please answers th following 3 questions after reading the case below.
Does the financial policy create value?
Does the financial policy create a competitive advantage?
Does the financial policy sustain senior managements vision?
By Apr 2011, the Horizon Lines 2010 annual report had been published with a statement from newly appointed CEO Stephen Fraser, explaining that the company expected to be in technical default on its debt. During the previous 50 years, Horizon Lines (Horizon) had revolutionized the global economy with the invention of con- tainerized shipping and had become the largest U.S. domestic ocean carrier. By the beginning of 2007, however, Horizon was unprofitable, and its losses had increased each year since (Exhibit 1). As negative earnings mounted, so did Horizon's debt burden: Current liabilities had nearly quadrupled by the end of 2010 (Exhibits 2 and 3). The company had also suffered two major setbacks in the past six months: the loss of a key strategic alliance and $65 million paid out in criminal and civil fines. Management's reaction had been to conserve cash by cutting the common dividend for 2010 by more than half and then eliminating it completely beginning in the first quarter of 2011. Investors responded accordingly; the company's stock price dropped from $5 per share at the start of 2011 to a recent price of $0.85. Bondholders also were concerned as the market price of the convertible notes had fallen to $0.80 on the dollar, raising the yield on the notes by over 20% (Exhibit 4). Price Fixing in Puerto Rico In October 2008, three Horizon executives and two executives from its competitor Sea Star Line pled guilty to crimes related to price fixing. A U.S. Department of Justice investigation revealed that for nearly six years, Horizon and Sea Star Line had colluded to fix prices, rig bids, and allocate customers. All five executives were sentenced to By Apr 2011, the Horizon Lines 2010 annual report had been published with a statement from newly appointed CEO Stephen Fraser, explaining that the company expected to be in technical default on its debt. During the previous 50 years, Horizon Lines (Horizon) had revolutionized the global economy with the invention of con- tainerized shipping and had become the largest U.S. domestic ocean carrier. By the beginning of 2007, however, Horizon was unprofitable, and its losses had increased each year since (Exhibit 1). As negative earnings mounted, so did Horizon's debt burden: Current liabilities had nearly quadrupled by the end of 2010 (Exhibits 2 and 3). The company had also suffered two major setbacks in the past six months: the loss of a key strategic alliance and $65 million paid out in criminal and civil fines. Management's reaction had been to conserve cash by cutting the common dividend for 2010 by more than half and then eliminating it completely beginning in the first quarter of 2011. Investors responded accordingly; the company's stock price dropped from $5 per share at the start of 2011 to a recent price of $0.85. Bondholders also were concerned as the market price of the convertible notes had fallen to $0.80 on the dollar, raising the yield on the notes by over 20% (Exhibit 4). Price Fixing in Puerto Rico In October 2008, three Horizon executives and two executives from its competitor Sea Star Line pled guilty to crimes related to price fixing. A U.S. Department of Justice investigation revealed that for nearly six years, Horizon and Sea Star Line had colluded to fix prices, rig bids, and allocate customers. All five executives were sentenced to
