##### Table of Contents





UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  Form 10-K
 (Mark one)x


Annual Report Pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934For the fiscal
    year ended December 20,
    2009ORo


Transition report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934For the transition period
    from            toCommission File Number
    001-32627   HORIZON LINES, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

74-3123672(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification
    No.)   4064 Colony Road,
    Suite 200, Charlotte, North Carolina 28211(Address of principal executive
    offices)
 (704) 973-7000
 (Registrants 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:
  Title of each class

Name of each exchange on which registeredCommon stock, par value $0.01 per share

New York Stock Exchange   Securities registered pursuant to Section 12 (g) of
    the Act: None
   Yes o     No x
   Yes o     No x
  x o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer x
    Non-accelerated
    filer o
    Smaller reporting
    company o (Do not check if a smaller
    reporting company)
  Rule 12b-2
 Yes o     No x
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




---



##### 





Horizon Lines,
    Inc.
  FORM 10-K
    INDEX
   
 PagePART IItem 1.


Business


1Item 1A.


Risk Factors


12Item 1B.


Unresolved Staff Comments


31Item 2.


Properties


32Item 3.


Legal Proceedings


32Item 4.


Submission of Matters to a Vote of Security
    Holders


34PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities


35Item 6.


Selected Financial Data


37Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


41Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


67Item 8.


Financial Statements and Supplementary Data


68Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


68Item 9A.


Controls and Procedures


69Item 9B.


Other Information


69PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


70Item 11.


Executive Compensation


70Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


70Item 13.


Certain Relationships and Related Transactions


70Item 14.


Principal Accountant Fees and Services


70PART IVItem 15.


Exhibits and Financial Statement Schedules


71EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2    Safe Harbor
    Statement
  Form 10-K
   (i)




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##### Table of Contents



start-up
  Form 10-K
  Form 10-K Form 10-K
 (ii)




---



##### Table of Contents



Part I.  Item 1.
    Business  Background
    Sea-Land (Sea-Land) Sea-Land Sea-Land
  Operations
     1




---



##### Table of Contents



Horizon
    Lines
  Overview
      The Jones
    Act
    U.S.-organized U.S.-flagged U.S.-flagged U.S.-crewed, U.S.-built.
   2




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##### Table of Contents



Market Overview
    and Competition
        pick-up ® ®
  pick-up
 3




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##### Table of Contents



Vessel
    Fleet
  52-year
      Year



Reefer

Max.

Owned/

CharterVessel Name

Market

Built

TEU(1)

Capacity(2)

Speed

Chartered

ExpirationU.S Built  Jones Act QualifiedHorizon Anchorage

Alaska

1987

1,668

280

20.0 kts

Chartered

Jan 2015Horizon Tacoma

Alaska

1987

1,668

280

20.0 kts

Chartered

Jan 2015Horizon Kodiak

Alaska

1987

1,668

280

20.0 kts

Chartered

Jan 2015Horizon Fairbanks(3)

Alaska

1973

1,476

140

22.5 kts

Owned

Horizon Pacific

Hawaii & Guam

1980

2,407

150

21.0 kts

Owned

Horizon Enterprise

Hawaii & Guam

1980

2,407

150

21.0 kts

Owned

Horizon Spirit

Hawaii & Guam

1980

2,653

150

22.0 kts

Owned

Horizon Reliance

Hawaii & Guam

1980

2,653

156

22.0 kts

Owned

Horizon Producer

Puerto Rico

1974

1,751

170

22.0 kts

Owned

Horizon Challenger

Puerto Rico

1968

1,424

71

21.2 kts

Owned

Horizon Navigator

Puerto Rico

1972

2,386

190

21.0 kts

Owned

Horizon Trader

Puerto Rico

1973

2,386

190

21.0 kts

Owned

Horizon Discovery(4)



1968

1,442

100

21.2 kts

Owned

Horizon Consumer(4)



1973

1,751

170

22.0 kts

Owned

Horizon Hawaii(4)



1973

1,420

170

22.5 kts

Owned

Foreign Built  Non-Jones Act QualifiedHorizon Hunter

Transpacific

2006

2,824

566

23.0 kts

Chartered

Nov 2018Horizon Hawk

Transpacific

2007

2,824

566

23.0 kts

Chartered

Mar 2019Horizon Tiger

Transpacific

2006

2,824

566

23.0 kts

Chartered

May 2019Horizon Eagle

Transpacific

2007

2,824

566

23.0 kts

Chartered

Apr 2019Horizon Falcon

Transpacific

2007

2,824

566

23.0 kts

Chartered

Apr 2019     (1)
    
    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)
    
    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.(3)
    
    Serves as a spare vessel available for deployment in any of our
    markets and seasonal operation in the Alaska trade from June
    through August.(4)
    
    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
     5




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##### Table of Contents



Container
    Fleet
    Container Type

Owned


Leased


Combined20 Standard Dry


14



314



32820 Flat Rack


2







220 High-Cube Reefer


72







7220 Miscellaneous


66







6620 Tank


1







140 Standard Dry


77



743



82040 Flat Rack


254



533



78740 High-Cube Dry


1,275



4,566



5,84140 Standard Insulated


14







1440 High-Cube Insulated


376







37640 Standard Opentop






71



7140 Miscellaneous


56







5640 Tank


1







140 Car Carrier


165







16540 Standard Reefer


3







340 High-Cube Reefer


905



4,365



5,27045 High-Cube Dry


1,193



2,404



3,59745 High-Cube Flatrack






25



2545 High-Cube Insulated


474







47445 High-Cube Reefer






325



32548 High-Cube Dry


178







178Total


5,126



13,346



18,472   Maersk
    Arrangements
  Sea-Land
  U.S.-flagged
 6




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##### Table of Contents



Capital
    Construction Fund
  U.S.-built U.S.-flagged U.S.-built U.S.-built U.S.-flagged U.S.-built
  U.S.-built U.S.-flagged 2003-2005, U.S.-built U.S.-flagged
    Horizon
    Logistics
      
    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




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
    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.    Market Overview
    and Competition
      Sales and
    Marketing
     8




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##### Table of Contents



Customers
          Form 10-K,
  Operations
    Overview
    less-than-truckload e-mail
 9




---



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and/or e-mail
  Insurance
    Security
      Employees
     10




---



##### Table of Contents



Number ofCollective Bargaining

OurAgreement(s)

EmployeesUnion

Expiration Date

RepresentedInternational Brotherhood of Teamsters

March 31, 2013


254International Brotherhood of Teamsters, Alaska

June 30, 2011


110International Longshore & Warehouse Union (ILWU)

July 1, 2014


212International Longshore and Warehouse Union, Alaska (ILWU-Alaska)

June 30, 2011


99International Longshoremens Association, AFL-CIO (ILA)

September 30, 2012



(1)International Longshoremens Association, AFL-CIO, Puerto
    Rico

September 30, 2012


86Marine Engineers Beneficial Association (MEBA)

June 15, 2012


109International Organization of Masters, Mates & Pilots,
    AFL-CIO (MMP)

June 15, 2012


68Office & Professional Employees International Union,
    AFL-CIO

November 9, 2012


63Seafarers 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.    HawaiiandAlaska


Guam


Puerto Rico


HorizonMarket


Market


Market


Logistics


Corporate(a)


TotalSenior Management


1



1



1



1



10



14Operations


33



81



48



55



35



252Sales and Marketing


18



23



48



11



13



113Administration(b)


4



34



8



15



178



239Total 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
   11




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Marine
    Environment
    Emissions
    Sustainability
    Carbon
    Offsets
    Available
    Information
  (704) 973-7000. Form 10-K Form 10-K. 1-800-SEC-0330.
  Item 1A.
    Risk
    Factors  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.
   12




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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.
        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.
   13




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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 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.
    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.
   14




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Further
    Economic Decline and Decrease in Market Demand For the
    Companys Services in the Jones Act and Guam Markets Will
    Adversely Affect the Companys Operating Results and
    Financial Condition.
    Volatility in
    Fuel Prices May Adversely Affect Our Profits.
    Repeal,
    Substantial Amendment, or Waiver of the Jones Act or Its
    Application Could Have a Material Adverse Effect on Our
    Business.
  U.S.-citizen
   15




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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.
      Our Failure to
    Renew Our Commercial Agreements With Maersk in the Future Could
    Have a Material Adverse Effect on Our Business.
    Our Industry
    is Unionized and Strikes By Our Union Employees or Others in the
    Industry May Disrupt Our Services and Adversely Affect Our
    Operations.
  10-day
   16




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Our Employees
    are Covered By Federal Laws That May Subject Us to Job-Related
    Claims in Addition to Those Provided By State
    Laws.
    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.
      Compliance
    With Safety and Environmental Protection and Other Governmental
    Requirements May Adversely Affect Our Operations.
  U.S.-flagged
 17




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##### Table of Contents



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.
        Increased
    Inspection Procedures and Tighter Import and Export Controls
    Could Increase Costs and Disrupt Our Business.
  and/or
   18




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##### Table of Contents



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.
    No Assurance
    Can Be Given That Our Insurance Costs Will Not
    Escalate.
      Catastrophic
    Losses and Other Liabilities Could Adversely Affect Our Results
    of Operations and Such Losses and Liability May Be Beyond
    Insurance Coverage.
     19




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##### Table of Contents



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 Vessels
    Could Be Arrested By Maritime Claimants, Which Could Result in
    Significant Loss of Earnings and Cash Flow.
   20




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##### Table of Contents



We are
    Susceptible to Severe Weather and Natural
    Disasters.
    We May Face
    New Competitors.
  start-up
  non-U.S. originated non-U.S. originated U.S.-flagged U.S.-built
  We May Not
    Exercise Our Purchase Options For Our Chartered
    Vessels.
  U.S.-flag
 21




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##### Table of Contents



We May Face
    Significant Costs As the Vessels Currently in Our Fleet
    Age.
    We May Face
    Unexpected Substantial Dry-Docking Costs For Our
    Vessels.
    Loss of Key
    Personnel Could Adversely Affect Our Business.
    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.
  Form 10-K. and/or
 22




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##### Table of Contents



Our Cash Flows
    and Capital Resources May Be Insufficient to Make Required
    Payments on Our Substantial Indebtedness and Future
    Indebtedness.
  debt-to-equity
    
    operating difficulties;
    increased operating costs;
    increased fuel costs;
    general economic conditions;
    decreased demand for our services;
    market cyclicality;
    tariff rates;
    prices for our services;
    the actions of competitors;
    regulatory developments; and
    delays in implementing strategic projects.     23




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##### Table of Contents



Financial and
    Other Covenants Under Our Current and Future Indebtedness Could
    Significantly Impair Our Ability to Operate Our
    Business.
    
    dispose of assets;
    incur additional indebtedness, including guarantees;
    prepay other indebtedness or amend other debt instruments;
    pay dividends or make investments, loans or advances;
    create liens on assets;
    enter into sale and lease-back transactions;
    engage in mergers, acquisitions or consolidations;
    change the business conducted by them; and
    engage in transactions with affiliates.  Form 10-K,
    Our
    Substantial Indebtedness and Future Indebtedness Could
    Significantly Impair Our Operating and Financial
    Condition.
    
    make it difficult for us to satisfy our debt obligations;
    make us more vulnerable to general adverse economic and industry
    conditions;
    limit our ability to obtain additional financing for working
    capital, capital expenditures, acquisitions and other general
    corporate requirements; 24




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##### Table of Contents




    expose us to interest rate fluctuations because the interest
    rate on the debt under our revolving credit facility is variable;
    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;
    limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we operate; and
    place us at a competitive disadvantage compared to competitors
    that may have proportionately less debt.    Our Secured
    Credit Facility Exposes Us to the Variability of Interest
    Rates.
    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.
  non-U.S. citizens, non-U.S. citizen.
  non-U.S. citizens non-U.S. citizens
 25




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##### Table of Contents



Our Share
    Price Will Fluctuate.
    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.
    Environmental
    Regulation and Climate Change
  200-mile
  non-U.S. ports and/or
     26




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##### Table of Contents



The United
    States Oil Pollution Act of 1990 and the Comprehensive
    Environmental Response, Compensation and Liability
    Act
  clean-up
  
    natural resources damages and the costs of assessment thereof;
    damages for injury to, or economic losses resulting from the
    destruction of, real and personal property;
    the net loss of taxes, royalties, rents, fees and profits by the
    United States government, and any state or political subdivision
    thereof;
    lost profits or impairment of earning capacity due to property
    or natural resources damage;
    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
    the loss of subsistence use of natural resources.       27




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##### Table of Contents



The United
    States Clean Water Act
         28




---



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The National
    Invasive Species Act
      The United
    States Clean Air Act
  and/or
   29




---



##### Table of Contents



17.0g-NOx/kW-hr.
    The Resource
    Conservation and Recovery Act
    Endangered
    Species Regulation
   30




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##### Table of Contents



Greenhouse Gas
    Regulation
    Vessel
    Security Regulations
    
    on-board installation of automatic information systems to
    enhance
    vessel-to-vessel
    and
    vessel-to-shore
    communications;
    on-board installation of ship security alert systems;
    the development of vessel and facility security plans;
    the implementation of a Transportation Workers Identification
    Credential program; and
    compliance with flag state security certification requirements.  non-United
  Item 1B.
    Unresolved
    Staff Comments   31




---



##### Table of Contents



Item 2.
    Properties    SquareLocation

Description of Facility

Footage(1)Anchorage, Alaska

Stevedoring building and various terminal and related property


1,429,425Charlotte, North Carolina

Corporate headquarters


28,900Chicago, Illinois

Regional sales office


1,929Compton, California

Terminal supervision office and warehouse


176,676Dedeo, Guam

Terminal and related property


108,425Dominican Republic

Operations office


1,500Dutch Harbor, Alaska

Office and various terminal and related property


723,641Elizabeth, New Jersey

Terminal supervision and sales office


4,994Honolulu, Hawaii

Terminal property and office


97,124
(2)Houston, Texas

Terminal supervision and sales office


166Irving, Texas

Operations center


51,989Jacksonville, Florida

Terminal supervision, sales office & warehousing


15,943Kenilworth, New Jersey

Ocean shipping services office


12,110Kodiak, Alaska

Office and various terminal and related property


265,232Laredo, Texas

Warehousing and office


56,800Lexington, North Carolina

Warehousing and office


23,984Oakland, California

Office and various terminal and related property


279,131Phoenix, Arizona

Warehousing and office


1,751Piti, Guam

Office and various terminal and related property


24,837Renton, Washington

Regional sales office


9,146San Francisco, California

Warehousing and office


19,900San Juan, Puerto Rico

Office and various terminal and related property


3,521,479Sparks, Nevada

Warehousing


20,000Tacoma, Washington

Office and various terminal and related property


797,192     (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.  Item 3.
    Legal
    Proceedings     32




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33




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##### Table of Contents



class-action
          and/or
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   34




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Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    Cash Dividend2010

High

Low

DeclaredFirst Quarter (through January 29, 2010)

$
6.54


$
4.70


$
0.05   2009

High

Low

Cash DividendFirst Quarter

$
4.73


$
2.44


$
0.11Second Quarter

$
6.33


$
3.00


$
0.11Third Quarter

$
6.92


$
3.08


$
0.11Fourth Quarter

$
6.92


$
5.00


$
0.11   2008

High

Low

Cash DividendFirst Quarter

$
23.50


$
15.73


$
0.11Second Quarter

$
20.29


$
10.02


$
0.11Third Quarter

$
13.78


$
8.38


$
0.11Fourth Quarter

$
11.60


$
1.95


$
0.11     Rule 10b-18(a)(3)
  Equity
    Compensation Plan Information
   35




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##### Table of Contents



Total Return
    Comparison Graph
    Comparison of
    Cumulative Total Return*
  
  Form 10-K,
    *
    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 Companys stock by the
    opening bell on September 27, 2005, as well as the
    reinvestment of dividends.  9/27/2005


12/25/2005


12/24/2006


12/23/2007


12/21/2008


12/20/2009Horizon Lines, Inc.



100.00




125.90




281.50




200.00




50.60




72.90Dow Jones U.S. Industrial
    Transportation Index



100.00




118.30




122.52




132.05




98.98




123.89S&P 500 Index



100.00




104.36




116.05




122.11




73.04




90.69  36




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K, Form 10-K.
      Year


YearYear


Ended


Ended


Year


YearEnded


Dec. 21,


Dec. 23,


Ended


EndedDec. 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


$
1,096,156Settlement 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



46,654Interest expense, net(3)


39,675



41,399



44,875



48,552



51,357Loss on modification/early extinguishment of debt


50







38,546



581



13,154Income tax expense (benefit)(4)


10,367



(11,728
)


(15,152
)


(25,332
)


438Net (loss) income


(31,272
)


(2,593
)


26,825



72,357



(18,321
)Accretion of preferred stock


















5,073Net (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



22,376,797Diluted


30,450,975



30,278,573



33,864,818



33,772,341



22,381,756Cash dividends declared

$
13,397


$
13,273


$
14,653


$
14,764


$
3,690Cash 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


$
41,450Total assets


818,510



872,629



920,886



945,029



927,319Long term debt, including capital lease obligations, net of
    current portion(3)


496,105



526,259



525,571



503,850



527,905Total debt, including capital lease obligations


514,855



532,811



532,108



510,788



530,575Stockholders equity(5)(6)


101,278



136,836



183,409



208,277



151,760   37




---



##### Table of Contents



Year


Year


Year


Year


YearEnded


Ended


Ended


Ended


EndedDec. 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


$
100,381Capital expenditures(8)


13,050



39,149



31,426



21,288



41,234Vessel dry-docking payments


14,735



13,913



21,414



16,815



16,038Cash flows provided by (used in):Operating activities


57,498



89,368



54,837



115,524



76,376Investing 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 Managements 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




---



##### Table of Contents



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 managements 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


YearYear


Ended


Ended


Year


YearEnded


Dec. 21,


Dec. 23,


Ended


EndedDec. 20,


2008


2007


Dec. 24,


Dec. 25,2009


(As Adjusted)


(As Adjusted)


2006


2005Net (loss) income

$
(31,272
)

$
(2,593
)

$
26,825


$
72,357


$
(18,321
)Interest expense, net


39,675



41,399



44,875



48,552



51,357Income tax expense (benefit)


10,367



(11,728
)


(15,152
)


(25,332
)


438Depreciation and amortization


58,560



62,805



65,361



64,875



66,907EBITDA

$
77,330


$
89,883


$
121,909


$
160,452


$
100,381Department of Justice antitrust investigation costs


12,192



10,711











Settlement of class action lawsuit


20,000Impairment 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



13,154Transaction related expenses














2,032



2,200Compensation charges(a)


















18,953Management fees(b)


















9,698Adjusted EBITDA

$
112,746


$
130,018


$
160,455


$
163,065


$
144,386  39




---



##### Table of Contents



(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




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K. Form 10-K.
  Executive
    Overview
        Year


Year


YearEnded


Ended


EndedDecember 20,


December 21,


December 23,2009


2008


2007(In thousands)Operating revenue

$
1,158,481


$
1,304,259


$
1,206,515Operating expense


1,139,643



1,277,243



1,111,342Operating income

$
18,838


$
27,016


$
95,173Operating ratio


98.4
%


97.9
%


92.1
%Revenue containers (units)


257,625



276,282



285,880   General
  U.S.-organized
 41




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##### Table of Contents



History and
    Transactions
  Sea-Land
    Sea-Land Sea-Land
  Basis of
    Presentation
    Fiscal
    Year
    Critical
    Accounting Policies
   42




---



##### Table of Contents



Revenue
    Recognition
  No. 91-9
    Allowance for
    Doubtful Accounts and Revenue Adjustments
      Casualty and
    Property Insurance Reserves
   43




---



##### Table of Contents



Goodwill and
    Other Identifiable Intangible Assets
         44




---



##### Table of Contents



Vessel
    Dry-docking
  30-month
    Income
    Taxes
      Stock-Based
    Compensation
   45




---



##### Table of Contents



Property and
    Equipment
      Recent Accounting
    Pronouncements
         46




---



##### Table of Contents



14-1, 470-20 470-20 470-20. 470-20,
  Year Ended December 21, 2008

Year Ended December 23, 2007As



As

As



AsReported

Adjustments

Adjusted

Reported

Adjustments

AdjustedStatement of OperationsInterest expense, net

$
32,498


$
8,901


$
41,399


$
41,672


$
3,203


$
44,875Income 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
)


26,825Net income (loss) per shareBasic


0.10



(0.19
)


(0.09
)


0.87



(0.06
)


0.81Diluted


0.10



(0.19
)


(0.09
)


0.85



(0.06
)


0.79Balance SheetIntangible assets, net

$
126,697


$
(1,155
)

$
125,542


$
152,031


$
(1,495
)

$
150,536Deferred tax assets


23,992



(13,323
)


10,669



4,060



(4,060
)


Total assets


887,107



(14,478
)


872,629



926,441



(5,555
)


920,886Long-term debt, net of current


563,916



(37,657
)


526,259



572,469



(46,898
)


525,571Deferred tax liabilities


















12,512



12,512Additional paid in capital


168,779



30,865



199,644



163,760



30,865



194,625Retained earnings


29,780



(7,686
)


22,094



39,994



(2,034
)


37,960Total liabilities and stockholders equity


887,107



(14,478
)


872,629



926,441



(5,555
)


920,886   No. EITF 03-6-1, 260-10-45 260-10-45
 47




---



##### Table of Contents



260-10-45
  Year Ended December 21, 2008


Year Ended December 23, 2007As





As


As





AsReported


Adjustments


Adjusted


Reported


Adjustments


AdjustedStatement of OperationsDenominator for basic net income per share


29,963



315



30,278



33,221



107



33,328Effect of dilutive securities


368



(123
)


245



638



(101
)


537Denominator for diluted net income per share


30,331



192



30,523



33,859



6



33,865         instrument-by-instrument
 48




---



##### Table of Contents



Shipping
    Rates
    Seasonality
    Results of
    Operations
  Operating
    Revenue Overview
      Form 10-K,
 49




---



##### Table of Contents



Cost of
    Services Overview
    Year Ended
    December 20, 2009 Compared to Year Ended December 21,
    2008
  Horizon Lines
    Segment
  U.S.-flag
  Year Ended


Year EndedDecember 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




---



##### Table of Contents



Operating Revenue.
  Bunker and intermodal fuel surcharges decline

$
(79,226
)Revenue container volume decrease


(60,487
)Non-transportation services decrease


(19,485
)General rate increases


12,150Total operating revenue decrease

$
(147,048
)     Cost of Services.
    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
)        51




---



##### Table of Contents



Year Ended


Year EndedDecember 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
)%       Depreciation and Amortization.
  Year Ended


Year EndedDecember 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.
  Selling, General and Administrative.
 52




---



##### Table of Contents



Settlement of Class Action Lawsuit.
  Impairment Charge.
  Restructuring Charge.
  Miscellaneous Expense, Net.
  Horizon Logistics
    Segment
    Year Ended


Year EndedDecember 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.
 53




---



##### Table of Contents



Cost of Services.
  Depreciation and Amortization.
  Year Ended


Year EndedDecember 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.
  Impairment of Assets.
  Unallocated
    Expenses
  Interest Expense, Net.
  Income Tax Expense.
   54




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##### Table of Contents



Year Ended
    December 21, 2008 Compared to Year Ended December 23,
    2007
  Horizon Lines
    Segment
  Year Ended


Year EndedDecember 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.
  Bunker and intermodal fuel surcharges included in rates

$
63,711General rate increases


29,918Increase in other non-transportation services


11,517Revenue related to acquisitions


6,932Revenue container volume decrease


(35,156
)Total operating revenue increase

$
76,922    55




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##### Table of Contents



Cost of Services.
    Vessel fuel costs increase

$
64,231Vessel lease expense increase


8,394Labor and other vessel operating decreases


(1,801
)Total vessel expense increase

$
70,824           Year Ended


Year EndedDecember 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
%    56




---



##### Table of Contents



Depreciation and Amortization.
  Year Ended


Year EndedDecember 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.
  Selling, General and Administrative.
  Impairment of Assets.
  Restructuring Costs.
  Miscellaneous Expense, Net.
 57




---



##### Table of Contents



Horizon Logistics
    Segment
    Year Ended


Year EndedDecember 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.
  Cost of Services.
  Depreciation and Amortization.
  Year Ended


Year EndedDecember 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.
 58




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##### Table of Contents



Impairment of Assets.
  Unallocated
    Expenses
  Interest Expense, Net.
  Loss on Early Extinguishment of Debt.
  Income Tax Benefit.
  Liquidity and
    Capital Resources
   59




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##### Table of Contents



Operating
    Activities
    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


15,000Increase in accounts receivable collections


5,909Other decreases in working capital, net


(6,484
)$
(31,870
)     Investing
    Activities
      Financing
    Activities
     60




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##### Table of Contents



Stock Repurchase
    Program
    Capital
    Requirements and Liquidity
   61




---



##### Table of Contents



Contractual
    Obligations and Off-Balance Sheet Arrangements
    Total











AfterObligations


2010


2011-2012


2013-2014


2014Principal 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



173,445Subtotal


1,122,849



126,139



655,812



167,453



173,445Interest 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


$
173,445Standby 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.    Long-Term
    Debt
  Senior Credit
    Facility
     62




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##### Table of Contents



12-month
      Derivative
    Instruments
     63




---



##### Table of Contents



4.25% Convertible
    Senior Notes
      
    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 Companys 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.     64




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##### Table of Contents



Goodwill
      Performance
    Metrics
  day-to-day
 65




---



##### Table of Contents



Fiscal Years EndedDecember 20,


December 21,2009


2008Net loss

$
(31,272
)

$
(2,593
)Adjustments:Settlement of class action lawsuit


20,000



Anti-trust legal expenses


12,192



10,711Impairment charge


1,867



25,415Restructuring charge


1,001



3,244Loss on modification of debt


50



Union severance


306



765Tax valuation allowance


10,523



Tax impact of adjustments


(194
)


(12,364
)Total adjustments:


45,745



27,771Adjusted net income

$
14,473


$
25,178   Fiscal Years EndedDecember 20,


December 21,2009


2008Net loss per share

$
(1.03
)

$
(0.09
)Adjustments:Settlement of class action lawsuit


0.66



Anti-trust legal expenses


0.40



0.35Impairment charge


0.06



0.84Restructuring charge


0.03



0.11Union severance


0.01



0.03Tax valuation allowance


0.34



Tax impact of adjustments






(0.42
)Total adjustments:


1.50



0.91Adjusted net income per share

$
0.47


$
0.82   Outlook
   66




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk               67




---



##### Table of Contents



Fair ValueDecember 20,2010

2011

2012

Thereafter

Total

2009(1)LiabilitiesLong-term Debt:Fixed rate

$



$



$
330,000


$



$
330,000


$
265,452Average interest rate


4.3
%Variable rate

$
18,750


$
18,750


$
175,000


$



$
212,500


$
212,500Average interest rate


4.2
%Interest Rate DerivativesInterest Rate Swap:Variable to Fixed

$
96,094


$
73,828


$
18,750


$



$
112,500


$
112,500Average 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  Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure   68




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##### Table of Contents



Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
    Rule 13a-15(b)
  Managements
    Report on Internal Control over Financial Reporting
  Rules 13a-15(f)
    page F-2 Form 10-K.
  Changes in
    Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   69




---



##### Table of Contents



Part III  Item 10.
    Directors
    and Executive Officers of the Registrant    and/or Form 10-K
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   70




---



##### 



Part IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements:
  Horizon Lines,
    Inc.
    Index to Consolidated Financial Statements
   
 PageReports of Independent Registered Public
    Accounting Firm


F-1Consolidated Financial Statements for the fiscal year ended
    December 20, 2009:Consolidated Balance Sheets


F-3Consolidated Statements of Operations


F-4Consolidated Statements of Cash Flows


F-5Consolidated Statements of Changes In
    Stockholders Equity


F-6Notes to Consolidated Financial Statements


F-7Schedule II  Valuation and
    Qualifying Accounts


F-42    Exhibits:
  Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith3
.1

Amended and Restated Certificate of Incorporation of the
    Registrant.

S-1

333-123073

9/22/05

3.13
.1.1

Certificate of Amendment of Amended and Restated Certificate of
    Incorporation

8-K

001-32627

6/5/07

3.13
.1.2

Certificate of Amendment of Amended and Restated Certificate of
    Incorporation

10-K

001-32627

2/5/093
.2

Amended and Restated Bylaws of the Registrant.

8-K

001-32627

2/4/09

3.23
.3

Certificate of Amendment of Amended and Restated Certificates of
    Incorporation of the Registrant.

8-K

001-32627

6/5/07

3.14
.1

Specimen of Common Stock Certificate.

S-1

333-123073

9/19/05

4.84
.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

4.34
.3

Form of Note (included in Exhibit 4.7).

8-K

001-32627

8/13/07

4.410
.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




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.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

10.110
.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

10.1410
.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

10.1510
.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

10.1610
.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

10.12.110
.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

10.12.210
.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




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.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

10.13.110
.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

10.1810
.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

10.14.110
.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

10.2110
.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

10.3610
.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

10.3710
.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

10.3810
.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

10.3910
.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

10.4010
.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




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.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

10.4110
.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

10.41.110
.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

10.4210
.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

10.4310
.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

10.110
.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

10.5210
.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

10.5310
.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

10.5410
.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




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.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

10.5610
.30

Restricted Stock Agreement dated as of February 1, 2006, among
    Horizon Lines, Inc. and John Handy.

S-1

333-134270

5/19/06

10.5910
.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

10.110
.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

10.210
.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

10.310
.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

10.410
.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

10.510
.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

10.610
.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

10.710
.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

10.810
.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

10.910
.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

10.1010
.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




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.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

10.1210
.43

First Amendment to Credit Agreement, dated June 11, 2009

8-K

001-32627

6/12/09

10.210
.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

10.114


Code of Ethics.

10-K

001-32627

2/5/09

1421


List of Subsidiaries of Horizon Lines, Inc.









X23
.1

Consent of Independent Registered Public Accounting Firm.









X31
.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.









X31
.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.









X32
.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.









X32
.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




---



##### Table of Contents



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.
    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. RaymondCharles
    G. Raymond

Chairman, Chief Executive Officer and President
    (Principal Executive Officer)/s/  Michael
    T. AvaraMichael
    T. Avara

Senior Vice President and Chief Financial
    Officer (Principal Financial Officer
    and Principal Accounting Officer)/s/  James
    G. CameronJames
    G. Cameron

Director/s/  Vernon
    E. ClarkVernon
    E. Clark

Director/s/  Dan
    A. ColussyDan
    A. Colussy

Director/s/  William
    J. FlynnWilliam
    J. Flynn

Director/s/  Alex
    J. MandlAlex
    J. Mandl

Director/s/  Norman
    Y. MinetaNorman
    Y. Mineta

Director/s/  Thomas
    P. StorrsThomas
    P. Storrs

Director  77




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           No. 14-1, Accounting for Convertible Debt Instruments that may be
    Settled in Cash Upon Conversion, Debt with Conversion Features, No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities Earnings Per Share
        F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
                     F-2




---



##### Table of Contents



Horizon Lines,
    Inc.
  Consolidated
    Balance Sheets
  December 21,December 20,


20082009


(As Adjusted)(In thousands, exceptper share data)ASSETSCurrent assets:Cash

$
6,419


$
5,487Accounts receivable, net of allowance


123,536



135,020Prepaid vessel rent


4,580



4,471Materials and supplies


30,254



23,644Deferred tax asset


2,929



7,450Other current assets


9,027



10,703Total current assets


176,745



186,775Property and equipment, net


193,438



208,453Goodwill


317,068



317,068Intangible assets, net


105,405



125,542Deferred tax asset






10,669Other long-term assets


25,854



24,122Total assets

$
818,510


$
872,629LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
43,257


$
41,947Current portion of long-term debt


18,750



6,552Accrued vessel rent


4,339



5,421Other accrued liabilities


110,473



97,720Total current liabilities


176,819



151,640Long-term debt, net of current portion


496,105



526,259Deferred rent


22,585



27,058Deferred tax liability


4,248



Other long-term liabilities


17,475



30,836Total liabilities


717,232



735,793Stockholders 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



338Treasury stock, 3,800 shares at cost


(78,538
)


(78,538
)Additional paid in capital


196,900



199,644(Accumulated deficit) retained earnings


(15,874
)


22,094Accumulated other comprehensive loss


(1,551
)


(6,702
)Total stockholders equity


101,278



136,836Total liabilities and stockholders equity

$
818,510


$
872,629    F-3




---



##### Table of Contents



Horizon Lines,
    Inc.
  Consolidated
    Statements of Operations
  Fiscal Years EndedDecember 21,


December 23,December 20,


2008


20072009


(As Adjusted)


(As Adjusted)(In thousands, except per share amounts)Operating revenue

$
1,158,481


$
1,304,259


$
1,206,515Operating expense:Cost of services (excluding depreciation expense)


954,915



1,074,675



954,006Depreciation and amortization


44,866



45,643



47,870Amortization of vessel dry-docking


13,694



17,162



17,491Selling, general and administrative


102,231



108,206



90,978Settlement of class action lawsuit


20,000







Impairment charge


1,867



25,415



Restructuring charge


1,001



3,244



Miscellaneous expense


1,069



2,898



997Total operating expense


1,139,643



1,277,243



1,111,342Operating income


18,838



27,016



95,173Other expense (income):Interest expense, net


39,675



41,399



44,875Loss on modification/early extinguishment of debt


50







38,546Other expense (income), net


18



(62
)


79(Loss) income before income taxes


(20,905
)


(14,321
)


11,673Income tax expense (benefit)


10,367



(11,728
)


(15,152
)Net (loss) income

$
(31,272
)

$
(2,593
)

$
26,825Net (loss) income per share:Basic

$
(1.03
)

$
(0.09
)

$
0.81Diluted

$
(1.03
)

$
(0.09
)

$
0.79Number of shares used in calculations:Basic


30,451



30,278



33,328Diluted


30,451



30,278



33,865Cash dividends declared per share

$
0.44


$
0.44


$
0.44    F-4




---



##### Table of Contents



Horizon Lines,
    Inc.
  Consolidated
    Statements of Cash Flows
  Fiscal Years EndedDecember 21,


December 23,December 20,


2008


20072009


(As Adjusted)


(As Adjusted)(In thousands)Cash flows from operating activities:Net (loss) income

$
(31,272
)

$
(2,593
)

$
26,825Adjustments to reconcile net (loss) income to net cash provided
    by operating activities:Depreciation


24,235



24,343



27,631Amortization of intangibles


20,631



21,300



20,239Amortization of vessel dry-docking


13,694



17,162



17,491Impairment charge


1,867



25,415



Restructuring charge


1,001



3,244



Amortization of deferred financing costs


2,947



2,693



2,973Deferred income taxes


10,396



(12,985
)


(15,152
)Gain on equipment disposals


(154
)


(24
)


(171
)Loss on early modification/extinguishment of debt


50







38,546Accretion on 11% senior discount notes










6,062Accretion on 4.25% convertible notes


10,011



8,901



3,204Stock-based compensation


3,096



3,651



3,769Tax benefit from exercise of stock options










101Changes 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



11,106Accrued 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



54,837Cash 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



3,362Net 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



163,500Payments 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



29Purchase of treasury stock






(29,330
)


(49,208
)Payments on capital lease obligation






(81
)


(152
)Proceeds from exercise of stock options






13



216Tax deficiency from exercise of stock options










(101
)Proceeds from issuance of convertible notes










330,000Borrowing of term loan










125,000Purchase of call options










(52,541
)Sale of common stock warrants










11,958Redemption 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



93,949Cash at end of year

$
6,419


$
5,487


$
6,276    F-5




---



##### Table of Contents



Horizon Lines,
    Inc.
  Consolidated
    Statements of Changes in Stockholders Equity
  Retained


AccumulatedAdditional


Earnings


OtherCommon


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
)

$
208,277Effect 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











216Purchase of call spread options, net of tax benefits of $19,179














(33,362
)










(33,362
)Sale of common stock warrants














11,958











11,958Tax deficiency from exercise of stock options














101











101Dividend to shareholders


















(14,653
)






(14,653
)Stock-based compensation














3,769











3,769Stock issued under Employee Stock Purchase Plan


62



1







1,479











1,480Common stock repurchases


(2,172
)






(49,208
)














(49,208
)Effects of the adoption of FSP APB
    14-1














30,865











30,865Net income


















26,825







26,825Unrecognized actuarial gains, net of tax






















597



597Amortization of pension and post-retirement benefit transition
    obligation, net of tax






















101



101Comprehensive income


























27,523Stockholders equity at December 23, 2007


31,502



337



(49,208
)


194,625



37,960



(305
)


183,409Exercise of stock options


1











13











14Vesting of restricted stock


15











(34
)










(34
)Dividend to shareholders


















(13,273
)






(13,273
)Stock-based compensation














3,651











3,651Stock issued under Employee Stock Purchase Plan


118



1







1,389











1,389Common 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



100Comprehensive loss


























(8,990
)Stockholders equity at December 21, 2008


30,008



338



(78,538
)


199,644



22,094



(6,702
)


136,836Vesting of restricted stock


121



1







(178
)










(177
)Dividend to shareholders














(6,701
)


(6,696
)






(13,397
)Stock-based compensation














3,582











3,582Stock issued under Employee Stock Purchase Plan


162



2







553











555Net loss


















(31,272
)






(31,272
)Unrecognized actuarial gains, net of tax






















4,475



4,475Fair value of interest rate swap, net of tax






















229



229Amortization of pension and post-retirement benefit transition
    obligation, net of tax






















447



447Comprehensive 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.   F-6




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial Statements
  1.
    Basis of
    Presentation and Operations  U.S.-organized
      14-1, 470-20). 470-20
 F-7




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  470-20 470-20. 470-20,
  Year Ended December 21, 2008

Year Ended December 23, 2007As



As

As



AsReported

Adjustments

Adjusted

Reported

Adjustments

AdjustedStatement of OperationsInterest expense, net

$
32,498


$
8,901


$
41,399


$
41,672


$
3,203


$
44,875Income 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
)


26,825Net income (loss) per shareBasic


0.10



(0.19
)


(0.09
)


0.87



(0.06
)


0.81Diluted


0.10



(0.19
)


(0.09
)


0.85



(0.06
)


0.79Balance SheetIntangible assets, net

$
126,697


$
(1,155
)

$
125,542


$
152,031


$
(1,495
)

$
150,536Deferred tax assets


23,992



(13,323
)


10,669



4,060



(4,060
)


Total assets


887,107



(14,478
)


872,629



926,441



(5,555
)


920,886Long-term debt, net of current


563,916



(37,657
)


526,259



572,469



(46,898
)


525,571Deferred tax liabilities


















12,512



12,512Additional paid in capital


168,779



30,865



199,644



163,760



30,865



194,625Retained earnings


29,780



(7,686
)


22,094



39,994



(2,034
)


37,960Total liabilities and stockholders equity


887,107



(14,478
)


872,629



926,441



(5,555
)


920,886   No. EITF 03-6-1, 260-10-45 260-10-45 260-10-45
 F-8




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    Year Ended December 21, 2008


Year Ended December 23, 2007As





As


As





AsReported


Adjustments


Adjusted


Reported


Adjustments


AdjustedStatement of OperationsDenominator for basic net income per share


29,963



315



30,278



33,221



107



33,328Effect of dilutive securities


368



(123
)


245



638



(101
)


537Denominator for diluted net income per share


30,331



192



30,523



33,859



6



33,865   2.
    Significant
    Accounting Policies  Cash
    Allowance for
    Doubtful Accounts and Revenue Adjustments
    80-90 days
 F-9




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    Materials and
    Supplies
    Property and
    Equipment
    Buildings, chassis and cranes


25 yearsContainers


15 yearsVessels


20-40 yearsSoftware


3 yearsOther


3-10 years     Vessel
    Dry-docking
  30-month
    Intangible
    Assets
   F-10




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
      Revenue
    Recognition
      Insurance
    Reserves
    Derivative
    Instruments
        Income
    Taxes
   F-11




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    U.S.-flag
  Stock-based
    Compensation
    Pension and
    Post-retirement Benefits
        Computation of
    Net Income (Loss) per Share
   F-12




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    Fiscal
    Period
    Use of
    Estimates
    Recent
    Accounting Pronouncements
         F-13




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
        instrument-by-instrument
   F-14




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  Supplemental
    Cash Flow Information
      Fiscal Years EndedDecember 20,

December 21,

December 23,2009

2008

2007Interest

$
25,753


$
29,116


$
33,277Income taxes


(678
)


711



444   3.
    Restructuring
    Charge      Balance at














Balance atDecember 21,











Charged to Other


December 20,2008


Provision


Payments


Adjustments


Accounts(1)


2009Personnel related costs

$
3,132


$
1,148


$
(3,501
)

$
(144
)

$
(485
)

$
150Other 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.   F-15




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
   4.
    Impairment
    Charges    Fiscal Years EndedDecember 20,


December 21,2009


2008Vessels

$
1,867


$
3,292Goodwill






17,650Equipment






2,738Customer relationships






1,735Total

$
1,867


$
25,415   Vessels
    Goodwill
    Equipment
   F-16




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    Customer
    Relationships
    5.
    Acquisitions        Fiscal Year EndedDecember 23,2007(As Adjusted)Operating revenue

$
1,233,749Net income


26,830Earnings per share (basic)


0.81Earnings per share (diluted)


0.79   6.
    Segment
    Reporting  U.S.-flag
 F-17




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
      Fiscal Years EndedDecember 21,


December 23,December 20,


2008


20072009


(As Adjusted)


(As Adjusted)Operating revenue:Horizon Lines

$
1,123,953


$
1,268,418


$
1,190,922Horizon Logistics


156,668



227,668



190,6071,280,621



1,496,086



1,381,529Inter-segment revenue


(122,140
)


(191,827
)


(175,014
)Consolidated operating revenue

$
1,158,481


$
1,304,259


$
1,206,515Depreciation and amortization:Horizon Lines

$
57,995


$
61,729


$
59,160Horizon Logistics


565



1,106



6,20158,560



62,835



65,361Eliminations






(30
)


Consolidated depreciation and amortization

$
58,560


$
62,805


$
65,361Segment operating income (loss):Horizon Lines

$
27,318


$
50,107


$
102,412Horizon Logistics


(8,480
)


(23,091
)


(7,239
)Consolidated operating income


18,838



27,016



95,173Unallocated interest expense, net


39,675



41,399



44,875Loss on early extinguishment of debt


50







38,546Unallocated other expense (income), net


18



(62
)


79Consolidated (loss) income before income tax (benefit) expense

$
(20,905
)

$
(14,321
)

$
11,673Capital expenditures:Horizon Lines

$
12,931


$
38,638


$
31,426Horizon Logistics


119



511



Consolidated capital expenditures

$
13,050


$
39,149


$
31,426  F-18




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  December 21,December 20,


20082009


(As Adjusted)Segment assets:Horizon Lines

$
804,705


$
860,721Horizon Logistics


13,805



11,908Consolidated assets

$
818,510


$
872,629   7.
    Property and
    Equipment    December 20,


December 21,2009


2008Vessels

$
147,823


$
149,557Containers


24,035



24,099Chassis


14,599



14,713Cranes


36,965



26,852Machinery & equipment


28,637



26,127Facilities & land improvement


24,006



20,718Software


24,072



20,875Construction in progress


22,541



34,382Total property and equipment


322,678



317,323Accumulated depreciation


(129,240
)


(108,870
)Property and equipment, net

$
193,438


$
208,453        F-19




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  8.
    Intangible
    Assets    December 21,December 20,


20082009


(As Adjusted)Customer contracts/relationships

$
142,475


$
142,475Trademarks


63,800



63,800Deferred financing costs


14,831



11,388Non-compete agreements


262



262Total intangibles with definite lives


221,368



217,925Less: accumulated amortization


(115,963
)


(92,383
)Net intangibles with definite lives


105,405



125,542Goodwill


317,068



317,068Total intangible assets, net

$
422,473


$
442,610     Fiscal Year Ending2010

$
23,9652011


23,6972012


19,5932013


12,1582014


6,563     Horizon


HorizonLines


Logistics


TotalBalance at December 23, 2007

$
314,149


$
20,522


$
334,671Impairment loss recognized






(17,650
)


(17,650
)Other






47



47Balance at December 21, 2008 and December 20, 2009

$
314,149


$
2,919


$
317,068  F-20




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  9.
    Other Accrued
    Liabilities    December 20,


December 21,2009


2008Vessel operations

$
17,922


$
18,681Payroll and employee benefits


17,035



13,943Marine operations


10,668



12,162Terminal operations


10,481



11,847Fuel


9,418



7,443Interest


7,298



6,437Settlement of class action lawsuit


15,000



Restructuring costs


150



3,069Other liabilities


22,501



24,138Total other accrued liabilities

$
110,473


$
97,720   10.
    Long-Term
    Debt    December 21,December 20,


20082009


(As Adjusted)Term loan

$
112,500


$
118,750Revolving credit facility


100,000



120,0004.25% convertible senior notes


302,355



292,343Other






1,718Total long-term debt


514,855



532,811Current portion


(18,750
)


(6,552
)Long-term debt, net of current

$
496,105


$
526,259   Senior Credit
    Facility
    12-month
 F-21




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
        4.25% Convertible
    Senior Notes
      
    Prior to May 15, 2012, if during any calendar quarter, and
    only during such calendar quarter, if the last reported sale
    price of the Companys 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




---



##### Table of Contents



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 Companys 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 Companys 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.        Other
    Debt
   F-23




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  Fair Value of
    Financial Instruments
      2010

$
18,7502011


18,7502012


505,000$
542,500   11.
    Fair Value
    Measurement    Level 1:
    observable inputs such as quoted prices in active marketsLevel 2:
    inputs other than the quoted prices in active markets that are
    observable either directly or indirectlyLevel 3:
    unobservable inputs in which there is little or no market data,
    which requires the Company to develop its own assumptions        12.
    Net (Loss) Income
    Per Common Share   F-24




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    Fiscal Years EndedDecember 21,


December 23,December 20,


2008


20072009


(As Adjusted)


(As Adjusted)Numerator:Net (loss) income

$
(31,272
)

$
(2,593
)

$
26,825Denominator:Denominator for basic (loss) income per common share:Weighted average shares outstanding


30,451



30,278



33,328Effect of dilutive securities:Stock-based compensation










537Denominator for diluted net (loss) income per common share


30,451



30,278



33,865Basic net (loss) income per common share

$
(1.03
)

$
(0.09
)

$
0.81Diluted net (loss) income per common share

$
(1.03
)

$
(0.09
)

$
0.79       13.
    Derivative
    Financial Instruments   F-25




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
      14.
    Leases      Non-CancelableFiscal Year Ending

OperatingDecember

Leases2010

$
107,3892011


65,4912012


66,5712013


73,2512014


94,202Thereafter


173,445Total future minimum lease obligation

$
580,349   15.
    Employee Benefit
    Plans  Savings
    Plans
   F-26




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  Pension and
    Post-Retirement Benefit Plans
    Pension
    Plans
      Post-retirement
    Benefit Plans
  his/her his/her his/her his/her
  his/her
 F-27




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  his/her his/her his/her
  Obligations
    and Funded Status
  Pension


Post-retirementPlans


Benefit Plans2009


2008


2009


2008(In thousands)Change in Benefit ObligationBeginning 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



388Ending obligations


(10,771
)


(11,788
)


(8,925
)


(10,123
)Change in Plans AssetsBeginning 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-retirementPlans


Benefit Plans2009


2008


2009


2008(In thousands)Service cost

$
356


$
273


$
562


$
425Interest cost


638



553



545



442Expected return on plan assets


(420
)


(449
)






Amortization of prior service cost


255







103



59Amortization of transition obligation


102



102







Amortization of loss (gain)


125







31



(21
)Net periodic benefit cost

$
1,056


$
479


$
1,241


$
905  F-28




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  Rate
    Assumptions
  Pension

Post-retirementBenefits

Benefits2009

2008

2009

2008Weighted-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.    Pension


Post-retirementFiscal Year Ending

Benefits


Benefits2010

$
426


$
4202011


465



4382012


546



4692013


571



4772014


596



4782015-2019


3,873



2,673$
6,477


$
4,955     Pension Benefits at


Pension Benefits atDecember 20,


December 21,Asset Category

2009


2008Cash


1
%


5
%Equity securities


63
%


58
%Debt securities


36
%


37
%100
%


100
%    F-29




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  time-to-time
    Other
    Plans
    16.
    Stock-Based
    Compensation      Fiscal Years EndedDecember 20,


December 21,


December 23,2009


2008


2007Stock options

$
1,223


$
1,585


$
1,667Restricted stock


1,743



1,779



1,875Employee stock purchase plan


130



287



227Total

$
3,096


$
3,651


$
3,769    F-30




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  Stock
    Options
  10-year
    2009

2008

2007Expected 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     Expected Life:
  Expected Volatility:
   F-31




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    Weighted-Weighted-


Average


AggregateAverage


Remaining


IntrinsicNumber of


Exercise


Contractual


ValueOptions

Shares


Price


Term (Years)


(000s)Outstanding at December 24, 2006


1,291,008


$
11.35



9.16


$
20,975Granted


329,000



33.51Exercised(a)


(21,000
)


10.00Forfeited






Outstanding at December 23, 2007


1,599,008



15.93



8.40


$
9,696Granted


209,000



14.38Exercised(a)


(1,312
)


10.00Forfeited


(172,754
)


15.57Outstanding at December 21, 2008


1,633,942



15.77



7.55


$
Granted






Exercised






Forfeited


(80,952
)


18.63Expired


(37,800
)


10.00Outstanding 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.    Restricted
    Stock
  non-employee
 F-32




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    Weighted-AverageFair ValueNumber of


at GrantRestricted Shares

Shares


DateNonvested at December 24, 2006


70,000


$
12.57Granted


237,559



31.96Vested






Forfeited






Nonvested at December 23, 2007


307,559



27.54Granted


182,827



31.96Vested


(17,440
)


34.42Forfeited


(44,134
)


27.70Nonvested at December 21, 2008


428,812



21.39Granted


576,987



3.70Vested


(120,777
)


12.75Forfeited


(277,801
)


12.86Nonvested at December 20, 2009


607,221


$
10.21     Employee Stock
    Purchase Plan
       F-33




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
      2009

2008Expected 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

0.25Fair value at grant date

$1.25-$1.57

$0.78-$3.78     17.
    Income
    Taxes       F-34




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    Fiscal Years EndedDecember 21,


December 23,December 20,


2008


20072009


(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
)     Fiscal Years EndedDecember 21,


December 23,December 20,


2008


20072009


(As Adjusted)


(As Adjusted)Income tax (benefit) expense at statutory rates:

$
(7,317
)

$
(5,012
)

$
4,086State/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



473Income tax expense (benefit)

$
10,367


$
(11,728
)

$
(15,152
)    F-35




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    December 21,December 20,


20082009


(As Adjusted)Deferred tax assets:Leases

$
10,011


$
10,968Convertible note hedge


1,294



1,395Allowance for doubtful accounts


1,356



975Net operating losses and AMT carryforwards


28,965



34,292Post retirement benefits


1,374



970Other


10,682



12,799Valuation allowances


(14,248
)


(1,262
)Total deferred tax assets


39,434



60,137Deferred 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       2009


2008


2007Beginning balance

$
8,989


$
8,482


$
3,530Additions based on tax positions related to the current year


409



2,196



3,550Additions for tax positions of prior years


5,793







2,049Reductions for tax positions of prior years


(2,519
)


(1,689
)


(647
)Ending balance

$
12,672


$
8,989


$
8,482    F-36




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    non-U.S. income 2004-2009.
    18.
    Commitments and
    Contingencies  Legal
    Proceedings
         F-37




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
            class-action
 F-38




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
            and/or
  SFL
    Agreements
   F-39




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
      Standby
    Letters of Credit
    Labor
    Relations
    19.
    Quarterly
    Financial Data (Unaudited)    Fiscal Year 2009First

Second

Third

FourthQuarter

Quarter

Quarter

QuarterOperating revenue

$
272,351


$
278,484


$
307,972


$
299,674Operating (loss) income(1)(2)


(819
)


(11,207
)


18,956



11,908Net (loss) income(1)(2)(3)


(9,953
)


(31,083
)


8,438



1,326Basic net (loss) income per share


(0.33
)


(1.02
)


0.28



0.04Diluted net (loss) income per share


(0.33
)


(1.02
)


0.27



0.04   F-40




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  Fiscal Year 2008(As Adjusted)First

Second

Third

FourthQuarter

Quarter

Quarter

QuarterOperating revenue

$
305,947


$
330,958


$
352,638


$
314,716Operating 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
    Companys 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
    Companys restructuring plan, an impairment charge totaling
    $25.4 million, and a supplementary premium call totaling
    $1.3 million related the Companys 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.  20.
    Subsequent
    Events   F-41




---



##### Table of Contents



Schedule II



Horizon Lines,
    Inc.
    Valuation and Qualifying Accounts
    Years Ended December 2009, 2008 and 2007 Chargedto Cost





ChargedBeginning


and





to other


EndingBalance


Expenses


Deductions


Accounts


Balance(In thousands)Accounts receivable reserve:Year ended December 20, 2009:Allowance for doubtful accounts

$
7,117


$
2,124


$
(2,763
)

$



$
6,478Allowance for revenue adjustments


1,100



5,935



(5,935
)






1,100$
8,217


$
8,059


$
(8,698
)

$



$
7,578Year ended December 21, 2008:Allowance for doubtful accounts

$
5,091


$
2,970


$
(944
)

$



$
7,117Allowance for revenue adjustments


1,100



4,796



(4,796
)






1,100$
6,191


$
7,766


$
(5,740
)

$



$
8,217Year ended December 23, 2007:Allowance for doubtful accounts

$
3,472


$
2,700


$
(1,081
)

$



$
5,091Allowance for revenue adjustments


1,500



4,974



(5,374
)






1,100$
4,972


$
7,674


$
(6,455
)

$



$
6,191Restructuring costs:Year ended December 20, 2009

$
3,197


$
1,001


$
(3,563
)

$
(485
)(1)

$
150Year ended December 21, 2008

$



$
3,244


$
(47
)

$



$
3,197Deferred tax assets valuation allowance:Year ended December 20, 2009

$
1,262


$
15,001


$



$
(2,015
)(2)

$
14,248Year ended December 21, 2008

$
1,262


$



$



$



$
1,262Year 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