|
(8,479
|
)
|
|
|
(3,249
|
)
|
|
|
(11,728
|
)
|
|
|
(13,983
|
)
|
|
|
(1,169
|
)
|
|
|
(15,152
|
)
|
Net income (loss)
|
|
|
3,059
|
|
|
|
(5,652
|
)
|
|
|
(2,593
|
)
|
|
|
28,859
|
|
|
|
(2,034
|
)
|
|
|
26,825
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.10
|
|
|
|
(0.19
|
)
|
|
|
(0.09
|
)
|
|
|
0.87
|
|
|
|
(0.06
|
)
|
|
|
0.81
|
|
Diluted
|
|
|
0.10
|
|
|
|
(0.19
|
)
|
|
|
(0.09
|
)
|
|
|
0.85
|
|
|
|
(0.06
|
)
|
|
|
0.79
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
126,697
|
|
|
$
|
(1,155
|
)
|
|
$
|
125,542
|
|
|
$
|
152,031
|
|
|
$
|
(1,495
|
)
|
|
$
|
150,536
|
|
Deferred tax assets
|
|
|
23,992
|
|
|
|
(13,323
|
)
|
|
|
10,669
|
|
|
|
4,060
|
|
|
|
(4,060
|
)
|
|
|
|
|
Total assets
|
|
|
887,107
|
|
|
|
(14,478
|
)
|
|
|
872,629
|
|
|
|
926,441
|
|
|
|
(5,555
|
)
|
|
|
920,886
|
|
Long-term debt, net of current
|
|
|
563,916
|
|
|
|
(37,657
|
)
|
|
|
526,259
|
|
|
|
572,469
|
|
|
|
(46,898
|
)
|
|
|
525,571
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,512
|
|
|
|
12,512
|
|
Additional paid in capital
|
|
|
168,779
|
|
|
|
30,865
|
|
|
|
199,644
|
|
|
|
163,760
|
|
|
|
30,865
|
|
|
|
194,625
|
|
Retained earnings
|
|
|
29,780
|
|
|
|
(7,686
|
)
|
|
|
22,094
|
|
|
|
39,994
|
|
|
|
(2,034
|
)
|
|
|
37,960
|
|
Total liabilities and stockholders equity
|
|
|
887,107
|
|
|
|
(14,478
|
)
|
|
|
872,629
|
|
|
|
926,441
|
|
|
|
(5,555
|
)
|
|
|
920,886
|
|
In June 2008, the FASB issued Staff Position
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, now
included within FASB ASC 260 Earnings Per Share
(FASB ASC 260). FASB ASC
260-10-45
concludes that unvested share-based payment awards that contain
rights to receive non-forfeitable dividends or dividend
equivalents (whether paid or unpaid) are participating
securities, and thus, should be included in the two-class method
of computing earnings per share (EPS). FASB ASC
260-10-45 is
effective for fiscal years beginning after December 15,
2008, and interim periods within those years. Retrospective
application to all periods presented is required and early
application is prohibited. The Company has adopted the
provisions of FASB ASC
260-10-45
and as such, has adjusted the reported amounts
F-8
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
of basic and diluted shares outstanding for the years ended
December 21, 2008 and December 23, 2007 as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 21, 2008
|
|
|
Year Ended December 23, 2007
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share
|
|
|
29,963
|
|
|
|
315
|
|
|
|
30,278
|
|
|
|
33,221
|
|
|
|
107
|
|
|
|
33,328
|
|
Effect of dilutive securities
|
|
|
368
|
|
|
|
(123
|
)
|
|
|
245
|
|
|
|
638
|
|
|
|
(101
|
)
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share
|
|
|
30,331
|
|
|
|
192
|
|
|
|
30,523
|
|
|
|
33,859
|
|
|
|
6
|
|
|
|
33,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
Significant
Accounting Policies
|
Cash
Cash of the Company consists principally of cash held in banks
and temporary investments having a maturity of three months or
less at the date of acquisition.
Allowance for
Doubtful Accounts and Revenue Adjustments
The Company maintains an allowance for doubtful accounts based
upon the expected collectability of accounts receivable
reflective of its historical collection experience. In
circumstances in which management is aware of a specific
customers inability to meet its financial obligation to
the Company (for example, bankruptcy filings, accounts turned
over for collection or litigation), the Company records a
specific reserve for the bad debts against amounts due. For all
other customers, the Company recognizes reserves for these bad
debts based on the length of time the receivables are past due
and other customer specific factors including, type of service
provided, geographic location and industry. The Company monitors
its collection risk on an ongoing basis through the use of
credit reporting agencies. Accounts are written off after all
means of collection, including legal action, have been
exhausted. The Company does not require collateral from its
trade customers.
In addition, the Company maintains an allowance for revenue
adjustments consisting of amounts reserved for billing rate
changes that are not captured upon load initiation. These
adjustments generally arise: (1) when the sales department
contemporaneously grants small rate changes (spot
quotes) to customers that differ from the standard rates
in the system; (2) when freight requires dimensionalization
or is reweighed resulting in a different required rate;
(3) when billing errors occur; and (4) when data entry
errors occur. When appropriate, permanent rate changes are
initiated and reflected in the system. These revenue adjustments
are recorded as a reduction to revenue. During 2009, average
revenue adjustments per month were approximately
$0.5 million, on average total revenue per month of
approximately $96.5 million (less than 0.5% of monthly
revenue). In order to estimate the allowance for revenue
adjustments related to ending accounts receivable, the Company
prepares an analysis that considers average total monthly
revenue adjustments and the average lag for identifying and
processing these revenue adjustments. Based on this analysis,
the Company establishes an allowance for approximately
80-90 days
(dependent upon experience in the last twelve months) of average
revenue adjustments, adjusted for rebates and billing errors.
The lag is periodically adjusted based on actual historical
experience. Additionally, the average amount of revenue
adjustments per month can vary in relation to the level of sales
or based on other factors (such as personnel issues that could
result in excessive manual errors or in excessive spot quotes
being granted). Both of these significant assumptions are
continually evaluated for validity.
F-9
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
The allowance for doubtful accounts and revenue adjustments
approximated $7.6 million at December 20, 2009 and
$8.2 million at December 21, 2008.
Materials and
Supplies
Materials and supplies consist primarily of fuel inventory
aboard vessels and inventory for maintenance of property and
equipment. Fuel is carried at cost on the first in, first out
(FIFO) basis, while all other materials and supplies are carried
at average cost.
Property and
Equipment
Property and equipment are stated at cost. Certain costs
incurred in the development of internal-use software are
capitalized. Routine maintenance, repairs, and removals other
than vessel dry-dockings are charged to expense. Expenditures
that materially increase values, change capacities or extend
useful lives of the assets are capitalized. Depreciation and
amortization is computed by the straight-line method over the
estimated useful lives of the assets. The estimated useful lives
of the Companys assets are as follows:
|
|
|
|
|
Buildings, chassis and cranes
|
|
|
25 years
|
|
Containers
|
|
|
15 years
|
|
Vessels
|
|
|
20-40 years
|
|
Software
|
|
|
3 years
|
|
Other
|
|
|
3-10 years
|
|
The Company evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. When undiscounted
future cash flows will not be sufficient to recover the carrying
amount of an asset, the asset is written down to its fair value.
Vessel
Dry-docking
Vessels must undergo regular inspection, monitoring and
maintenance, referred to as dry-docking, to maintain the
required operating certificates. United States Coast Guard
regulations generally require that vessels be dry-docked twice
every five years. The costs of these scheduled dry-dockings are
customarily capitalized and are then amortized over a
30-month
period beginning with the accounting period following the
vessels release from dry-dock, because dry-dockings enable
the vessel to continue operating in compliance with
U.S. Coast Guard requirements,.
The Company takes advantage of vessel dry-dockings to also
perform normal repair and maintenance procedures on the vessels.
These routine vessel maintenance and repair procedures are
charged to expense as incurred. In addition, the Company will
occasionally during a vessel dry-docking, replace vessel
machinery or equipment and perform procedures that materially
enhance capabilities of a vessel. In these circumstances, the
expenditures are capitalized and depreciated over the estimated
useful lives.
Intangible
Assets
Intangible assets consist of goodwill, customer
contracts/relationships, trademarks, non-compete agreements and
deferred financing costs. The Company amortizes customer
contracts/relationships using the straight line method over the
expected useful lives of 4 to 10 years. The Company also
amortizes trademarks using the straight line method over the
expected life of the related trademarks
F-10
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
of 15 years. The Company amortizes debt issue cost using
the effective interest method over the term of the related debt.
Goodwill and other intangible assets with indefinite useful
lives are not amortized but are subject to annual impairment
tests as of the first day of the fourth quarter. At least
annually, or sooner if there is an indicator of impairment, the
fair value of the reporting unit is calculated. If the
calculated fair value is less than the carrying amount, an
impairment loss might be recognized.
Revenue
Recognition
The Company records transportation revenue and an accrual for
the corresponding costs to complete delivery when the cargo
first sails from its point of origin. The Company believes this
method of revenue recognition does not result in a material
difference in reported net income on an annual or quarterly
basis as compared to recording transportation revenue between
accounting periods based upon the relative transit time within
each respective period with expenses recognized as incurred. The
Company recognizes revenue and related costs of sales for
terminal and other services upon completion of services.
The Company recognizes revenue from logistics operations as
service is rendered. Gross revenues consist of the total dollar
value of services purchased by shippers. Revenue and the
associated costs for the following services are recognized upon
proof of delivery of freight: truck brokerage, rail brokerage,
expedited international air, expedited domestic ground services,
and drayage. Horizon Logistics also offers warehousing/long-term
storage for which revenue is recognized based upon warehouse
space occupied during the reporting period.
Insurance
Reserves
The Company maintains insurance for casualty, property and
health claims. Most of the Companys insurance arrangements
include a level of self-insurance. Reserves are established
based on the value of cargo damaged and the use of current
trends and historical data for other claims. These estimates are
based on historical information along with certain assumptions
about future events.
Derivative
Instruments
The Company recognizes all derivative instruments in the
financial statements at fair value.
The Company occasionally utilizes derivative instruments tied to
various indexes to hedge a portion of its exposure to bunker
fuel price increases. These instruments consist of fixed price
swap agreements. The Company does not use derivative instruments
for trading purposes. Credit risk related to the derivative
financial instruments is considered minimal and is managed by
requiring high credit standards for its counterparties.
Changes in fair value of derivative financial instruments are
recorded as adjustments to the assets or liabilities being
hedged in the statement of operations or in accumulated other
comprehensive income (loss), depending on whether the derivative
is designated and qualifies for hedge accounting, the type of
hedge transaction represented and the effectiveness of the hedge.
Income
Taxes
The Company accounts for income taxes under the liability method
whereby deferred tax assets and liabilities are measured using
enacted tax laws and rates expected to apply to taxable income
in the years in which the assets and liabilities are expected to
be recovered or settled. The effects on
F-11
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
deferred tax assets and liabilities of subsequent changes in the
tax laws and rates are recognized in income during the year the
changes are enacted. Deferred tax assets are reduced by a
valuation allowance when, in the judgment of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realizable.
The American Jobs Creation Act of 2004 (the Act)
instituted an elective alternative tax on qualifying shipping
activities (tonnage tax) for corporations operating
U.S.-flag
vessels in U.S. foreign trade, as defined in the Act.
During 2006, after evaluating the merits and requirements of the
tonnage tax, the Company elected the application of the tonnage
tax instead of the federal corporate income tax on income from
its qualifying shipping activities. As the Company expects to
continue to qualify for application of the tonnage tax, deferred
tax assets and liabilities relating to the qualifying shipping
activities are measured using an effective tax rate of zero.
Stock-based
Compensation
The value of each equity-based award is estimated on the date of
grant using the Black-Scholes option-pricing model. The
Black-Scholes model takes into account volatility in the price
of our stock, the risk-free interest rate, the estimated life of
the equity-based award, the closing market price of our stock
and the exercise price. Due to the lack of trading activity
since our stock became publicly traded, we base our estimates of
stock price volatility on the average of (i) our historical
stock price over the period in which it has been publicly traded
and (ii) historical volatility of similar entities
commensurate with the expected term of the equity-based award;
however, this estimate is neither predictive nor indicative of
the future performance of our stock. The estimates utilized in
the Black-Scholes calculation involve inherent uncertainties and
the application of management judgment. In addition, we are
required to estimate the expected forfeiture rate and only
recognize expense for those options expected to vest.
Pension and
Post-retirement Benefits
The Company has noncontributory pension plans and
post-retirement benefit plans covering certain union employees.
Costs of these plans are charged to current operations and
consist of several components that are based on various
actuarial assumptions regarding future experience of the plans.
In addition, certain other union employees are covered by plans
provided by their respective union organizations. The Company
expenses amounts as paid in accordance with union agreements.
Amounts recorded for the pension plan and the post-retirement
benefit plan reflect estimates related to future interest rates,
investment returns, and employee turnover. The Company reviews
all assumptions and estimates on an ongoing basis.
The Company is required to recognize the overfunded or
underfunded status of its defined benefit and post-retirement
benefit plans as an asset or liability, with changes in the
funded status recognized as an adjustment to the ending balance
of other accumulated comprehensive income in the year they
occur. The pension plan and the post-retirement benefit plans
are in an underfunded status.
Computation of
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net
income (loss) by the weighted daily average number of shares of
common stock outstanding during the period. Certain of the
Companys unvested stock-based awards contain
non-forfeitable rights to dividends. As a result, these
participating securities are included in the denominator for
basic net income (loss) per share. Diluted net income per share
is computed using the weighted daily average number of shares of
common stock
F-12
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
outstanding for the period plus dilutive potential common
shares, including stock options and warrants using the
treasury-stock method and from convertible preferred stock using
the if converted method.
Fiscal
Period
The fiscal period of the Company typically ends on the Sunday
before the last Friday in December. For fiscal year 2009, the
fiscal period began on December 22, 2008 and ended on
December 20, 2009. For fiscal year 2008, the fiscal period
began on December 24, 2007 and ended on December 21,
2008. For fiscal year 2007, the fiscal period began on
December 25, 2006 and ended on December 23, 2007.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results may differ
from those estimates. Significant estimates include the
assessment of the realization of accounts receivable, deferred
tax assets and long-lived assets and the useful lives of
intangible assets and property and equipment.
Recent
Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS 167), now included in FASB ASC 810. FASB
ASC 810 amends the evaluation criteria to identify the primary
beneficiary of a variable interest entity and requires ongoing
reassessment of whether an enterprise is the primary beneficiary
of the variable interest entity. FASB ASC 810 is effective for
fiscal years beginning after November 15, 2009, and interim
periods within those years. The Company is in the process of
determining the impact the adoption of FASB ASC 810 will have on
its results of operations and financial position.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets, an Amendment
of FASB Statement No. 140
(SFAS 166), now included in FASB ASC 860. FASB
ASC 860 amends the derecognition guidance in FASB Statement
No. 140 and eliminates the exemption from consolidation for
qualifying special-purpose entities. FASB ASC 860 is effective
for fiscal years beginning after November 15, 2009, and
interim periods within those years. The Company is in the
process of determining the impact the adoption of FASB ASC 860
will have on its results of operations and financial position
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events (SFAS 165), now
referred to as FASB ASC 855 Subsequent Events
(FASB ASC 855). FASB ASC 855 establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date, but before the financial
statements are issued or are available to be issued. FASB ASC
855 requires the disclosure of the date through which an entity
has evaluated subsequent events and the basis for that date.
This disclosure is intended to alert all users of financial
statements that an entity has not evaluated subsequent events
after that date in the set of financial statements being
presented. FASB ASC 855 is effective on a prospective basis
for interim or annual periods ending after June 15, 2009.
The adoption of FASB ASC 855 did not have an impact on the
Companys consolidated results of operations and financial
position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, now included within FASB ASC 815. FASB ASC 815
requires companies with
F-13
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
derivative instruments to disclose information that should
enable financial statement users to understand how and why a
company uses derivative instruments, how derivative instruments
and related hedged items are accounted for under FASB ASC 815
and how derivative instruments and related hedged items affect a
companys financial position, financial performance and
cash flows. FASB ASC 815 is effective for financial statements
issued for fiscal years beginning after November 15, 2008.
As this statement relates only to disclosure requirements, the
adoption did not have an impact on the Companys results of
operations or financial position.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, now included within FASB ASC 810
Consolidation (FASB ASC 810).
FASB ASC 810 establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest,
changes in a parents ownership interest and the valuation
of retained noncontrolling equity investments when a subsidiary
is deconsolidated. FASB ASC 810 also establishes reporting
requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. The adoption did not
have an impact on the Companys results of operations or
financial position.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, now included within FASB ASC
805 Business Combinations (FASB ASC
805). FASB ASC 805 establishes principles and requirements
for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. FASB ASC 805 also establishes disclosure
requirements which will enable users to evaluate the nature and
financial effects of the business combination. This standard is
effective for fiscal years beginning after December 15,
2008 and early adoption is prohibited. The adoption did not have
an impact on the Companys results of operations or
financial position.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FASB Statement
No. 115, now included within FASB ASC 825
Financial Instruments (FASB ASC 825).
FASB ASC 825 allows an entity the irrevocable option to elect
fair value for the initial and subsequent measurement of certain
financial assets and liabilities under an
instrument-by-instrument
election. Subsequent measurements for the financial assets and
liabilities an entity elects to measure at fair value will be
recognized in the results of operations. FASB ASC 825 also
establishes additional disclosure requirements. This standard is
effective for fiscal years beginning after November 15,
2007. Effective for fiscal year 2008, the Company has adopted
the provisions of FASB ASC 825. The adoption did not have an
impact on the Companys results of operations and financial
position.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, now referred to as FASB ASC
820. FASB ASC 820 addresses how companies should measure fair
value when they are required to use a fair value measure for
recognition or disclosure purposes under generally accepted
accounting principles. As a result of FASB ASC 820 there is now
a common definition of fair value to be used throughout GAAP.
The FASB believes that the new standard will make the
measurement of fair value more consistent and comparable and
improve disclosures about those measures. The provisions of FASB
ASC 820 were to be effective for fiscal years beginning after
November 15, 2007. On February 6, 2008, the FASB
agreed to defer the effective date of for one year for certain
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). Effective
for fiscal 2008, the Company has adopted FASB ASC 820 except as
it applies to those nonfinancial assets and nonfinancial
liabilities. The adoption did not have an impact on the
Companys results of operations and financial position.
F-14
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Supplemental
Cash Flow Information
On December 25, 2006, the Company recorded a
$3.5 million increase in the liability for unrecognized tax
benefit, which was accounted for as a reduction to retained
earnings. The Companys employee stock purchase plan
contains a dividend reinvestment provision. As such, during
2009, 2008 and 2007, the Company retained a total of
$0.1 million, $38 thousand and $29 thousand, respectively,
related to quarterly dividends paid on outstanding shares
purchased through the employee stock purchase plan and issued 26
thousand, 8 thousand, and 1 thousand shares, respectively, of
its common stock.
Cash payments (refunds) for interest and income taxes were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
December 20,
|
|
December 21,
|
|
December 23,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Interest
|
|
$
|
25,753
|
|
|
$
|
29,116
|
|
|
$
|
33,277
|
|
Income taxes
|
|
|
(678
|
)
|
|
|
711
|
|
|
|
444
|
|
The Company completed a non-union workforce reduction initiative
during the first quarter of 2009. The reduction in workforce
impacted approximately 80 non-union employees and resulted in a
$4.0 million restructuring charge. Of the
$4.0 million, $3.2 million, or $0.11 per fully diluted
share, was recorded during the fourth quarter of 2008 and the
remaining $0.8 million was recorded during the first
quarter of 2009. Of the $0.8 million recorded during the
first quarter of 2009, $0.7 million was included within the
Horizon Lines segment and the remaining $35 thousand was
included in the Horizon Logistics segment. In addition, during
the quarter ended June 21, 2009, the Company recorded an
additional $0.2 million of severance costs related to the
elimination of certain positions in connection with the loss of
a major customer and reorganization within the Horizon Logistics
segment.
The following table presents the restructuring reserves at
December 20, 2009, as well as activity during the year (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
December 21,
|
|
|
|
|
|
|
|
|
|
|
|
Charged to Other
|
|
|
December 20,
|
|
|
|
2008
|
|
|
Provision
|
|
|
Payments
|
|
|
Adjustments
|
|
|
Accounts(1)
|
|
|
2009
|
|
|
Personnel related costs
|
|
$
|
3,132
|
|
|
$
|
1,148
|
|
|
$
|
(3,501
|
)
|
|
$
|
(144
|
)
|
|
$
|
(485
|
)
|
|
$
|
150
|
|
Other associated costs
|
|
|
65
|
|
|
|
25
|
|
|
|
(62
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,197
|
|
|
$
|
1,173
|
|
|
$
|
(3,563
|
)
|
|
$
|
(172
|
)
|
|
$
|
(485
|
)
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $0.5 million of stock-based compensation recorded
in additional paid in capital. |
In the consolidated balance sheet, the reserve for restructuring
costs is recorded in other accrued liabilities.
F-15
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
The following table presents the components of the impairment
charges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
2009
|
|
|
2008
|
|
|
Vessels
|
|
$
|
1,867
|
|
|
$
|
3,292
|
|
Goodwill
|
|
|
|
|
|
|
17,650
|
|
Equipment
|
|
|
|
|
|
|
2,738
|
|
Customer relationships
|
|
|
|
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,867
|
|
|
$
|
25,415
|
|
|
|
|
|
|
|
|
|
|
Vessels
During 2006, the Company completed a series of agreements to
charter five new non-Jones Act qualified container vessels (the
new vessels). These new vessels were deployed in the
Companys trade routes between the U.S. west coast and
Asia and Guam. As a result of the deployment of the new vessels,
five of the Companys Jones Act qualified vessels became
spare vessels available for seasonal and dry-dock needs and to
respond to potential new revenue opportunities. The Company
maintains one vessel for seasonal deployment in the Alaska
trade, and one dry-dock relief vessel on both the U.S east coast
and U.S. west coast. The remaining two spare vessels were
tested for potential impairment. The fair value of each of the
spare vessels was determined using the scrap value less certain
costs to sell the assets. The carrying value of the vessels was
in excess of the fair value, and as such, during the year ended
December 21, 2008 the Company recorded an impairment charge
of $3.3 million to write down the carrying value of the
vessels to their fair value. During the year ended
December 20, 2009 the Company recorded an additional
write-down of $1.9 million related to its spare vessels.
Goodwill
Goodwill represents the excess of costs over the fair market
value of assets of businesses acquired. During 2007, the Company
completed the acquisition of Aero Logistics. The Company
performs tests for impairment annually, or more frequently if
events or circumstances indicate it might be impaired.
Impairment tests for goodwill require a two-step process. Under
the first step, the estimation of fair value of the reporting
unit is compared with its carrying value including goodwill. If
step one indicates a potential impairment, the second step is
performed to measure the amount of impairment, if any. Goodwill
impairment exists when the implied fair value of goodwill is
less than its carrying value. The implied fair value of goodwill
is determined by allocating the fair value of the reporting unit
in a manner similar to a purchase price allocation. The residual
fair value after this allocation is the implied fair value of
goodwill. As part of its impairment analysis, the Company uses a
variety of methodologies in determining the fair value of the
reporting unit, including cash flow analyses that are consistent
with the assumptions management believes hypothetical
marketplace participants would use. The Company uses a discount
rate that is commensurate with the risk inherent in the
projected cash flows. The implied fair value of Aero
Logistics goodwill of $2.9 million resulted in an
impairment charge of $17.7 million during 2008 based on the
carrying amount of $20.6 million.
Equipment
During 2008, in response to the continued deterioration in the
Companys shipping volumes, the Company reviewed its
inventory of owned and leased equipment. The company identified
certain of its
F-16
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
owned and leased equipment that were not expected to be employed
during the foreseeable future or that would be returned to the
lessor. As a result, the Company recorded a charge of
$2.7 million related to the impaired equipment.
Customer
Relationships
Identifiable intangible assets were acquired in connection with
the purchase of Aero Logistics. The management of Aero Logistics
maintained strong relationships within certain of its customers,
and as such, a portion of the purchase price was allocated to a
customer relationship intangible asset. However, in an effort to
consolidate services with one carrier, one of Aero
Logistics major customers has shifted the majority of its
shipping and retail replenishment activities to another carrier.
As a result, future cash flows generated from this customer are
expected to be minimal, and an impairment charge of
$1.7 million was recorded in the fourth quarter of 2008 in
order to remove the net book value of the customer relationship
intangible asset.
On August 22, 2007, the Company completed the acquisition
of Montebello Management, LLC (D/B/A Aero Logistics) (Aero
Logistics), a full-service third party logistics provider
(3-PL), for approximately $27.5 million in cash. Aero
Logistics provides air, less than truckload (LTL) brokerage,
warehousing and international expedited transport services. Aero
Logistics results of operations have been included in the
Companys consolidated financial statements since the third
quarter of 2007 and are included in the Horizon Logistics
segment.
On June 26, 2007, the Company completed the purchase of
Hawaii Stevedores, Inc. (HSI) for approximately
$4.1 million in cash, net of cash acquired. HSI is a full
service provider of stevedoring and marine terminal services in
Hawaii. HSIs results of operations have been included in
the Companys consolidated financial statements since the
third quarter of 2007 and are included in the Horizon Lines
segment.
The following table presents pro-forma financial information as
though the acquisitions had occurred on December 25, 2006
(in thousands, except per share amounts):
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 23,
|
|
|
2007
|
|
|
(As Adjusted)
|
|
Operating revenue
|
|
$
|
1,233,749
|
|
Net income
|
|
|
26,830
|
|
Earnings per share (basic)
|
|
|
0.81
|
|
Earnings per share (diluted)
|
|
|
0.79
|
|
The Companys services can be classified into two principal
businesses referred to as Horizon Lines and Horizon Logistics.
Through Horizon Lines, the Company provides container shipping
services and terminal services primarily in the non-contiguous
domestic U.S. trades, owning or leasing vessels comprising
a fleet of 20
U.S.-flag
containerships and five port terminals linking the continental
U.S. with Alaska, Hawaii, Guam, Micronesia, Asia and Puerto
Rico. Horizon Logistics was created in September 2007 to manage
the Companys then existing customized logistics solutions
and to focus on the growth and further development of integrated
logistics services. Horizon Lines also provides certain ground
transportation services to its customers.
F-17
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Prior to 2008, the Company did not maintain a separate business
plan for Horizon Logistics. As such, the Companys chief
operating decision maker did not evaluate the performance of
Horizon Logistics separately from that of Horizon Lines. During
the first quarter of 2008, the Company began measuring the
financial results for both Horizon Lines and Horizon Logistics
separately. Therefore, the Company separately reports Horizon
Lines and Horizon Logistics as segments.
Inter-segment revenue is presented at prices which approximate
market. The information below contains certain allocations of
expenses that the Company deems reasonable and appropriate for
the evaluation of results of operations. The Company does not
allocate interest expense or income taxes to its segments. All
inter-segment revenue, expense, asset, and liability balances
have been eliminated in consolidation. Certain segment
information for the fiscal years ended December 21, 2008
and December 23, 2007 has been reclassified to conform to
the presentation for the fiscal year ended December 20,
2009. The following table presents information about the results
of operations and the assets of the Companys two
reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
2007
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
(As Adjusted)
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Lines
|
|
$
|
1,123,953
|
|
|
$
|
1,268,418
|
|
|
$
|
1,190,922
|
|
Horizon Logistics
|
|
|
156,668
|
|
|
|
227,668
|
|
|
|
190,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,280,621
|
|
|
|
1,496,086
|
|
|
|
1,381,529
|
|
Inter-segment revenue
|
|
|
(122,140
|
)
|
|
|
(191,827
|
)
|
|
|
(175,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating revenue
|
|
$
|
1,158,481
|
|
|
$
|
1,304,259
|
|
|
$
|
1,206,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Lines
|
|
$
|
57,995
|
|
|
$
|
61,729
|
|
|
$
|
59,160
|
|
Horizon Logistics
|
|
|
565
|
|
|
|
1,106
|
|
|
|
6,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,560
|
|
|
|
62,835
|
|
|
|
65,361
|
|
Eliminations
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
Consolidated depreciation and amortization
|
|
$
|
58,560
|
|
|
$
|
62,805
|
|
|
$
|
65,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Lines
|
|
$
|
27,318
|
|
|
$
|
50,107
|
|
|
$
|
102,412
|
|
Horizon Logistics
|
|
|
(8,480
|
)
|
|
|
(23,091
|
)
|
|
|
(7,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
18,838
|
|
|
|
27,016
|
|
|
|
95,173
|
|
Unallocated interest expense, net
|
|
|
39,675
|
|
|
|
41,399
|
|
|
|
44,875
|
|
Loss on early extinguishment of debt
|
|
|
50
|
|
|
|
|
|
|
|
38,546
|
|
Unallocated other expense (income), net
|
|
|
18
|
|
|
|
(62
|
)
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated (loss) income before income tax (benefit) expense
|
|
$
|
(20,905
|
)
|
|
$
|
(14,321
|
)
|
|
$
|
11,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Lines
|
|
$
|
12,931
|
|
|
$
|
38,638
|
|
|
$
|
31,426
|
|
Horizon Logistics
|
|
|
119
|
|
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
|
$
|
13,050
|
|
|
$
|
39,149
|
|
|
$
|
31,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Horizon Lines
|
|
$
|
804,705
|
|
|
$
|
860,721
|
|
Horizon Logistics
|
|
|
13,805
|
|
|
|
11,908
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets
|
|
$
|
818,510
|
|
|
$
|
872,629
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Property and
Equipment
|
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
2009
|
|
|
2008
|
|
|
Vessels
|
|
$
|
147,823
|
|
|
$
|
149,557
|
|
Containers
|
|
|
24,035
|
|
|
|
24,099
|
|
Chassis
|
|
|
14,599
|
|
|
|
14,713
|
|
Cranes
|
|
|
36,965
|
|
|
|
26,852
|
|
Machinery & equipment
|
|
|
28,637
|
|
|
|
26,127
|
|
Facilities & land improvement
|
|
|
24,006
|
|
|
|
20,718
|
|
Software
|
|
|
24,072
|
|
|
|
20,875
|
|
Construction in progress
|
|
|
22,541
|
|
|
|
34,382
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
322,678
|
|
|
|
317,323
|
|
Accumulated depreciation
|
|
|
(129,240
|
)
|
|
|
(108,870
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
193,438
|
|
|
$
|
208,453
|
|
|
|
|
|
|
|
|
|
|
The increase in facilities and land improvement is primarily due
to certain assets related to the San Juan, Puerto Rico port
redevelopment project being completed and placed into service.
Construction in progress includes $16.9 million of payments
for new cranes in the Companys Anchorage, Alaska terminal.
The cranes are expected to become operational in late 2011.
During the years ended December 20, 2009 and
December 21, 2008, the Company capitalized interest
totaling $0.4 million and $0.3 million, respectively,
related to this long term project.
The majority of depreciation expense is related to vessels.
Depreciation expense related to vessels was $9.2 million,
$12.3 million and $11.7 million for the years ended
December 20, 2009, December 21, 2008 and
December 23, 2007, respectively.
Depreciation expense related to capitalized software was
$2.3 million, $1.5 million and $5.3 million for
the years ended December 20, 2009, December 21, 2008
and December 23, 2007, respectively.
F-19
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
Customer contracts/relationships
|
|
$
|
142,475
|
|
|
$
|
142,475
|
|
Trademarks
|
|
|
63,800
|
|
|
|
63,800
|
|
Deferred financing costs
|
|
|
14,831
|
|
|
|
11,388
|
|
Non-compete agreements
|
|
|
262
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
Total intangibles with definite lives
|
|
|
221,368
|
|
|
|
217,925
|
|
Less: accumulated amortization
|
|
|
(115,963
|
)
|
|
|
(92,383
|
)
|
|
|
|
|
|
|
|
|
|
Net intangibles with definite lives
|
|
|
105,405
|
|
|
|
125,542
|
|
Goodwill
|
|
|
317,068
|
|
|
|
317,068
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
$
|
422,473
|
|
|
$
|
442,610
|
|
|
|
|
|
|
|
|
|
|
Estimated aggregate amortization expense for each of the
succeeding five fiscal years is as follows (in thousands):
|
|
|
|
|
Fiscal Year Ending
|
|
|
|
|
2010
|
|
$
|
23,965
|
|
2011
|
|
|
23,697
|
|
2012
|
|
|
19,593
|
|
2013
|
|
|
12,158
|
|
2014
|
|
|
6,563
|
|
Changes in the carrying amount of goodwill during the years
ended December 21, 2008, and December 20, 2009 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon
|
|
|
Horizon
|
|
|
|
|
|
|
Lines
|
|
|
Logistics
|
|
|
Total
|
|
|
Balance at December 23, 2007
|
|
$
|
314,149
|
|
|
$
|
20,522
|
|
|
$
|
334,671
|
|
Impairment loss recognized
|
|
|
|
|
|
|
(17,650
|
)
|
|
|
(17,650
|
)
|
Other
|
|
|
|
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 21, 2008 and December 20, 2009
|
|
$
|
314,149
|
|
|
$
|
2,919
|
|
|
$
|
317,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
|
|
9.
|
Other Accrued
Liabilities
|
Other accrued liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
|
2009
|
|
|
2008
|
|
|
Vessel operations
|
|
$
|
17,922
|
|
|
$
|
18,681
|
|
Payroll and employee benefits
|
|
|
17,035
|
|
|
|
13,943
|
|
Marine operations
|
|
|
10,668
|
|
|
|
12,162
|
|
Terminal operations
|
|
|
10,481
|
|
|
|
11,847
|
|
Fuel
|
|
|
9,418
|
|
|
|
7,443
|
|
Interest
|
|
|
7,298
|
|
|
|
6,437
|
|
Settlement of class action lawsuit
|
|
|
15,000
|
|
|
|
|
|
Restructuring costs
|
|
|
150
|
|
|
|
3,069
|
|
Other liabilities
|
|
|
22,501
|
|
|
|
24,138
|
|
|
|
|
|
|
|
|
|
|
Total other accrued liabilities
|
|
$
|
110,473
|
|
|
$
|
97,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
Term loan
|
|
$
|
112,500
|
|
|
$
|
118,750
|
|
Revolving credit facility
|
|
|
100,000
|
|
|
|
120,000
|
|
4.25% convertible senior notes
|
|
|
302,355
|
|
|
|
292,343
|
|
Other
|
|
|
|
|
|
|
1,718
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
514,855
|
|
|
|
532,811
|
|
Current portion
|
|
|
(18,750
|
)
|
|
|
(6,552
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current
|
|
$
|
496,105
|
|
|
$
|
526,259
|
|
|
|
|
|
|
|
|
|
|
Senior Credit
Facility
On August 8, 2007, the Company entered into a credit
agreement (the Senior Credit Facility) secured by
substantially all of the owned assets of the Company. On
June 11, 2009, the Senior Credit Facility was amended
resulting in a reduction in the size of the revolving credit
facility from $250.0 million to $225.0 million. The
terms of the Senior Credit Facility also provide for a
$20.0 million swingline subfacility and a
$50.0 million letter of credit subfacility.
The amendment to the Senior Credit Facility is intended to
provide the Company the flexibility that it needs to effect the
settlement of the Puerto Rico class action litigation and to
incur other antitrust related litigation expenses. The amendment
revises the definition of Consolidated EBITDA by allowing for
certain charges, including (i) the Puerto Rico settlement
and (ii) litigation expenses related to antitrust
litigation matters in an amount not to exceed $25 million
in the aggregate and $15 million over a
12-month
period, to be added back to the calculation of Consolidated
EBITDA. In addition, the Senior Credit Facility was amended to
(i) increase the spread over LIBOR and Prime based rates by
150 bps, (ii) increase the range of fees on the unused
portion of the commitment, (iii) eliminate the
$150 million incremental facility, (iv) modify the
definition of Consolidated EBITDA to eliminate the
F-21
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
term non-recurring charges, and (v) incorporate
other structural enhancements, including a step-down in the
secured leverage ratio and further limitations on the ability to
make certain restricted payments. As a result of the amendment
to the Senior Credit Facility, the Company paid
$3.5 million in financing costs and recorded a loss on
modification of debt of $0.1 million.
The Company has made quarterly principal payments on the term
loan of approximately $1.6 million since December 31,
2007. Effective December 31, 2009, quarterly payments
increased to $4.7 million through September 30, 2011,
at which point quarterly payments will increase to
$18.8 million until final maturity on August 8, 2012.
The interest rate payable under the Senior Credit Facility
varies depending on the types of advances or loans the Company
selects. Borrowings under the Senior Credit Facility bear
interest primarily at LIBOR-based rates plus a spread which
ranges from 2.75% to 3.5% (LIBOR plus 3.25% as of
December 20, 2009) depending on the Companys
ratio of total secured debt to EBITDA (as defined in the Senior
Credit Facility). The Company also has the option to borrow at
Prime plus a spread which ranges from 1.75% to 2.5% (Prime plus
2.25% as of December 20, 2009). The weighted average
interest rate at December 20, 2009 was approximately 5.1%,
which includes the impact of the interest rate swap (as defined
below). The Company also pays a variable commitment fee on the
unused portion of the commitment, ranging from 0.375% to 0.50%
(0.50% as of December 20, 2009).
The Senior Credit Facility contains customary covenants,
including two financial covenants with respect to the
Companys leverage and interest coverage ratio and
covenants that limit distribution of dividends and stock
repurchases. It also contains customary events of default,
subject to grace periods. The Company was in compliance with all
such covenants as of December 20, 2009. As of
December 20, 2009, total unused borrowing capacity under
the revolving credit facility was $113.9 million, after
taking into account $100.0 million outstanding under the
revolver and $11.1 million utilized for outstanding letters
of credit. Based on the Companys leverage ratio, borrowing
availability under the revolving credit facility was
$97.7 million as of December 20, 2009.
4.25% Convertible
Senior Notes
On August 8, 2007, the Company issued $330.0 million
aggregate principal amount of 4.25% Convertible Senior Notes due
2012 (the Notes). The Notes are general unsecured
obligations of the Company and rank equally in right of payment
with all of the Companys other existing and future
obligations that are unsecured and unsubordinated. The Notes
bear interest at the rate of 4.25% per annum, which is payable
in cash semi-annually on February 15 and August 15 of each year.
The Notes mature on August 15, 2012, unless earlier
converted, redeemed or repurchased in accordance with their
terms prior to August 15, 2012. Holders of the Notes may
require the Company to repurchase the Notes for cash at any time
before August 15, 2012 if certain fundamental changes occur.
Each $1,000 of principal of the Notes will initially be
convertible into 26.9339 shares of the Companys
common stock, which is the equivalent of $37.13 per share,
subject to adjustment upon the occurrence of specified events
set forth under the terms of the Notes. Upon conversion, the
Company would pay the holder the cash value of the applicable
number of shares of its common stock, up to the principal amount
of the note. Amounts in excess of the principal amount, if any,
may be paid in cash or in stock, at the Companys option.
Holders may convert their Notes into the Companys common
stock as follows:
|
|
|
|
|
Prior to May 15, 2012, if during any calendar quarter, and
only during such calendar quarter, if the last reported sale
price of the Companys common stock for at least 20 trading
days in a period of 30 consecutive trading days ending on the
last trading day of the preceding calendar
|
F-22
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
quarter exceeds 120% of the applicable conversion price in
effect on the last trading day of the immediately preceding
calendar quarter;
|
|
|
|
|
|
During any five business day period prior to May 15, 2012,
immediately after any five consecutive trading day period (the
measurement period) in which the trading price per
$1,000 principal amount of notes for each day of such
measurement period was less than 98% of the product of the last
reported sale price of the Companys common stock on such
date and the conversion rate on such date;
|
|
|
|
If, at any time, a change in control occurs or if the Company is
a party to a consolidation, merger, binding share exchange or
transfer or lease of all or substantially all of its assets,
pursuant to which the Companys common stock would be
converted into cash, securities or other assets; or
|
|
|
|
At any time after May 15, 2012 through the fourth scheduled
trading day immediately preceding August 15, 2012.
|
Holders who convert their Notes in connection with a change in
control may be entitled to a make-whole premium in the form of
an increase in the conversion rate. In addition, upon a change
in control, liquidation, dissolution or de-listing, the holders
of the Notes may require the Company to repurchase for cash all
or any portion of their Notes for 100% of the principal amount
plus accrued and unpaid interest. As of December 20, 2009,
none of the conditions allowing holders of the Notes to convert
or requiring the Company to repurchase the Notes had been met.
The Company may not redeem the Notes prior to maturity.
Concurrent with the issuance of the Notes, the Company entered
into note hedge transactions with certain financial institutions
whereby if the Company is required to issue shares of its common
stock upon conversion of the Notes, the Company has the option
to receive up to 8.9 million shares of its common stock
when the price of the Companys common stock is between
$37.13 and $51.41 per share upon conversion, and the Company
sold warrants to the same financial institutions whereby the
financial institutions have the option to receive up to
17.8 million shares of the Companys common stock when
the price of the Companys common stock exceeds $51.41 per
share upon conversion. The separate note hedge and warrant
transactions were structured to reduce the potential future
share dilution associated with the conversion of Notes. The cost
of the note hedge transactions to the Company was approximately
$52.5 million which has been accounted for as an equity
transaction. The Company recorded a $19.1 million income
tax benefit related to the cost of the hedge transaction that
was subsequently fully reserved as part of recording a full
valuation allowance against deferred tax assets. The Company
received proceeds of $11.9 million related to the sale of
the warrants, which has also been classified as equity.
The Notes and the warrants sold in connection with the hedge
transactions will have no impact on diluted earnings per share
until the price of the Companys common stock exceeds the
conversion price (initially $37.13 per share) because the
principal amount of the Notes will be settled in cash upon
conversion. Prior to conversion of the Notes or exercise of the
warrants, the Company will include the effect of the additional
shares that may be issued if its common stock price exceeds the
conversion price, using the treasury stock method. The call
options purchased as part of the note hedge transactions are
anti-dilutive and therefore will have no impact on earnings per
share.
Other
Debt
In conjunction with the acquisition of HSI during 2007, the
Company assumed a $2.2 million note payable. The note was
paid in full during 2009.
F-23
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Fair Value of
Financial Instruments
The estimated fair values of the Companys debt as of
December 20, 2009 and December 21, 2008 were
$478.0 million and $389.7 million, respectively. The
fair value of the Notes are based on quoted market prices. The
fair value of the other long-term debt approximates carrying
value.
Annual maturities of long-term debt obligations are as follows
(in thousands):
|
|
|
|
|
2010
|
|
$
|
18,750
|
|
2011
|
|
|
18,750
|
|
2012
|
|
|
505,000
|
|
|
|
|
|
|
|
|
$
|
542,500
|
|
|
|
|
|
|
|
|
11.
|
Fair Value
Measurement
|
U.S. accounting standards establish a fair value hierarchy
that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to
unobservable inputs (Level 3 measurement). This hierarchy
requires entities to maximize the use of observable inputs and
minimize the use of unobservable inputs when determining fair
value. The three levels of inputs used to measure fair value are
as follows:
|
|
|
|
Level 1:
|
observable inputs such as quoted prices in active markets
|
|
|
Level 2:
|
inputs other than the quoted prices in active markets that are
observable either directly or indirectly
|
|
|
Level 3:
|
unobservable inputs in which there is little or no market data,
which requires the Company to develop its own assumptions
|
On a recurring basis, the Company measures the market value of
its pension plan assets at their estimated fair value. The fair
value of the pension plan assets is determined by using quoted
market prices in active markets.
On a recurring basis, the Company measures the interest rate
swap at its estimated fair value. The fair value of the swap is
determined using the market standard methodology of netting the
discounted future fixed cash payments (or receipts) and the
discounted expected variable cash receipts (or payments). The
variable cash receipts (or payments) are based on an expectation
of future interest rates (forward curves) derived from
observable market interest rate curves. The unrealized loss on
the interest rate swap of $4.5 million is classified within
level 2 of the fair value hierarchy.
No other assets or liabilities are measured at fair value under
the hierarchy as of December 20, 2009.
|
|
12.
|
Net (Loss) Income
Per Common Share
|
Basic net (loss) income per share is computed by dividing net
(loss) income by the weighted daily average number of shares of
common stock outstanding during the period. Diluted net (loss)
income per share is based upon the weighted daily average number
of shares of common stock outstanding for the period plus
dilutive potential common shares, including stock options using
the treasury-stock
F-24
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
method and from convertible stock using the if
converted method (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
2007
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
(As Adjusted)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,272
|
)
|
|
$
|
(2,593
|
)
|
|
$
|
26,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
30,451
|
|
|
|
30,278
|
|
|
|
33,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net (loss) income per common share
|
|
|
30,451
|
|
|
|
30,278
|
|
|
|
33,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(1.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(1.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the Companys unvested stock-based awards
contain non-forfeitable rights to dividends. As a result, a
total of 221 thousand, 316 thousand, and 107 thousand shares
have been included in the denominator for basic net (loss)
income per share for these participating securities during the
years ended December 20, 2009, December 21, 2008 and
December 23, 2007, respectively. In addition, a total of
346 thousand and 245 thousand shares have been excluded from the
denominator for diluted net loss per common share during the
years ended December 20, 2009 and December 21, 2008,
respectively, as the impact would be anti-dilutive.
On November 19, 2007, the Companys Board of Directors
authorized the Company to commence a stock repurchase program to
buy back up to $50.0 million worth of its common stock. The
program allowed the Company to purchase shares through open
market repurchases and privately negotiated transactions at a
price of $26.00 per share or less until the programs
expiration on December 31, 2008. The Company acquired
1,172,700 shares at a total cost of $20.6 million
under this program during the fourth quarter of 2007, and
completed the program during the first quarter of 2008 by
acquiring an additional 1,627,500 shares at a total cost of
$29.4 million.
|
|
13.
|
Derivative
Financial Instruments
|
On March 31, 2008, the Company entered into an Interest
Rate Swap Agreement (the swap) with Wachovia Bank,
National Association, a current subsidiary of Wells
Fargo & Co., (Wachovia) in the notional
amount of $121.9 million. The swap expires on
August 8, 2012. Under the swap, the Company and Wachovia
have agreed to exchange interest payments on the notional amount
on the last business day of each calendar quarter. The Company
has agreed to pay a 3.02% fixed interest rate, and Wachovia has
agreed to pay a floating interest rate equal to the three-month
LIBOR rate. The critical terms of the swap agreement and the
term loan are the same, including the notional amounts, interest
rate reset dates, maturity dates and underlying market indices.
The purpose of entering into this swap is to protect the Company
against the risk of rising interest rates by effectively fixing
the base interest rate payable related to its term loan.
Interest rate differentials paid or received under the swap are
recognized as adjustments to interest expense. The Company does
not hold or
F-25
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
issue interest rate swap agreements for trading purposes. In the
event that the counter-party fails to meet the terms of the
interest rate swap agreement, the Companys exposure is
limited to the interest rate differential.
The swap has been designated as a cash flow hedge of the
variability of the cash flows due to changes in LIBOR and has
been deemed to be highly effective. Accordingly, the Company
records the fair value of the swap as an asset or liability on
its consolidated balance sheet, and any unrealized gain or loss
is included in accumulated other comprehensive income (loss). As
of December 20, 2009, the Company recorded a liability of
$4.5 million, of which $0.7 million is included in
other accrued liabilities and $3.8 million is included in
other long-term liabilities in the accompanying consolidated
balance sheet. The Company also recorded $0.2 million and
$3.9 million in other comprehensive income (loss) for the
years ended December 20, 2009 and December 21, 2008,
respectively. No hedge ineffectiveness was recorded during the
years ended December 20, 2009 or December 21, 2008. If
the hedge was deemed ineffective, or extinguished by either
counterparty, any accumulated gains or losses remaining in other
comprehensive income would be fully recorded in interest expense
during the period.
The Company leases certain equipment and facilities under
operating lease agreements. Non-cancelable, long-term leases
generally include provisions for maintenance, options to
purchase at fair value and to extend the terms. Rent expense
under operating lease agreements totaled $104.2 million,
$106.9 million and $96.4 million for the years ended
December 20, 2009, December 21, 2008 and
December 23, 2007, respectively.
Future minimum lease obligations at December 20, 2009 are
as follows (in thousands):
|
|
|
|
|
|
|
Non-Cancelable
|
|
Fiscal Year Ending
|
|
Operating
|
|
December
|
|
Leases
|
|
|
2010
|
|
$
|
107,389
|
|
2011
|
|
|
65,491
|
|
2012
|
|
|
66,571
|
|
2013
|
|
|
73,251
|
|
2014
|
|
|
94,202
|
|
Thereafter
|
|
|
173,445
|
|
|
|
|
|
|
Total future minimum lease obligation
|
|
$
|
580,349
|
|
|
|
|
|
|
|
|
15.
|
Employee Benefit
Plans
|
Savings
Plans
The Company provides a 401(k) Savings Plan for substantially all
of its employees who are not part of collective bargaining
agreements. Under provisions of the savings plan, an employee is
immediately vested with respect to Company contributions.
Historically, the Company has matched 100% of employee
contributions up to 6% of qualified compensation. However,
during the fourth quarter of 2009, the Company reduced its match
to 50% of employee contributions up to 6% of qualified
compensation. The cost for this benefit totaled
$2.1 million, $2.5 million and $2.3 million for
the years ended December 20, 2009, December 21, 2008
and December 23, 2007, respectively. The Company also
administers a 401(k) plan for certain union employees with no
Company match.
F-26
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Pension and
Post-Retirement Benefit Plans
The Company provides pension and post-retirement benefit plans
for certain of its union workers. Each of the plans is described
in more detail below. A decline in the value of assets held by
these plans, caused by negative performance of the investments
in the financial markets, and lower discount rates due to
falling interest rates, has resulted in higher contributions to
these plans.
Pension
Plans
The Company sponsors a defined benefit plan covering
approximately 30 union employees as of December 20, 2009.
The plan provides for retirement benefits based only upon years
of service. Employees whose terms and conditions of employment
are subject to or covered by the collective bargaining agreement
between Horizon Lines and the International
Longshore & Warehouse Union Local 142 are eligible to
participate once they have completed one year of service.
Contributions to the plan are based on the projected unit credit
actuarial method and are limited to the amounts that are
currently deductible for income tax purposes. The Company
recorded net periodic benefit costs of $0.8 million during
the year ended December 20, 2009 and $0.4 million
during each of the years ended December 21, 2008 and
December 23, 2007. The plan was underfunded by
$1.1 million and $3.4 million at December 20, 2009 and
December 21, 2008, respectively.
As part of the acquisition of HSI during 2007, the Company
assumed net liabilities related to a pension plan covering
approximately 50 salaried employees. The pension plan was frozen
to new entrants as of December 31, 2005. Contributions to
the plan are based on the projected unit credit actuarial method
and are limited to the amounts that are currently deductible for
income tax purposes. The Company recorded net periodic benefit
costs of $0.3 million, $0.1 million and $37 thousand
during the years ended December 20, 2009, December 21,
2008 and December 23, 2007, respectively. The plan was
underfunded by $2.6 million and $3.7 million at
December 20, 2009 and December 21, 2008, respectively.
Post-retirement
Benefit Plans
In addition to providing pension benefits, the Company provides
certain healthcare (both medical and dental) and life insurance
benefits for eligible retired members (post-retirement
benefits). For eligible employees hired on or before
July 1, 1996, the healthcare plan provides for
post-retirement health coverage for an employee who, immediately
preceding
his/her
retirement date, was an active participant in the retirement
plan and has attained age 55 as of
his/her
retirement date. For eligible employees hired after July 1,
1996, the plan provides post-retirement health coverage for an
employee who, immediately preceding
his/her
retirement date, was an active participant in the retirement
plan and has attained a combination of age and service totaling
75 years or more as of
his/her
retirement date. The net periodic benefit costs related to the
post-retirement benefits were $0.8 million during the year
ended December 20, 2009 and $0.6 million during each
of the years ended December 21, 2008 and December 23,
2007. The post-retirement benefit plan was underfunded by
$3.5 million and $3.9 million at December 20,
2009 and December 21, 2008, respectively.
As part of the acquisition of HSI during 2007, the Company
assumed liabilities related to post-retirement medical, dental
and life insurance benefits for eligible active and retired
employees. Effective June 25, 2007, the plan provides for
post-retirement medical, dental and life insurance benefits for
salaried employees who had attained age 55 and completed
20 years of service as of December 31, 2005. Any
salaried employee already receiving post-retirement medical
coverage as of June 25, 2007 will continue to be covered by
the plan. For eligible union employees hired on or before
July 1, 1996, the healthcare plan provides for
post-retirement medical coverage for an employee who,
immediately preceding
his/her
retirement date, was an active participant in the retirement
plan and
F-27
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
has attained age 55 as of
his/her
retirement date. For eligible union employees hired after
July 1, 1996, the plan provides post-retirement health
coverage for an employee who, immediately preceding
his/her
retirement date, was an active participant in the retirement
plan and has attained age 55 and has a combination of age
and service totaling 75 years or more as of
his/her
retirement date. The Company recorded net periodic benefit costs
of $0.4 million, $0.3 million and $0.2 million
during the years ended December 20, 2009, December 21,
2008 and December 23, 2007, respectively. The plan was
underfunded by $5.4 million and $6.2 million at
December 20, 2009 and December 21, 2008, respectively.
Obligations
and Funded Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Post-retirement
|
|
|
|
Plans
|
|
|
Benefit Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning obligations
|
|
$
|
(11,788
|
)
|
|
$
|
(9,107
|
)
|
|
$
|
(10,123
|
)
|
|
$
|
(7,377
|
)
|
Service cost
|
|
|
(356
|
)
|
|
|
(273
|
)
|
|
|
(562
|
)
|
|
|
(425
|
)
|
Interest cost
|
|
|
(638
|
)
|
|
|
(553
|
)
|
|
|
(545
|
)
|
|
|
(442
|
)
|
Amendments
|
|
|
|
|
|
|
(1,526
|
)
|
|
|
|
|
|
|
(406
|
)
|
Actuarial gain (loss)
|
|
|
1,648
|
|
|
|
(680
|
)
|
|
|
1,877
|
|
|
|
(1,861
|
)
|
Benefits paid
|
|
|
363
|
|
|
|
351
|
|
|
|
428
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending obligations
|
|
|
(10,771
|
)
|
|
|
(11,788
|
)
|
|
|
(8,925
|
)
|
|
|
(10,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plans Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value
|
|
|
4,700
|
|
|
|
5,742
|
|
|
|
|
|
|
|
|
|
Actual return on plans assets
|
|
|
1,212
|
|
|
|
(1,592
|
)
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
1,514
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(362
|
)
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending fair value
|
|
|
7,064
|
|
|
|
4,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(3,707
|
)
|
|
$
|
(7,088
|
)
|
|
$
|
(8,925
|
)
|
|
$
|
(10,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic
Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Post-retirement
|
|
|
|
Plans
|
|
|
Benefit Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Service cost
|
|
$
|
356
|
|
|
$
|
273
|
|
|
$
|
562
|
|
|
$
|
425
|
|
Interest cost
|
|
|
638
|
|
|
|
553
|
|
|
|
545
|
|
|
|
442
|
|
Expected return on plan assets
|
|
|
(420
|
)
|
|
|
(449
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
255
|
|
|
|
|
|
|
|
103
|
|
|
|
59
|
|
Amortization of transition obligation
|
|
|
102
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
Amortization of loss (gain)
|
|
|
125
|
|
|
|
|
|
|
|
31
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
1,056
|
|
|
$
|
479
|
|
|
$
|
1,241
|
|
|
$
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Rate
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Post-retirement
|
|
|
Benefits
|
|
Benefits
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Weighted-average discount rate used in determining net periodic
cost
|
|
|
5.5
|
%
|
|
|
6.2
|
%
|
|
|
5.5
|
%
|
|
|
6.2
|
%
|
Weighted-average expected long-term rate of return on
plans assets in determination of net periodic costs
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Weighted-average rate of compensation increase(1)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Weighted-average discount rate used in determination of
projected benefit obligation
|
|
|
6.4
|
%
|
|
|
5.5
|
%
|
|
|
6.4
|
%
|
|
|
5.5
|
%
|
Assumed health care cost trend:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial trend
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
Ultimate trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
|
(1) |
|
The defined benefit plan benefit payments are not based on
compensation, but rather on years of service. |
For every 1% increase in the assumed health care cost trend
rate, service and interest cost will increase $0.2 million
and the Companys benefit obligation will increase
$1.2 million. For every 1% decrease in the assumed health
care cost trend rate, service and interest cost will decrease
$0.2 million and the Companys benefit obligation will
decrease $1.0 million. Expected Company contributions
during 2010 total $0.6 million, all of which is related to
the pension plan. The following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Post-retirement
|
|
Fiscal Year Ending
|
|
Benefits
|
|
|
Benefits
|
|
|
2010
|
|
$
|
426
|
|
|
$
|
420
|
|
2011
|
|
|
465
|
|
|
|
438
|
|
2012
|
|
|
546
|
|
|
|
469
|
|
2013
|
|
|
571
|
|
|
|
477
|
|
2014
|
|
|
596
|
|
|
|
478
|
|
2015-2019
|
|
|
3,873
|
|
|
|
2,673
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,477
|
|
|
$
|
4,955
|
|
|
|
|
|
|
|
|
|
|
The Companys pension plans investment policy and
weighted average asset allocations at December 20, 2009 and
December 21, 2008 by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits at
|
|
|
Pension Benefits at
|
|
|
|
December 20,
|
|
|
December 21,
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
Cash
|
|
|
1
|
%
|
|
|
5
|
%
|
Equity securities
|
|
|
63
|
%
|
|
|
58
|
%
|
Debt securities
|
|
|
36
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The objective of the pension plan investment policy is to grow
assets in relation to liabilities, while prudently managing the
risk of a decrease in the pension plans assets. The
pension plan
F-29
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
management committee has established a target investment mix
with upper and lower limits for investments in equities,
fixed-income and other appropriate investments. Assets will be
re-allocated among asset classes from
time-to-time
to maintain the target investment mix. The committee has
established a target investment mix of 65% equities and 35%
fixed-income for the plans.
The expected return on plan assets is based on the asset
allocation mix and historical return, taking into account
current and expected market conditions.
Other
Plans
Under collective bargaining agreements, the Company participates
in a number of union-sponsored, multi-employer benefit plans.
Payments to these plans are made as part of aggregate
assessments generally based on hours worked, tonnage moved, or a
combination thereof. Expense for these plans is recognized as
contributions are funded. The Company made contributions of
$10.4 million during the year ended December 20, 2009
and $9.9 million during each of the years ended
December 21, 2008 and December 23, 2007. In addition
to the higher contributions as a result of negative investment
performance and lower discount rates due to falling interest
rates, the Company has made additional payments related to
assessments as a result of lower container volumes and increased
benefit costs. If the Company exits these markets, it may be
required to pay a potential withdrawal liability if the plans
are underfunded at the time of the withdrawal. Any adjustments
would be recorded when it is probable that a liability exists
and it is determined that markets will be exited.
|
|
16.
|
Stock-Based
Compensation
|
Stock-based compensation costs are measured at the grant date,
based on the estimated fair value of the award, and are
recognized as an expense in the income statement over the
requisite service period. Compensation costs related to stock
options and restricted shares granted under the Amended and
Restated Equity Incentive Plan (the Plan), the 2009
Incentive Compensation Plan (the 2009 Plan), and
purchases under the Employee Stock Purchase Plan, as amended
(ESPP) are recognized using the straight-line
method, net of estimated forfeitures. Stock options and
restricted shares granted to employees under the Plan and the
2009 Plan typically cliff vest and become fully exercisable on
the third anniversary of the grant date, provided the employee
who was granted such options/restricted shares is continuously
employed by the Company or its subsidiaries through such date,
and provided any performance based criteria, if any, are met. In
addition, recipients who retire from the Company and meet
certain age and length of service criteria are typically
entitled to proportionate vesting.
The following compensation costs are included within selling,
general, and administrative expenses on the condensed
consolidated statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 20,
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
$
|
1,223
|
|
|
$
|
1,585
|
|
|
$
|
1,667
|
|
Restricted stock
|
|
|
1,743
|
|
|
|
1,779
|
|
|
|
1,875
|
|
Employee stock purchase plan
|
|
|
130
|
|
|
|
287
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,096
|
|
|
$
|
3,651
|
|
|
$
|
3,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized deferred tax assets related to
stock-based compensation of $0.1 million, $1.1 million
and $0.7 million during the fiscal years ended
December 20, 2009, December 21, 2008 and
December 23, 2007, respectively.
F-30
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Stock
Options
The Company maintains a stock plan for the grant of stock
options and restricted stock awards to key employees of the
Company. Under the Plan, up to an aggregate of
3,088,668 shares of common stock may be issued, of which,
852,093 shares are available for future issuance as of
December 20, 2009. Under the 2009 Plan, up to an aggregate
of 1,000,000 shares of common stock may be issued, of
which, 879,833 shares are available for future issuance as
of December 20, 2009. Stock options granted under the plan
have been granted at an option price equal to the closing market
value of the stock on the date of the grant. Options granted
under this plan have
10-year
contractual terms and typically become exercisable after one or
three years after the grant date, subject to continuous service
with the Company. The Compensation Committee of the Board of
Directors of the Company (the Board of Directors)
approves the grants of nonqualified stock options by the
Company, pursuant to the Companys Amended and Restated
Equity Incentive Plan. These options are granted on such
approval date.
The weighted average grant date fair values of options granted
during 2008 and 2007 were $3.97 and $10.58, respectively. A
total of 562,815 shares vested during 2009. The Company
estimates the fair value of each stock option on the date of
grant using a Black-Scholes option-pricing model, applying the
following assumptions, and amortizes the expense over the
options vesting period using the straight-line attribution
approach:
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Expected dividend yield
|
|
N/A
|
|
3.4%-4.7%
|
|
1.3%
|
Expected stock price volatility
|
|
N/A
|
|
33.3%-35.7%
|
|
27.0%
|
Weighted average risk-free interest rate
|
|
N/A
|
|
3.44%-3.69%
|
|
4.51%
|
Expected life of options (years)
|
|
N/A
|
|
6.5
|
|
6.5
|
Significant assumptions used to estimate the fair value of the
share-based compensation awards are as follows:
Expected Life: The Company determined the
expected life of the options utilizing the short-cut method due
to the lack of historical evidence regarding employees
expected exercise behavior. Under this approach, the expected
term is presumed to be the mid-point between the vesting date
and the end of the contractual term.
Expected Volatility: Due to the relatively
short period of time since our stock became publicly traded, the
Company bases its estimates of stock price volatility on the
average of (i) our historical stock price over the period
in which it has been publicly traded and (ii) historical
volatility of similar entities commensurate with the expected
term of the stock options.
As of December 20, 2009, there was $0.6 million in
unrecognized compensation costs related to options granted under
the Plan, which is expected to be recognized over a weighted
average period of 0.7 years. As part of the restructuring
plan, the Company accelerated the vesting of 95,000 stock
options which resulted in $0.1 million of compensation cost.
F-31
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
A summary of option activity under the Companys stock plan
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
Options
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
(000s)
|
|
|
Outstanding at December 24, 2006
|
|
|
1,291,008
|
|
|
$
|
11.35
|
|
|
|
9.16
|
|
|
$
|
20,975
|
|
Granted
|
|
|
329,000
|
|
|
|
33.51
|
|
|
|
|
|
|
|
|
|
Exercised(a)
|
|
|
(21,000
|
)
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 23, 2007
|
|
|
1,599,008
|
|
|
|
15.93
|
|
|
|
8.40
|
|
|
$
|
9,696
|
|
Granted
|
|
|
209,000
|
|
|
|
14.38
|
|
|
|
|
|
|
|
|
|
Exercised(a)
|
|
|
(1,312
|
)
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(172,754
|
)
|
|
|
15.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 21, 2008
|
|
|
1,633,942
|
|
|
|
15.77
|
|
|
|
7.55
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(80,952
|
)
|
|
|
18.63
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(37,800
|
)
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 20, 2009
|
|
|
1,515,190
|
|
|
$
|
15.77
|
|
|
|
6.68
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 20, 2009
|
|
|
1,506,127
|
|
|
$
|
15.75
|
|
|
|
6.67
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 20, 2009
|
|
|
1,090,154
|
|
|
$
|
11.84
|
|
|
|
6.11
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The aggregate intrinsic value of stock options exercised during
the years ended December 21, 2008 and December 23,
2007 was $2 thousand and $0.3 million, respectively. |
Cash received from the exercise of stock options under the
Companys stock plan for the years ended December 21,
2008 and December 23, 2007 was $13 thousand and
$0.2 million, respectively.
Restricted
Stock
On June 12, 2009, the Company granted 12,320 shares of
restricted stock each to all
non-employee
members on the Companys Board of Directors. The grant date
fair value of the restricted shares was $4.87 per share and the
shares will vest in full on June 12, 2010. On June 19,
2009, the Company granted 15,235 shares of restricted stock
to the lead independent director of the Companys Board of
Directors. The grant date fair value of the restricted shares
was $3.61 per share and the shares will vest in full on
June 19, 2010. On March 18, 2009, the Company granted
a total of 444,500 shares of restricted stock to certain
employees of the Company and its subsidiaries. The grant date
fair value of the restricted shares was $3.38 per share. Of the
444,500 shares granted, 293,250 will vest in full on
March 18, 2012. The remaining 151,250 restricted shares
were performance based shares and would have vested in full on
March 18, 2011 provided an earnings per share performance
target for the Companys fiscal year 2009 was met. The
earnings per share performance target was not met and the
performance based restricted shares have been forfeited. On
September 1, 2009, the Company granted a total of
18,692 shares of restricted stock to certain employees of
the Company and its subsidiaries. The grant date fair value of
the restricted shares was $5.35 per share. The restricted shares
will vest in full on September 1, 2012.
F-32
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
A summary of the status of the Companys restricted stock
awards is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Number of
|
|
|
at Grant
|
|
Restricted Shares
|
|
Shares
|
|
|
Date
|
|
|
Nonvested at December 24, 2006
|
|
|
70,000
|
|
|
$
|
12.57
|
|
Granted
|
|
|
237,559
|
|
|
|
31.96
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 23, 2007
|
|
|
307,559
|
|
|
|
27.54
|
|
Granted
|
|
|
182,827
|
|
|
|
31.96
|
|
Vested
|
|
|
(17,440
|
)
|
|
|
34.42
|
|
Forfeited
|
|
|
(44,134
|
)
|
|
|
27.70
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 21, 2008
|
|
|
428,812
|
|
|
|
21.39
|
|
Granted
|
|
|
576,987
|
|
|
|
3.70
|
|
Vested
|
|
|
(120,777
|
)
|
|
|
12.75
|
|
Forfeited
|
|
|
(277,801
|
)
|
|
|
12.86
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 20, 2009
|
|
|
607,221
|
|
|
$
|
10.21
|
|
|
|
|
|
|
|
|
|
|
As of December 20, 2009, there was $1.4 million of
unrecognized compensation expense related to all restricted
stock awards, which is expected to be recognized over a
weighted-average period of 1.5 years. As part of the
restructuring plan, the Company accelerated the vesting of
70,000 restricted shares which resulted in $0.4 million of
compensation cost.
Employee Stock
Purchase Plan
On April 19, 2006, the Board of Directors voted to
implement an employee stock purchase plan (as amended, the
ESPP) effective July 1, 2006. The Company had
reserved 308,866 shares of its common stock for issuance
under the ESPP. On June 2, 2009, the Companys
stockholders approved the 2009 Employee Stock Purchase Plan
(2009 ESPP). The 2009 ESPP reserved an additional
600,000 shares of its common stock for future purchases. As
of December 20, 2009, there were 543,266 shares of
common stock reserved for issuance under the ESPP.
Employees generally are eligible to participate in the 2009 ESPP
if they are employed before the beginning of the applicable
purchase period, are customarily employed more than five months
in a calendar year and more than twenty hours per week, and are
not, and would not become as a result of being granted an option
under the 2009 ESPP, 5% stockholders of the Company or any of
its designated subsidiaries. Participation in the 2009 ESPP will
end automatically upon termination of employment. Eligible
employees are permitted to acquire shares of common stock
through payroll deductions within a percentage range of their
salary as determined by the Companys Compensation
Committee. Such employee purchases are subject to maximum
purchase limitations.
The 2009 ESPP is intended to qualify as an employee stock
purchase plan under Section 423 of the Internal
Revenue Code of 1986, as amended. The ESPP will terminate on
July 1, 2016 unless it terminates earlier under the terms
of the ESPP. The Board of Directors and the Compensation
Committee have the authority to amend, terminate or extend the
term of the ESPP, except that no action may adversely affect any
outstanding options previously granted under the plan and
stockholder approval is required to increase the number of
shares issued or to change the terms of eligibility. The
F-33
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Board of Directors and the Compensation Committee are able to
make amendments to the ESPP as it determines to be advisable if
the financial accounting treatment for the 2009 ESPP changes
from that in effect on the date the 2009 ESPP was adopted by the
Board of Directors.
The Company estimates the fair value of each share of stock
using a Black-Scholes option-pricing model, applying the
following assumptions, and amortizes the expense over the plan
purchase period using the straight-line attribution approach:
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Expected dividend yield
|
|
7.5%-11.8%
|
|
2.4%-12.6%
|
Expected stock price volatility
|
|
83.15%-110.7%
|
|
66.4%-86.7%
|
Weighted average risk-free interest rate
|
|
0.10%-0.17%
|
|
0.85%-3.92%
|
Expected term (years)
|
|
0.25
|
|
0.25
|
Fair value at grant date
|
|
$1.25-$1.57
|
|
$0.78-$3.78
|
As of December 20, 2009, there was no unrecognized
compensation expense related to the ESPP.
The Company periodically assesses whether it is more likely than
not that it will generate sufficient taxable income to realize
its deferred income tax assets. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income (including the reversal of deferred tax
liabilities) during the periods in which those temporary
differences will become deductible. In making this
determination, the Company considers all available positive and
negative evidence and makes certain assumptions. The Company
considers, among other things, its deferred tax liabilities, the
overall business environment, its historical earnings and losses
and its outlook for future years.
During the second quarter of 2009, the Company determined that
it was unclear as to the timing of when it will generate
sufficient taxable income to realize our deferred tax assets.
Accordingly, the Company recorded a valuation allowance against
our deferred tax assets. Although the Company has recorded a
valuation allowance against our deferred tax assets, it does not
affect its ability to utilize deferred tax assets to offset
future taxable income. Until such time that the Company
determines it is more likely than not that it will generate
sufficient taxable income to realize its deferred tax assets,
income tax benefits associated with future period losses will be
fully reserved. As such, the Companys federal and state
tax rates are expected to effectively be 0% and 1%-2%,
respectively, during those periods.
During 2006, the Company elected the application of tonnage tax.
Prior to the establishment of a full valuation allowance, the
Companys effective tax rate was impacted by the
Companys income from qualifying shipping activities as
well as the income from the Companys non-qualifying
shipping activities and fluctuated based on the ratio of income
from qualifying and non-qualifying activities. The
Companys effective tax rate for the years ended
December 20, 2009, December 21, 2008 and
December 23, 2007 was (49.6)%, 81.9% and (129.8)%,
respectively.
F-34
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Income tax expense (benefit) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
2007
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
(As Adjusted)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(247
|
)
|
|
$
|
1,096
|
|
|
$
|
|
|
State/territory
|
|
|
218
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(29
|
)
|
|
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
10,359
|
|
|
|
(12,630
|
)
|
|
|
(13,808
|
)
|
State/territory
|
|
|
37
|
|
|
|
(355
|
)
|
|
|
(1,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
10,396
|
|
|
|
(12,985
|
)
|
|
|
(15,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
10,367
|
|
|
$
|
(11,728
|
)
|
|
$
|
(15,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the income tax expense (benefit) and the
amounts computed by applying the statutory federal income tax
rates to earnings before income taxes are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
|
|
|
December 21,
|
|
|
December 23,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
2007
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
(As Adjusted)
|
|
|
Income tax (benefit) expense at statutory rates:
|
|
$
|
(7,317
|
)
|
|
$
|
(5,012
|
)
|
|
$
|
4,086
|
|
State/territory, net of federal income tax benefit (excluding
valuation allowance)
|
|
|
(1,067
|
)
|
|
|
(396
|
)
|
|
|
(172
|
)
|
Qualifying shipping income
|
|
|
3,280
|
|
|
|
(6,725
|
)
|
|
|
(11,837
|
)
|
Valuation allowance
|
|
|
15,001
|
|
|
|
|
|
|
|
|
|
Revaluation of deferred taxes for tonnage tax regime
|
|
|
|
|
|
|
|
|
|
|
(7,702
|
)
|
Other Items
|
|
|
470
|
|
|
|
405
|
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
10,367
|
|
|
$
|
(11,728
|
)
|
|
$
|
(15,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded a tax benefit attributable to the
recognition of certain tax benefits derived from the exercise of
non-qualified stock options in the amount of $15 thousand and
$0.1 million as a decrease directly to additional paid-in
capital for the years ended December 21, 2008 and
December 23, 2007, respectively.
F-35
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
The components of deferred tax assets and liabilities are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21,
|
|
|
|
December 20,
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Leases
|
|
$
|
10,011
|
|
|
$
|
10,968
|
|
Convertible note hedge
|
|
|
1,294
|
|
|
|
1,395
|
|
Allowance for doubtful accounts
|
|
|
1,356
|
|
|
|
975
|
|
Net operating losses and AMT carryforwards
|
|
|
28,965
|
|
|
|
34,292
|
|
Post retirement benefits
|
|
|
1,374
|
|
|
|
970
|
|
Other
|
|
|
10,682
|
|
|
|
12,799
|
|
Valuation allowances
|
|
|
(14,248
|
)
|
|
|
(1,262
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
39,434
|
|
|
|
60,137
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(16,521
|
)
|
|
|
(17,628
|
)
|
Capital construction fund
|
|
|
(14,211
|
)
|
|
|
(12,907
|
)
|
Intangibles
|
|
|
(8,215
|
)
|
|
|
(9,223
|
)
|
Other
|
|
|
(1,806
|
)
|
|
|
(2,260
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(40,753
|
)
|
|
|
(42,018
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liability) asset
|
|
$
|
(1,319
|
)
|
|
$
|
18,119
|
|
|
|
|
|
|
|
|
|
|
The Company has net operating loss carryforwards for federal
income tax purposes in the amount of $109.2 million and
$93.2 million as of December 20, 2009 and
December 21, 2008, respectively. In addition, the Company
has net operating loss carryforwards for state income tax
purposes in the amount of $16.1 million and
$12.4 million as of December 20, 2009 and
December 21, 2008, respectively. The Federal and state net
operating loss carryforwards begin to expire in 2024 and 2019,
respectively. Furthermore, the Company has an alternative
minimum tax credit carryforward with no expiration period in the
amount of $1.4 million as of December 20, 2009 and
December 21, 2008. Net operating loss credits generated
from tax losses in Guam begin to expire in 2023. The Company has
recorded a valuation allowance against the majority of the
deferred tax assets attributable to the net operating losses
generated, but has not recorded a valuation allowance
attributable to the net operating losses generated in certain
states.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
8,989
|
|
|
$
|
8,482
|
|
|
$
|
3,530
|
|
Additions based on tax positions related to the current year
|
|
|
409
|
|
|
|
2,196
|
|
|
|
3,550
|
|
Additions for tax positions of prior years
|
|
|
5,793
|
|
|
|
|
|
|
|
2,049
|
|
Reductions for tax positions of prior years
|
|
|
(2,519
|
)
|
|
|
(1,689
|
)
|
|
|
(647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
12,672
|
|
|
$
|
8,989
|
|
|
$
|
8,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the valuation allowance, none of the unrecognized
tax benefits, if recognized, would affect the effective tax
rate. The Company does not expect that there will be a
significant increase or decrease of the total amount of
unrecognized tax benefits within the next twelve months.
F-36
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
The Company recognizes interest accrued and penalties related to
unrecognized tax benefits in its income tax expense. During its
fiscal years for 2007 through 2009, the Company has not
recognized any interest and penalties in its statement of
operations and statement of financial position. Furthermore,
there were no accruals for the payment of interest and penalties
at either December 20, 2009 or December 21, 2008.
The Company or one of its subsidiaries files income tax returns
in the U.S. federal jurisdiction, various U.S. state
jurisdictions and foreign jurisdictions. With few exceptions,
the Company is no longer subject to U.S. federal, state and
local, or
non-U.S. income
tax examinations by tax authorities for years before 2004. The
tax years which remain subject to examination by major tax
jurisdictions as of December 20, 2009 include
2004-2009.
During 2009, the Internal Revenue Service issued guidance
describing when and how taxpayers can elect to carryback net
operating losses for calculation of the alternative minimum tax
(AMT). As such, the Company recorded a
$0.2 million income tax receivable related to previous AMT
payments made during 2007.
|
|
18.
|
Commitments and
Contingencies
|
Legal
Proceedings
On April 17, 2008, the Company received a grand jury
subpoena and search warrant from the U.S. District Court
for the Middle District of Florida seeking information regarding
an investigation by the Antitrust Division of the Department of
Justice (the DOJ) into possible antitrust violations
in the domestic ocean shipping business. Subsequently, the DOJ
expanded the timeframe covered by the subpoena. The Company is
currently providing documents to the DOJ in response to the
subpoena. The Company intends to cooperate fully with the DOJ in
its investigation.
The Company has entered into a conditional amnesty agreement
with the DOJ under its Corporate Leniency Policy. The amnesty
agreement pertains to a single contract relating to ocean
shipping services provided to the United States Department of
Defense. The DOJ has agreed to not bring any criminal
prosecution with respect to that government contract as long as
the Company, among other things, continues its full cooperation
in the investigation. The amnesty does not bar a claim for
damages that may be sought by the DOJ under any applicable
federal law or regulation.
On October 9, 2009, the Company received a Request for
Information and Production of Documents from the Puerto Rico
Office of Monopolistic Affairs. The request relates to an
investigation into possible price fixing and unfair competition
in the Puerto Rico domestic ocean shipping business. The Company
is currently providing documents in response to this request,
and intends to cooperate fully in this investigation.
Subsequent to the commencement of the DOJ investigation, a
number of purported class action lawsuits were filed against the
Company and other domestic shipping carriers. Fifty-seven cases
have been filed in the following federal district courts: eight
in the Southern District of Florida, six in the Middle District
of Florida, twenty in the District of Puerto Rico, eleven in the
Northern District of California, two in the Central District of
California, one in the District of Oregon, eight in the Western
District of Washington, and one in the District of Alaska.
Nineteen of the foregoing district court cases that related to
ocean shipping services in the Puerto Rico tradelane were
consolidated into a single multidistrict litigation
(MDL) proceeding in the District of Puerto Rico. All
of the foregoing district court cases that related to ocean
shipping services in the Hawaii and Guam tradelanes were
consolidated into MDL proceedings in the Western District of
Washington. One district court case remains in the District of
Alaska, relating to the Alaska tradelane.
F-37
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Each of the federal district court cases purports to be on
behalf of a class of individuals and entities who directly, or
indirectly in one case, purchased domestic ocean shipping
services from the various domestic ocean carriers. The
complaints allege price-fixing in violation of the Sherman Act
and seek treble monetary damages, costs, attorneys fees,
and an injunction against the allegedly unlawful conduct.
On June 11, 2009, the Company entered into a settlement
agreement with the plaintiffs in the Puerto Rico MDL litigation.
Under the settlement agreement, which is subject to Court
approval, the Company has agreed to pay $20.0 million and
to certain base-rate freezes to resolve claims for alleged
antitrust violations in the Puerto Rico tradelane. The Company
paid $5.0 million into an escrow account pursuant to the
terms of the settlement agreement and will be required to pay
$5.0 million within 90 days after preliminary approval
of the settlement agreement by the district court and
$10.0 million within five business days after final
approval of the settlement agreement by the district court.
The base-rate freeze component of the settlement agreement
provides that class members who have contracts in the Puerto
Rico trade with the Company as of the effective date of the
final settlement agreement would have the option, in lieu of
receiving cash, to have their base rates frozen for
a period of two years. The base-rate freeze would run for two
years from the expiration of the contract in effect on the
effective date of the final settlement agreement. All class
members would be eligible to share in the $20.0 million
cash component, but only contract customers of the Company would
be eligible to elect the base-rate freeze in lieu of receiving
cash. The Company has the right to terminate the settlement
agreement under certain circumstances. On July 8, 2009, the
plaintiffs filed a motion for preliminary approval of the
settlement agreement in the Puerto Rico MDL litigation. Several
hearings on the motion for preliminary approval of the
settlement agreement have been held where the Court has heard
the objections of certain non-settling defendants. The Company
is awaiting the Courts decision.
On March 20, 2009, the Company filed a motion to dismiss
the claims in the Hawaii and Guam MDL litigation. The plaintiffs
filed a response to the Companys motion to dismiss on
April 20, 2009, and the Company filed a reply on
May 8, 2009. On August 18, 2009, the District Court
for the Western District of Washington entered an order
dismissing, without prejudice, the Hawaii and Guam MDL
litigation. In dismissing the complaint, however, the plaintiffs
were granted thirty days to amend their complaint, and the
Company and the plaintiffs agreed to extend the time to file an
amended complaint to November 16, 2009. Subsequently, the
Court granted the plaintiffs until May 10, 2010 to file an
amended complaint. The Company and the plaintiffs have agreed to
stay discovery in the Alaska litigation. The Company intends to
vigorously defend itself against these purported class action
lawsuits.
In addition, on July 9, 2008, a complaint was filed by
Caribbean Shipping Services, Inc. in the Circuit Court,
4th Judicial Circuit in and for Duval County, Florida,
against the Company and other domestic shipping carriers
alleging price-fixing in violation of the Florida Antitrust Act
and the Florida Deceptive and Unlawful Trade Practices Act. The
complaint seeks treble damages, injunctive relief, costs and
attorneys fees. The case is not brought as a class action.
This case is pending discovery.
Through December 20, 2009, the Company has incurred
approximately $22.9 million in legal and professional fees
associated with the DOJ investigation and the antitrust related
litigation. In addition, the Company has paid $5.0 million
into an escrow account pursuant to the terms of the Puerto Rico
MDL settlement agreement. Further, a reserve of
$15.0 million related to the expected future payments
pursuant to the terms of the settlement of the Puerto Rico MDL
litigation has been included in other accrued liabilities on the
Companys consolidated balance sheet. The Company is unable
to predict the outcome of the Hawaii and Guam MDL litigation,
the Alaska
class-action
litigation and the
F-38
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
Florida Circuit Court litigation. The Company has not made any
provision for any of these claims in the accompanying financial
statements. It is possible that the outcome of these proceedings
could have a material adverse effect on the Companys
financial condition, cash flows and results of operations.
In addition, in connection with the DOJ investigation, it is
possible that the Company could suffer criminal prosecution and
be required to pay a substantial fine. The Company has not made
a provision for any possible fines or penalties in the
accompanying financial statements, and the Company can give no
assurance that the final resolution of the DOJ investigation
will not result in significant liability and will not have a
material adverse effect on the Companys financial
condition, cash flows and results of operations.
On December 31, 2008, a securities class action lawsuit was
filed by the City of Roseville Employees Retirement System
in the United States District Court for the District of
Delaware, naming the Company and six current and former
employees, including the Companys Chief Executive Officer,
as defendants. The Company filed a motion to dismiss and the
Court granted the motion to dismiss on November 13, 2009;
however, the plaintiffs were granted eleven days to file an
amended complaint. The Company and the plaintiffs agreed to
extend the time to file the amended complaint, and the
plaintiffs filed their amended complaint on December 23,
2009. The amended complaint added two of our current and former
employees as defendants.
The amended complaint purports to be on behalf of purchasers of
our common stock. The complaint alleges, among other things,
that the Company made material misstatements and omissions in
connection with alleged price-fixing in the Companys
shipping business in Puerto Rico in violation of antitrust laws.
The Company is preparing a response to the amended complaint.
The Company is unable to predict the outcome of this lawsuit;
however, we believe that we have appropriate disclosure
practices and intend to vigorously defend against the lawsuit.
On May 13, 2009, the Company was served with a complaint
filed by a shareholder in Delaware Chancery Court seeking
production of certain books and records pursuant to
Section 220 of the Delaware General Corporation law. The
Company reached an agreement on the scope of the required
document production and produced the required documents.
Subsequently, the suit was dismissed.
In the ordinary course of business, from time to time, the
Company and its subsidiaries become involved in various legal
proceedings. These relate primarily to claims for loss or damage
to cargo, employees personal injury claims, and claims for
loss or damage to the person or property of third parties. The
Company and its subsidiaries generally maintain insurance,
subject to customary deductibles or self-retention amounts,
and/or
reserves to cover these types of claims. The Company and its
subsidiaries also, from time to time, become involved in routine
employment-related disputes and disputes with parties with which
they have contractual relations.
SFL
Agreements
In April 2006, the Company completed a series of agreements with
Ship Finance International Limited and certain of its
subsidiaries (SFL) to charter five new non-Jones Act
qualified container vessels. The bareboat charter for each new
vessel is a hell or high water charter, and the
obligation of the Company to pay charter hire thereunder for the
vessel is absolute and unconditional. The aggregate annual
charter hire for all of the five new vessels is approximately
$32.0 million. Under the charters, the Company is responsible
for crewing, insuring, maintaining, and repairing each vessel
and for all other operating costs with respect to each vessel.
The term of each of the bareboat charters is twelve years from
the date of delivery of the related vessel, with a three year
renewal option exercisable by the Company. In addition, the
Company has the option to purchase all of the
F-39
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
vessels following the five, eight, twelve, and, if applicable,
fifteen year anniversaries of the date of delivery at pre-agreed
purchase prices. If the Company elects to purchase all of the
vessels after the five or eight year anniversary date, it will
have the right to assume the outstanding debt related to each
purchased vessel, and the amount of the debt so assumed will be
credited against the purchase price paid for the vessels. If the
Company elects not to purchase the new vessels at the end of the
initial twelve-year period and SFL sells the new vessels for
less than a specified amount, the Company is responsible for
paying the amount of such shortfall, which shall not exceed
$3.8 million per new vessel. If the new vessels are to be
sold by SFL to an affiliated party for less than a different
specified amount, the Company has the right to purchase the new
vessels for that different specified amount.
Although the Company is not the primary beneficiary of the
variable interest entities created in conjunction with the SFL
transactions, the Company has an interest in the variable
interest entities. Based on the Companys analysis of the
expected cash flows related to the variable interest entity, the
Company believes only a remote likelihood exists that it would
become the primary beneficiary of the variable interest entity
and would be required to consolidate the variable interest
entity. Certain contractual obligations and off-balance sheet
obligations arising from this transaction include the annual
operating lease obligations and the residual guarantee. The
Company is accounting for the leases as operating leases. The
residual guarantee is recorded at its fair value of
approximately $0.2 million as a liability on the
Companys balance sheet.
Standby
Letters of Credit
The Company has standby letters of credit, primarily related to
its property and casualty insurance programs. On
December 20, 2009 and December 21, 2008, these letters
of credit totaled $11.1 million and $8.3 million,
respectively.
Labor
Relations
Approximately 67.4% of the Companys total work force is
covered by collective bargaining agreements. Our collective
bargaining agreements are scheduled to expire as follows: three
in 2011, five in 2012, one in 2103 and one in 2014.
|
|
19.
|
Quarterly
Financial Data (Unaudited)
|
Set forth below are unaudited quarterly financial data (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Operating revenue
|
|
$
|
272,351
|
|
|
$
|
278,484
|
|
|
$
|
307,972
|
|
|
$
|
299,674
|
|
Operating (loss) income(1)(2)
|
|
|
(819
|
)
|
|
|
(11,207
|
)
|
|
|
18,956
|
|
|
|
11,908
|
|
Net (loss) income(1)(2)(3)
|
|
|
(9,953
|
)
|
|
|
(31,083
|
)
|
|
|
8,438
|
|
|
|
1,326
|
|
Basic net (loss) income per share
|
|
|
(0.33
|
)
|
|
|
(1.02
|
)
|
|
|
0.28
|
|
|
|
0.04
|
|
Diluted net (loss) income per share
|
|
|
(0.33
|
)
|
|
|
(1.02
|
)
|
|
|
0.27
|
|
|
|
0.04
|
|
F-40
Horizon Lines,
Inc.
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
|
|
|
(As Adjusted)
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Operating revenue
|
|
$
|
305,947
|
|
|
$
|
330,958
|
|
|
$
|
352,638
|
|
|
$
|
314,716
|
|
Operating income (loss)(1)(2)
|
|
|
11,601
|
|
|
|
16,684
|
|
|
|
21,788
|
|
|
|
(23,057
|
)
|
Net income (loss)
|
|
|
726
|
|
|
|
5,834
|
|
|
|
11,103
|
|
|
|
(20,256
|
)
|
Basic net income (loss) per share
|
|
|
0.02
|
|
|
|
0.19
|
|
|
|
0.37
|
|
|
|
(0.67
|
)
|
Diluted net income (loss) per share
|
|
|
0.02
|
|
|
|
0.19
|
|
|
|
0.37
|
|
|
|
(0.67
|
)
|
|
|
|
(1) |
|
The first, second, third, and fourth quarter of 2009 include
expenses of $4.4 million, $4.1 million,
$2.0 million, and $1.7 million, respectively, related
to legal and professional fees associated with the DOJ
investigation and the antitrust related litigation. The second,
third, and fourth quarter of 2008 include expenses of
$2.4 million, $4.6 million, and $3.7 million,
respectively, related to legal and professional fees associated
with the DOJ investigation and the antitrust related litigation. |
|
(2) |
|
The first and second quarter of 2009 include a $0.8 million
and $0.2 million charge, respectively, related to the
Companys restructuring plan. The second and third quarter
of 2009 include $0.7 million and $1.2 million,
respectively, related to an impairment charge. The second
quarter of 2009 includes a $20.0 million charge for the
settlement of a class action lawsuit. The fourth quarter of 2008
includes a $3.2 million charge related to the
Companys restructuring plan, an impairment charge totaling
$25.4 million, and a supplementary premium call totaling
$1.3 million related the Companys protection and
indemnity insurance policies for the three year period ended
December 21, 2008. |
|
(3) |
|
During the second quarter of 2009, the Company determined it was
unclear as to the timing of when it will generate sufficient
taxable income to realize its deferred tax assets. Accordingly,
the Company recorded a valuation allowance against its deferred
tax assets which resulted in a $10.5 million income tax
provision. |
The Company has evaluated subsequent events and transactions for
potential recognition or disclosure through such time these
statements were filed with the Securities and Exchange
Commission (SEC) on February 4, 2010, and has
determined there were no items deemed to be reportable.
F-41
Schedule II
Horizon Lines,
Inc.
Valuation and Qualifying Accounts
Years Ended December 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to Cost
|
|
|
|
|
|
Charged
|
|
|
|
|
|
|
Beginning
|
|
|
and
|
|
|
|
|
|
to other
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Expenses
|
|
|
Deductions
|
|
|
Accounts
|
|
|
Balance
|
|
|
|
(In thousands)
|
|
|
Accounts receivable reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 20, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
7,117
|
|
|
$
|
2,124
|
|
|
$
|
(2,763
|
)
|
|
$
|
|
|
|
$
|
6,478
|
|
Allowance for revenue adjustments
|
|
|
1,100
|
|
|
|
5,935
|
|
|
|
(5,935
|
)
|
|
|
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,217
|
|
|
$
|
8,059
|
|
|
$
|
(8,698
|
)
|
|
$
|
|
|
|
$
|
7,578
|
|
Year ended December 21, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
5,091
|
|
|
$
|
2,970
|
|
|
$
|
(944
|
)
|
|
$
|
|
|
|
$
|
7,117
|
|
Allowance for revenue adjustments
|
|
|
1,100
|
|
|
|
4,796
|
|
|
|
(4,796
|
)
|
|
|
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,191
|
|
|
$
|
7,766
|
|
|
$
|
(5,740
|
)
|
|
$
|
|
|
|
$
|
8,217
|
|
Year ended December 23, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
3,472
|
|
|
$
|
2,700
|
|
|
$
|
(1,081
|
)
|
|
$
|
|
|
|
$
|
5,091
|
|
Allowance for revenue adjustments
|
|
|
1,500
|
|
|
|
4,974
|
|
|
|
(5,374
|
)
|
|
|
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,972
|
|
|
$
|
7,674
|
|
|
$
|
(6,455
|
)
|
|
$
|
|
|
|
$
|
6,191
|
|
Restructuring costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 20, 2009
|
|
$
|
3,197
|
|
|
$
|
1,001
|
|
|
$
|
(3,563
|
)
|
|
$
|
(485
|
)(1)
|
|
$
|
150
|
|
Year ended December 21, 2008
|
|
$
|
|
|
|
$
|
3,244
|
|
|
$
|
(47
|
)
|
|
$
|
|
|
|
$
|
3,197
|
|
Deferred tax assets valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 20, 2009
|
|
$
|
1,262
|
|
|
$
|
15,001
|
|
|
$
|
|
|
|
$
|
(2,015
|
)(2)
|
|
$
|
14,248
|
|
Year ended December 21, 2008
|
|
$
|
1,262
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,262
|
|
Year ended December 23, 2007
|
|
$
|
1,262
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,262
|
|
|
|
|
(1) |
|
Includes $0.5 million of stock-based compensation recorded
in additional paid in capital. |
|
(2) |
|
Includes $2.0 million of recorded in other comprehensive
income (loss). |
F-42