Horizon Lines, Inc. BB&T Capital Markets 24 th Annual. Transportation Services Conference. February 11, 2009

Transcription

1 Horizon Lines, Inc. BB&T Capital Markets 24 th Annual Transportation Services Conference February 11, 2009

2 Forward-Looking Statements Risks, Uncertainties, Other Factors with Respect to Forward- Looking Statements : Certain statements contained in this presentation constitute forwardlooking statements within the meaning of the Private Securities Litigation Reform Act of Such statements that are not of historical fact constitute forward-looking statements and, accordingly, involve estimates, assumptions, judgments and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. Such factors are detailed in the Horizon Lines, Inc. s Form 10-K filed February 5, 2009, with the Securities and Exchange Commission. -2-

3 Horizon Lines, Inc. Corporate Overview -3-

4 Horizon Lines History 1956 Sea-Land pioneers container shipping 1969 Sea-Land acquired by R.J. Reynolds 1984 Sea-Land becomes a public company 1986 Sea-Land purchased by CSX 1999 Sea-Land international business sold to Maersk, domestic business becomes CSX Lines 2003 Carlyle Group buys CSX Lines, changes name to Horizon Lines 2004 Horizon Lines purchased by Castle Harlan 2005 Horizon Lines conducts initial public offering (NYSE: HRZ) 2006 Castle Harlan sells remaining HRZ stake through secondary offerings and shelf registration -4-

5 Investment Proposition Industry Specific Entry Limited to Qualified Jones Act Carriers Lifeline to Offshore Consumers, Industries, Military Company Specific Broad, Diverse Blue-Chip Customer Base Geographic Diversification Multiple Growth Drivers Sustained Revenue and Earnings Streams Strong Cash Flow Generation Stock Specific NYSE Listed: HRZ Actively Covered by Three Analysts Quarterly Dividend $0.11/Share Management & Employees Own ~9.5% of Stock -5-

6 The Jones Act Established by U.S. Federal government in 1920 Similar cabotage laws exist in over 40 other countries Governs all vessels transporting cargo between U.S. ports Significant hurdles to entry U.S. citizen-owned and incorporated companies U.S.-built and U.S.-flagged ships Crews consisting of predominantly U.S. citizens Enjoys broad political support and strong congressional backing Support further solidified after events of 9/11 - U.S. merchant marine is crucial for national defense President Obama has voiced support -6-

7 Operating Units Horizon Lines Jones Act Container Shipping Serving Alaska, Hawaii & Puerto Rico Trans Pacific Serving US, Guam and Asia Offshore Terminal Services Ship Management Potential Coastwise Service Horizon Logistics Expedited Freight Solutions Trucking & Warehousing Non-Vessel Operating Common Carrier (NVOCC) Brokerage Services -7-

8 Long-Term Growth Drivers Horizon EDGE Strategic Acquisitions Surplus Jones Act Ships Government / Military TP1 Fleet Enhancement Logistics & Technology Core Business Organic Growth -8-

9 Industry Leading Management Team Industry Leading Management Team Name Designation Years in Industry Chuck Raymond Chairman, President and CEO 42 John Keenan President, COO, Horizon Lines, LLC 27 Brian Taylor President, COO, Horizon Logistics, LLC 24 Mike Avara SVP, Chief Financial Officer 25 Ken Privratsky SVP Pacific Group 39 Mar Labrador SVP, General Manager Hawaii/Guam 14 Jacob Wegrzyn SVP, General Manager Puerto Rico 18 Marion Davis VP, Director of Operations Alaska 35 Average 28-9-

10 Liner Review -10-

11 Largest Jones Act Player Alaska 41% Market Share 3 Full-time Vessels 1 Peak Vessel Primary Competitors T.O.T.E. Anchorage Dutch Harbor Kodiak Taiwan Yantian Hong Kong Guam Honolulu Tacoma Oakland Long Beach Dallas Houston Charlotte Jacksonville Elizabeth Puerto Rico 33% Market Share 4 Full-time Vessels Primary Competitors Sea Star Line Crowley Maritime Trailer Bridge Hawaii/Guam/Asia Market Share- 36% Hawaii / 50% Guam 4 Jones Act Vessels 5 US-flag non-jones Act Vessels Primary Competitors Matson Navigation Co. San Juan Only Jones Act Container Shipping Company Operating in All Three Markets -11-

12 Loyal Customer Base Top 10 Commercial Customers (1) Facts Regarding Top 10 * All Other Customers 67% #1 / 8% 31 year average relationship (1) 2008 data #2 / 6% #3 / 5% #4 / 3% #5 / 2% #6 / 2% #7 / 2% #8 / 2% #9 / 2% #10 / 1% General Customer Data 99% retention rate Customers in multiple markets 2-3 markets - 57% of revenue 3 markets - 32% of revenue 33% 33% of total revenue Largest customer is only 8% of revenue Revenue CAGR of 10.5% from 2000 to 2008 * Transportation Revenue -12-

13 Diversified Cargo Mix 2008 Cargo Mix Well Diversified Revenue Base Military / Government 6% Beverages 3% Autos / Parts 4% Building Materials 3% Household Goods 3% Other 14% Grocery / Foodstuff 9% Retail / Wholesale 17% Refrigerated 23% Freight Forwarders / Third Parties 19% Low concentration by customer or commodity Lifeline for consumer staples and durables -13-

14 Recognized Industry Leadership Wal-Mart Jones Act Carrier of the Year for 7 years Toyota Logistics Excellence Award for 8 years Lowe s Platinum or Gold Carrier Award for the 8th consecutive year GlaxoSmithKline Best Performance by Ocean Carrier Award Army-Air Force Exchange Service (AAFES) 2007 Logistics Excellence Award Logistics Management s 2007 Quest for Quality Award -14-

15 Ongoing Initiatives Horizon EDGE Improve process efficiency and enhance customer service Dedicated team to install sustainable management tools Foster a process improvement culture Yield significant cost reductions annually Ongoing EDGE savings targeted in 2009 Coastwise Shipping Coastwise Value Proposition Vessel network savings Inland savings Market penetration Equipment positioning options Environment A green solution for relieving congestion on the nation s highways Requires Strategic alliances with labor, port authorities, MARAD A pipeline of willing customers Tax relief Harbor Maintenance Tax legislation has bipartisan support action anticipated in 2009 A healthy economy -15-

16 Logistics Review -16-

17 Trends in the Logistics Sector U.S. OUTSOURCED LOGISTICS MARKET GROWTH ($ in billions) $114 $122 $65 $57 $71 $ CAGR: 13.3% $90 $104 $31 $34 $40 $ Source: Armstrong & Associates -17-

18 Growing Our Logistics Business Large, fragmented market with good longterm growth attributes Basic resources in place with no need for capital expenditures Non-asset model expected to deliver strong operating leverage as economy rebounds Organic growth will take time in economic downturn, soft Asia-Pacific rate environment Growth sources include diversified customers in alternative energy, freight brokerage and global NVOCC* network *Non-Vessel Operating Common Carrier -18-

19 Financial Review & 2009 Outlook -19-

20 2008 Financial Highlights Performed well in extremely challenging environment Generated $59.9 million in adjusted free cash flow Made $60 million in voluntary debt repayments since second quarter Challenges included: Unprecedented economic volatility Oil price instability Recessions in Hawaii & Puerto Rico Positioned for 2009 Customer focus Cost reduction initiatives underway Cash flow remains solid FY08 Adjusted EBITDA $ Adjusted EPS $

21 Strong Operating Performance Revenue Adjusted EBITDA (1) ($ millions) ($ millions) $1,304 $1,207 $1,157 $163 $161 $1,096 $145 $804 $886 $980 $118 $130 $703 $715 CAGR = 8.0% $42 $59 $78 $89 CAGR = 15.7% (1) See adjusted EBITDA reconciliation on page

22 Strong Adjusted Free Cash Flow Generation ($ in Millions) 120 $ $63 $68 $ $ See adjusted Free Cash Flow reconciliation on page

23 Free Cash Flow 2008 ($ in Millions) Adjusted EBITDA $ Stock Based Compensation Gain / Proceeds On Equipment Disposals Working Capital 13.6 (14.8) Vessel Payments in Excess of Accruals (4.9) (26.0) Annual Cash Incentive Plan - (10.5) Capital Expenditures (39.1) (31.4) Dry-Dock Expenditures (13.9) (21.4) New Vessel Costs (0.1) (5.0) Taxes (0.7) (0.4) Interest, Net (29.2) (31.3) Adjusted Free Cash Flow Acquisitions (0.2) (31.4) OPEIU Severance (0.4) - DoJ Related Expenses (8.7) - Free Cash Flow 50.6 (4.7) Debt Borrowings Debt Payments (86.6) (558.7) Premiums on Debt Extinguishment - (25.6) Financing Fees (0.1) (12.9) Dividends (13.3) (14.6) Bond Hedge - (40.6) Share Repurchase (29.3) (49.2) Net Cash Flow $ (0.7) $ (87.7) -23-

24 Liquidity, Credit Facility Compliance and Capital Structure as of 12/21/2008 ($ in Millions) Corporate Liquidity Cash Balance $ 5.5 Revolver Availability Total Liquidity $ Credit Facility Compliance Q4 LTM 2008 Covenant Interest Coverage Ratio 4.41 >3.50 Senior Secured Leverage Ratio 1.80 <3.00 Capital Structure Amount Rate Formula Interest Rate Maturity Revolver $ LIBOR+1.50% *3.95% (1) 08/08/12 Term Loan %+1.50% 4.52% (1) 08/08/12 Note Payable % 12/14/13 Total Senior Debt Convertible Notes % 08/15/12 Total Long-Term Debt *4.25% Total Shareholder Equity Total Capitalization $ *weighted average (1) Maturity will accelerate to February 15, 2012, if convertible notes are not refinanced by that date -24-

25 2009 Macro Economic Outlook Economic recession expected to continue and deepen 2009 Outlook (The Conference Board, January 15, 2009) - Real GDP shrinking 1.7% - Unemployment at 8.3% - Real consumer spending down 1.0% - CPI inflation down 1.5% Financial markets continue in a state of crisis - Cost of capital skyrocketing - Debt expensive, equity scarce HRZ is well positioned Domestic trade is more stable than international trade Serve the basic needs of our tradelanes Strong, longstanding customer relationships Stable financial position - No recapitalization needs until

26 Tradelane 2009 Economic Outlook ALASKA Lower oil prices and global recession expected to impact state revenues, tourism, transportation and construction industries State well positioned to ride out historic oil price decline ($6 billion of 2009 budget reserve funds - $29 billion Permanent Fund balance) Retail Big-Box expansion continues Lowe s, Target, Sports Authority and Wal-Mart HAWAII Deepening recession with no significant recovery expected until 2010 Weakening commercial and residential real estate Privatized military housing construction helping mitigate softness in construction activity Guam market expected to be flat in 2009; longer-term growth expected from arrival of Marines PUERTO RICO Third year of economic contraction New pro-business governor generate optimism -26-

27 2009 Tradelane Forecasts Alaska (1) GSP Hawaii (2) Real Personal Income Employment Average Oil Price GSP Real Personal Income Employment Visitor Arrivals Forecast Puerto Rico (3) GDP Unemployment Inflation Budget Deficit 1) Government and industry projections; Northern Light Economics; Energy Information Administration 2) University of Hawaii Economic Research Organization; Hawaii Department of Business, Economic Development & Tourism 3) Estudios Tecnicos Inc., H. Calero Consulting Group and government forecasts FY09 July 08 June 09 (26.4%) 0.3% (0.6%) $51/barrel 0.0% (0.7%) (1.9%) (5.7%) (2.9)% 11.9% 7.5% $3.2 billion -27-

28 2009 Major Assumptions Volume, Rates & Fuel 2009 Plan 2008 Actual Volume Alaska 2.6% 0.7% Hawaii/Guam (5.7%) (4.6%) Puerto Rico (3.1%) (4.8%) Total (2.5%) (3.4%) Rate, Net of Fuel 2.2% 2.4% Bunker Fuel Price per Ton $250 - $275 $

29 2009 Cost Savings & Cash Preservation Initiatives ($ in Millions) Initiatives Completed and Underway Estimated 2009 Savings Cash Expense Total Severance Net Non-Union Workforce Reduction $ 10.4* $ 10.4 $ (3.5) $ 6.9 Capital Spending Reduction -- $ 26.0 $ -- $ 26.0 Additional EDGE Savings $ 2.8 $ 2.8 $ -- $ 2.8 *Excludes $1.0 million restructuring charge Additional Considerations Deployment Changes Operational and Structural Additional EDGE Savings Financial -29-

30 Summary Solid 2008 performance Adjusted EBITDA, Cash Flow Paid down debt Well positioned to meet 2009 challenges Customer focus Transport basic consumer staples Sound financial foundation Cost reductions/efficiencies Compelling investment proposition Largest Jones Act carrier Strong customer base Multiple long-term growth drivers -30-

31 Q&A Q&A -31-

32 Financial Appendix -32-

33 Net Income/Adjusted EBITDA Reconciliation Reconciliation of Net Income to EBITDA (in thousands) Full Year Net income (loss) $ (5,300) $ 18,428 $ 22,443 $ 15,113 $ 13,561 $ (18,321) $ 72,357 $ 28,859 $ 3,059 Interest expense, net 8,228 3,774 1,908 13,417 29,567 51,357 48,552 41,672 32,498 Income tax expense (benefit) (2,805) 9,816 11,933 9,615 8, (25,332) (13,983) (8,479) Depreciation and amortization 32,138 33,682 34,062 46,452 61,431 66,907 64,875 65,361 62,805 EBITDA 32,261 65,701 70,346 84, , , , ,909 89,883 Merger-related expenses ,287 2, Lease expense buyout 16, Management fees ,204 9, ILWU Lockout - - 7, Secondary offering expenses , Equipment lease - Maersk (6,500) (6,400) Compensation charges , Initial Public Offering related expenses , Loss on extinguishment of debt , ,546 Impairment Charge ,415 Restructuring Charge ,244 Anti-Trust Legal Expenses ,711 Union Severance Adjusted EBITDA $ 41,902 $ 59,301 $ 77,546 $ 89,134 $ 118,136 $ 144,722 $ 163,065 $ 160,455 $ 130,018 Note: EBITDA is defined as net income plus net interest expense, income taxes, depreciation and amortization. We believe that EBITDA is a meaningful measure for investors as (i) EBITDA is a component of the measure used by our board of directors and management team to evaluate our operating performance, (ii) the senior credit facility contains covenants that require Horizon Lines Holding Corp. to maintain certain interest expense coverage and leverage ratios, which contain EBITDA and (iii) EBITDA is a measure used by our management team to make day-to-day operating decisions. -33-

34 Adjusted Free Cash Flow Reconciliation Cash flows from operating activities $ 69.9 $ 70.9 $ $ 54.8 $ 89.4 Cash flows from investing activities Purchases of property and equipment (32.9) (41.2) (21.3) (31.5) (39.1) Purchase of businesses, net of cash acquired (31.4) (0.2) Proceeds from sale of property and equipment Other investing activities (0.2) - (0.2) Free cash flow $ 38.6 $ 32.1 $ 96.2 $ (4.7) $ 50.6 Purchase of businesses, net of cash acquired Vessel lease buyouts Management fees Transaction costs Financing costs Anti-trust legal fees Union severance Adjusted free cash flow $ 62.9 $ 67.7 $ 97.4 $ 26.7 $ 59.9 (1) Free cash flow is defined as cash generated from operations after deductions for capital expenditures, other investing activities and dividends -34-

35 Adjusted Net Income Per Diluted Share ($ in Millions) Quarter Ended Dec 21, 2008 Quarter Ended Dec 23, 2007 Year Ended Dec 21, 2008 Year Ended Dec 23, 2007 Net (Loss) Income, Per Diluted Share $ (0.63) $ 0.32 $ 0.10 $ 0.85 Adjustments Per Share: Impairment Charge Restructuring Charge Anti-Trust Legal Expenses Union Severance Loss on Extinguishment of Debt Tax Impact of Adjustments (0.36) -- (0.42) (0.42) 2007 Tonnage Tax Deferred Tax Revaluation Benefit (0.21) Total Adjustments Per Share Adjusted Net Income, Per Diluted Share $ 0.09 $ 0.32 $ 1.02 $

36 Change In Convertible Debt Accounting ($ in Millions, Except EPS) Estimated additional non-cash interest expense upon adoption of FSP APB 14-1 Year Additional Interest EPS Reduction 2007 $ 3.2 $ $ 8.9 $ $ 10.0 $ $ 11.1 $ $ 11.8 $ $ 4.8 $ 0.10 Q1 Q2 Q3 Q4 Year 2009 Adjustments to Net Income Per Share (0.05) (0.05) (0.05) (0.06) (0.21) As reported 2008 Adjusted* Net Income Per Diluted Share Retrospective 2008 Adjusted Net Income Per Diluted Share *Adjusted Net Income Per Diluted Share Reconciliation on Page

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