Joseph Bonney | Apr 29, 2011 9:55AM EDT
Horizon Lines, already trying to stave off bankruptcy protection, said first quarter losses widened as China-West Coast service got off to a rough start, fuel costs rose and volume was flat in the carrier’s Jones Act domestic services.
The carrier's $33.3 million net loss for the quarter ended March 27 compared with a net loss from continuing operations of $11.7 million a year ago. Operating revenue rose 3.9 percent to $285 million, including $23.2 million from the new China service.
Horizon's first quarter loss included $5.4 million in after-tax charges. The charges included $2.2 million in legal fees related to the carrier's antitrust litigation and $2.3 million for a severance agreement for former CEO Chuck Raymond, who resigned March 11 after the company agreed to plead guilty to price-fixing in the Puerto Rico trade.
Horizon’s operating loss, excluding costs of interest and modification of debt agreements, widened to $22 million from $1.8 million a year earlier.
"As anticipated, the first quarter was very challenging … Overall, the company continues to expect 2011 to be a challenging year," said CEO Stephen H. Fraser.
He said the China service was launched just as the trans-Pacific was entering its slack season, and that the quarter's difficulties "were further exacerbated by a steep decline in international rates, a sharp rise in fuel prices and the ongoing slow business conditions in Puerto Rico and Hawaii."
Horizon's China-West Coast route is an extension of the carrier's westbound service to Guam. Maersk previously chartered the ships' eastbound space under a take-or-pay deal that provided Horizon with steady revenue.
Horizon said its container rates net of fuel fell 6.4 percent to $3,072 in the first quarter. Excluding China, container rates net of fuel rose 1.2 percent to $3,324. The China service handled 11,199 loads in the first quarter. Domestic cargo was flat at 60,330 loads, with volume up in Alaska and Guam, flat in Puerto Rico and down in Hawaii.
The quarterly results were announced a day after a court reduced Horizon's criminal fine from $45 million to $15 million. The Justice Department said the higher penalty, which was far below sentencing guidelines of $336 million to $672 million, would have threatened the company with default on its debt covenants and possible bankruptcy.
Horizon said it is still working on refinancing and remains current with its debt and vendor obligations although its liquidity "has contracted, due to shortened payment terms established by certain suppliers" after the company's annual report last month included an auditor's note expressing doubt about the company's status as a going concern.
The going-concern note was triggered by Horizon's statement that it expected the original $45 million fine to put the company in violation of debt agreements.
Horizon said that as of March 27, the company had $29.4 million in total liquidity -- $5.8 million in cash and $23.6 million available under its revolving loan agreement. At the end of 2010, the company had $2.8 million in cash and $57.6 million available under the revolver, for a total of $60.4 million.
-- Contact Joseph Bonney at jbonney@joc.com. Follow him on Twitter @JosephBonney.
