##### 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 23, 2007ORo


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
    incorporation or organization)

(I.R.S. Employer
    Identification No.)4064 Colony Road, Suite 200, Charlotte, North
    Carolina(Address of principal executive
    offices)

28211(Zip
    Code)  (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
      x o
  o x
  x o
  Regulation S-K Form 10-K Form 10-K o
  non-accelerated Rule 12b-2
 x o o o
 (Do not check if a smaller
    reporting company)
  Rule 12b-2  o x
      DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K




---



##### 





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


Business


1Item 1A.


Risk Factors


11Item 1B.


Unresolved Staff Comments


23Item 2.


Properties


24Item 3.


Legal Proceedings


24Item 4.


Submission of Matters to a Vote of Security
    Holders


25PART IIItem 5.


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


26Item 6.


Selected Financial Data


29Item 7.


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


35Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


57Item 8.


Financial Statements and Supplementary Data


57Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


57Item 9A.


Controls and Procedures


58Item 9B.


Other Information


58PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


59Item 11.


Executive Compensation


59Item 12.


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


59Item 13.


Certain Relationships and Related Transactions


59Item 14.


Principal Accountant Fees and Services


59PART IVItem 15.


Exhibits and Financial Statement Schedules


60Exhibit 14Exhibit 21Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Safe Harbor
    Statement
  Form 10-K
   (i)




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




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##### Table of Contents



Part I.  Item 1.
    Business  Our
    Company
  Form 10-K
  Sea-Land (Sea-Land) Sea-Land Sea-Land,
     1




---



##### Table of Contents



Current
    Developments
  Form S-3.
         2




---



##### Table of Contents



The Jones
    Act
    U.S.-organized U.S.-flagged U.S.-flagged U.S.-crewed, U.S.-built.
    Market Overview
    and Competition
   3




---



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pick-up
  pick-up
  Sales and
    Marketing
   4




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Customers
          Form 10-K,
  Operations
    Overview
     5




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##### Table of Contents



e-mail
  and/or e-mail
  Insurance
    Vessel
    Fleet
  50-year
 6




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##### Table of Contents



Year



Reefer

Max.

Owned/

CharterVessel Name

Market

Built

TEU(1)

Capacity(2)

Speed

Chartered

ExpirationHorizon 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

100

21.0 kts

Owned

Horizon Enterprise

Hawaii & Guam

1980

2,407

150

21.0 kts

Owned

Horizon Spirit

Hawaii & Guam

1980

2,653

100

22.0 kts

Owned

Horizon Reliance

Hawaii & Guam

1980

2,653

100

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(4)

Puerto Rico

1972

2,386

100

21.0 kts

Owned

Horizon Trader(4)

Puerto Rico

1972

2,386

100

21.0 kts

Owned

Horizon Discovery(5)



1968

1,442

70

21.2 kts

Owned

Horizon Consumer(5)



1973

1,751

170

22.0 kts

Owned

Horizon Crusader(5)



1969

1,376

70

21.2 kts

Owned

Horizon Hawaii(5)



1973

1,420

170

22.5 kts

Owned

Horizon Hunter

Transpacific

2006

2,824

586

23.0 kts

Chartered

Nov 2018Horizon Hawk

Transpacific

2007

2,824

586

23.0 kts

Chartered

Mar 2019Horizon Tiger

Transpacific

2006

2,824

586

23.0 kts

Chartered

May 2019Horizon Eagle

Transpacific

2007

2,824

586

23.0 kts

Chartered

Apr 2019Horizon Falcon

Transpacific

2007

2,824

586

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.(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 also serves the Alaska trade from June through
    August.(4)
    
    Were deployed in the Hawaii & Guam market during 2007.
    Are currently deployed in the Puerto Rico market.(5)
    
    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.  Our Vessel
    Charters
   7




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Our Container
    Fleet
    Container Type

Owned


Leased


Combined20 Standard Dry


33



422



45520 Flat Rack


2







220 High-Cube Reefer


72







7220 Miscellaneous


71







7120 Tank


1







140 Standard Dry


124



1,411



1,53540 Flat Rack


363



488



85140 High-Cube Dry


1,303



5,705



7,00840 Standard Insulated


16







1640 High-Cube Insulated


395







39540 Standard Opentop






100



10040 Miscellaneous


63







6340 Tank


2







240 Car Carrier


165







16540 Standard Reefer


4







440 High-Cube Reefer


989



4,503



5,49245 High-Cube Dry


1,362



3,555



4,91745 High-Cube Flatrack






25



2545 High-Cube Insulated


474







47445 High-Cube Reefer






325



325Total


5,439



16,534



21,973     Maersk
    Arrangements
  Sea-Land
 8




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##### Table of Contents



U.S.-flagged
  Security
      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 U.S.-built U.S.-built U.S.-flagged
 9




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Employees
      Number ofCollective Bargaining


OurAgreement(s)


EmployeesUnion

Expiration Date


RepresentedInternational Brotherhood of Teamsters


March 31, 2008



253International Brotherhood of Teamsters, Alaska


June 30, 2010



110International Longshore & Warehouse Union (ILWU)


July 1, 2008



223International Longshore and Warehouse Union, Alaska (ILWU-Alaska)


June 30, 2007
(1)


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


September 30, 2010



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


October 31, 2010



86Marine Engineers Beneficial Association (MEBA)


June 15, 2012



143International Organization of Masters, Mates & Pilots,
    AFL-CIO (MMP)


June 15, 2012



96Office & Professional Employees International Union,
    AFL-CIO


November 9, 2012



68Seafarers International Union (SIU)


June 30, 2011



381     (1)
    
    Our employees who are covered under this agreement are
    continuing to work under an old agreement while we negotiate a
    new agreement.(2)
    
    Multi-employer arrangement representing workers in the industry,
    including workers who may perform services for us but are not
    our employees. 10




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HawaiiandAlaska


Guam


Puerto RicoMarket


Market


Market


Corporate(a)


TotalSenior Management


1



2



1



16



20Operations


37



100



57



114



308Sales and Marketing


20



26



49



22



117Administration(b)


8



41



8



201



258Total Headcount


66



169



115



353



703     (a)
    
    Corporate headcount includes employees in both Charlotte, North
    Carolina (headquarters) and in Irving, Texas and other locations.(b)
    
    Administration headcount includes customer service and
    documentation personnel.  Available
    Information
  (704) 973-7000. Form 10-K Form 10-K. 1-800-SEC-0330.
  Item 1A.
    Risk
    Factors  Rising Fuel
    Prices May Adversely Affect Our Profits.
      A decrease in
    Shipping Volume in Our Markets Will Adversely Affect Our
    Business.
   11




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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.
      If We are
    Unable to Implement Our Business Strategy, Our Future Results
    Could be Adversely Affected.
    Repeal,
    Substantial Amendment, or Waiver of the Jones Act or its
    Application Could Have a Material Adverse Effect on Our
    Business.
  U.S.-citizen
    Our Failure to
    Renew Our Commercial Agreements With Maersk in the Future Could
    Have a Material Adverse Effect on Our Business.
   12




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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
    2008-2012.
  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.
   13




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Compliance
    With Safety and Environmental Protection and Other Governmental
    Requirements May Adversely Affect Our Operations.
  U.S.-flagged
    We are Subject
    to New Statutory and Regulatory Directives in the United States
    Addressing Homeland Security Concerns that May Increase Our
    Costs and Adversely Affect Our Operations.
   14




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Increased
    Inspection Procedures and Tighter Import and Export Controls
    Could Increase Costs and Disrupt Our Business.
  and/or
    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.
   15




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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.
            The
    Reliability of Our Service May Be Adversely Affected if Our
    Spare Vessels Reserved For Relief are Not Deployed Efficiently
    Under Extreme Circumstances, Which Could Damage Our Reputation
    and Harm Our Operating Results.
   16




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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.
      We are
    Susceptible to Severe Weather and Natural
    Disasters.
   17




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We May Face
    New Competitors.
  start-up
  non-U.S. originated non-U.S.
  U.S.-flagged U.S.-built
  We May Not
    Exercise Our Purchase Options For Our Chartered
    Vessels.
  U.S.-flag
  We May Face
    Significant Costs As the Vessels Currently in Our Fleet
    Age.
    We May Face
    Unexpected Substantial Drydocking Costs For Our
    Vessels.
   18




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Loss of Our
    Key Management 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.
  and/or
  Integrating
    Acquisitions May Be Time-Consuming and Create Costs That Could
    Reduce Our Net Income and Cash Flows.
    
    the loss of key customers of the acquired company;
    the incurrence of unexpected expenses and working capital
    requirements;
    a failure of our due diligence process to identify significant
    issues or contingencies;
    difficulties assimilating the operations and personnel of the
    acquired company;
    difficulties effectively integrating the acquired technologies
    with our current technologies;
    our inability to retain key personnel of acquired entities;
    a failure to maintain the quality of customer service;
    our inability to achieve the financial and strategic goals for
    the acquired and combined businesses; and
    difficulty in maintaining internal controls, procedures and
    policies.     19




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We May Not
    Realize the Expected Benefits of Our Horizon Edge
    Initiative.
    Our Cash Flows
    and Capital Resources May Be Insufficient to Make Required
    Payments On Our Substantial Indebtedness and Future
    Indebtedness.
      
    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.   20




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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,
   21




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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;
    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.    The Senior
    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.
 22




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##### Table of Contents



non-U.S. citizens non-U.S. citizens
  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.
    Item 1B.
    Unresolved
    Staff Comments   23




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##### Table of Contents



Item 2.
    Properties    SquareLocation

Description of Facility

Footage(1)Anchorage, Alaska

Stevedoring building and various terminal and related property


1,356,248Atlanta, Georgia

Regional sales office


911Charlotte, North Carolina

Corporate headquarters


28,900Chicago, Illinois

Regional sales office


1,533Dedeo, 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


497Irving, Texas

Operations center


51,989Jacksonville, Florida

Terminal supervision and sales office


4,628Kenilworth, New Jersey

Ocean shipping services office


12,110Kodiak, Alaska

Office and various terminal and related property


265,232Laredo, Texas

Warehousing and office


69,200Lexington, North Carolina

Warehousing and office


23,984Long Beach, California

Terminal supervision office


719,546Oakland, California

Office and various terminal and related property


279,131Piti, Guam

Office and various terminal and related property


24,837Renton, Washington

Regional sales office


9,010San Francisco, California

Warehousing and office


19,900San Juan, Puerto Rico

Office and various terminal and related property


3,521,102Tacoma, Washington

Office and various terminal and related property


794,314Tempe, Arizona

Warehousing and office


565     (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  and/or
 24




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1996-1998
    Item 4.
    Submission
    of Matters to a Vote of Security Holders   25




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Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    2008

High


Low


Cash DividendFirst Quarter (through January 31, 2008)

$
20.00


$
15.73



   2007

High


Low


Cash DividendFirst Quarter

$
33.98


$
25.50


$
0.11Second Quarter

$
34.97


$
31.66


$
0.11Third Quarter

$
36.55


$
25.07


$
0.11Fourth Quarter

$
34.06


$
15.11


$
0.11   2006

High


Low


Cash DividendFirst Quarter

$
13.32


$
12.07


$
0.11Second Quarter

$
16.02


$
12.35


$
0.11Third Quarter

$
16.79


$
14.46


$
0.11Fourth Quarter

$
30.50


$
15.33


$
0.11        26




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##### Table of Contents



Equity
    Compensation Plan Information
    Number of SecuritiesRemaining Available forFuture Issuance UnderEquity CompensationNumber of Securities to


Weighted-Average


Plans (ExcludingBe Issued Upon Exercise


Exercise Price of


Securities Reflected inPlan Category

of Outstanding Options


Outstanding Options


the First Column)Equity compensation plans approved by security holders(1)










Equity compensation plans not approved by security holders(1)


1,599,008(2
)

$
15.93



1,314,686(2
)     (1)
    
    For a description of the Companys equity compensation
    plans, see Note 17 to the Consolidated Financial Statements
    in Item 8.(2)
    
    Each stock option is exercisable for one share of common stock.    ISSUER
    PURCHASES OF EQUITY SECURITIES
  Total Numberof Shares


ApproximatePurchased as


Dollar ValuePart of


of SharesPublicly


that May Yet BeTotal Number


Average Price


Announced


Purchased Underof Shares


Paid


Plans or


the Plans orPeriod

Purchased


per share(1)


Programs(2)


Programs(2)9/24/07-10/21/07


N/A



N/A



N/A



N/A10/22/07-11/18/07


N/A



N/A



N/A



N/A11/19/07-12/23/07


1,172,700


$
17.61



1,172,700


$
29.4 millionQuarter ended December 23, 2007:


1,172,700


$
17.61



1,172,700


$
29.4 million     (1)
    
    The average price paid per share does not include the cost of
    commissions.(2)
    
    On November 19, 2007, the Companys Board of Directors
    authorized the Company to commence a stock repurchase program to
    buy back up to $50.0 million worth of its common stock. The
    program allowed the Company to purchase shares through open
    market repurchases and privately negotiated transactions at a
    price of $26.00 per share or less until the programs
    expiration on December 31, 2008. The Company acquired
    1,172,700 shares at a total cost of $20.6 million
    under this program during the fourth quarter of 2007. The
    Company completed its share repurchase program in the first
    quarter of 2008, acquiring an additional 1,627,500 shares
    at a total cost of $29.4 million. Although the Company does
    not currently intend to repurchase additional shares, the
    Company will continue to evaluate market conditions and may,
    subject to approval by the Companys Board of Directors,
    repurchase additional shares of its common stock in the future.
    All share repurchases during the fourth quarter of 2007 and
    during the first quarter of 2008 were made in accordance with
    Rule 10b-18
    of the Securities Exchange Act of 1934. Repurchased shares have
    been accounted for as treasury stock. 27




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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



6/25/2006



12/24/2006



6/24/2007



12/23/2007Horizon Lines, Inc.



100.00




125.90




162.20




281.50




338.60




200.00Dow Jones U.S. Industrial Transportation Index



100.00




118.30




131.39




122.52




137.82




132.05S&P 500 Index



100.00




104.36




102.37




116.05




123.60




122.11  28




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K, Form 10-K.
  Sea-Land
   29




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Horizon Lines, Inc.



Predecessor A



Predecessor BPeriod from



Period from





Period from



Period fromJuly 7,



December 22,





February 27,



December 23,Year Ended


Year Ended


Year Ended


Year Ended


2004 through



2003 through


Year Ended


2003 through



2002 throughDecember 23,


December 24,


December 25,


December 26,


December 26,



July 6,


December 21,


December 21,



February 26,2007


2006


2005(1)


2004


2004



2004


2003


2003



2003(In thousands, except share and per share amounts)(In thousands, except share and per share amounts)













(In thousands,except shareand pershare amounts)Statement of Operations Data:Operating revenue

$
1,206,515


$
1,156,892


$
1,096,156


$
980,328


$
481,898



$
498,430


$
885,978


$
747,567



$
138,411Operating income (loss)


95,173



95,971



46,654



51,589



30,928




20,661



38,213



40,734




(2,521
)Interest expense, net(2)


41,672



48,552



51,357



29,567



21,770




7,797



13,417



12,996




421Income tax (benefit) expense(3)


(13,983
)


(25,332
)


438



8,439



3,543




4,896



9,615



10,576




(961
)Net income (loss)


28,859



72,357



(18,321
)


13,561



5,600




7,961



15,113



17,162




(2,049
)Accretion of preferred stock










5,073



6,756



6,756

















Net income (loss) applicable to common stockholders


28,859



72,357



(23,394
)


6,805



(1,156
)



7,961



15,113



17,162




(2,049
)Net income (loss) per share applicable to common stockholders:Basic

$
0.87


$
2.16


$
(1.05
)





$
(0.07
)


$
9.95






$
21.45




*Diluted

$
0.85


$
2.14


$
(1.05
)





$
(0.07
)


$
8.94






$
19.57




*Number of shares used in calculations:Basic


33,220,994



33,551,335



22,376,797







15,585,322




800,000







800,000




*Diluted


33,859,183



33,772,341



22,381,756







15,585,322




890,138







876,805




*Dividends declared

$
14,653


$
14,764


$
3,690Dividends declared per common share

$
0.44


$
0.44


$
0.11




















     *
    
    For the period ended February 26, 2003, owners equity
    consisted of parents net investment, and thus no income
    (loss) per share has been calculated. 30




---



##### Table of Contents





Horizon Lines, Inc.



Predecessor ADecember 23,


December 24,


December 25,


December 26,



December 21,2007


2006


2005


2004



2003(In thousands)



(In thousands)Balance Sheet Data:Cash

$
6,276


$
93,949


$
41,450


$
56,766



$
41,811Working capital


58,979



97,563



67,111



67,252




46,192Total assets


926,441



945,029



927,319



937,792




492,554Long-term debt, including capital lease obligations, net of
    current portion(2)


572,561



503,850



527,905



610,201




165,417Total debt, including capital lease obligations


579,098



510,788



530,575



612,862




165,570Series A redeemable preferred stock(4)














56,708




Stockholders equity(4)(5)


154,578



208,277



151,760



25,608




96,860   Horizon Lines, Inc.



Predecessor A



Predecessor BPeriod



Period





Period



Periodfrom



from





from



fromJuly 7,



Dec. 22,





Feb. 27,



Dec. 23,Year


Year


Year


Year


2004



2003


Year


2003



2002Ended


Ended


Ended


Ended


through



through


Ended


through



throughDec. 23,


Dec. 24,


Dec. 25,


Dec. 26,


Dec. 26,



July 6,


Dec. 21,


Dec. 21,



Feb. 26,2007


2006


2005


2004


2004



2004


2003


2003



2003(In thousands)



(In thousands)



(In thousands)Other Financial Data:EBITDA(6)

$
121,909


$
160,452


$
100,381


$
112,998


$
62,664



$
50,334


$
84,442


$
80,757



$
3,685Capital expenditures(7)


31,426



21,288



41,234



32,889



11,000




21,889



35,150



16,680




18,470Vessel drydocking payments


21,414



16,815



16,038



12,273



2,075




10,198



16,536



12,029




4,507Cash flows provided by (used in):Operating activities


54,837



115,524



76,376



69,869



72,797




(2,928
)


44,048



81,375




(37,327
)Investing activities(7)(8)


(59,387
)


(19,340
)


(38,817
)


(694,563
)


(673,923
)



(20,640
)


(350,666
)


(332,196
)



(18,470
)Financing activities(4)(8)


(83,123
)


(43,685
)


(52,875
)


657,805



657,892




(87
)


305,687



289,720




15,967Ratio of earnings to fixed charges(9)


1.20
x


1.63 x







1.35
x


1.23
x



1.58
x


1.61
x


1.79
x



     (1)
    
    The Company completed an initial public offering during 2005 and
    used the proceeds to repurchase certain indebtedness, pay
    related premiums, redeem its outstanding preferred stock, and
    pay related transaction expenses. See Note 5 to the Notes
    to the Consolidated Financial Statements for pro forma
    information related to these activities.(2)
    
    On July 7, 2004, as part of the Acquisition-Related
    Transactions, $250.0 million original principal amount of
    9% senior notes were issued, $250.0 million was
    borrowed under the term loan facility, $6.0 million was
    borrowed under the revolving credit facility and interest began
    to accrue thereon. On December 10, 2004, 11% senior
    discount notes with an initial accreted value of
    $112.3 million were issued and the accreted value thereof
    began to increase. During the fourth quarter of 2005, utilizing
    proceeds from the initial public offering, the Company
    repurchased $53.0 million and $43.2 million of the
    9% senior notes and 11% senior discount notes,
    respectively. During 2007, the Company 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. The Company 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 31




---



##### Table of Contents



the outstanding principal and pay associated premiums of the
    9% senior notes and 11% senior discount notes
    purchased in the Companys tender offer.(3)
    
    During 2006, the Company elected the application of a tonnage
    tax instead of the federal corporate income tax on income from
    its qualifying shipping activities. This 2006 election of the
    tonnage tax was made in connection with the filing of the
    Companys 2005 federal corporate income tax return and will
    also apply to all subsequent federal income tax returns unless
    the Company revokes this alternative tonnage tax treatment. The
    Company does not intend to revoke its election of the tonnage
    tax in the foreseeable future. The Company 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. The Companys effective tax rate
    for the year ended December 24, 2006 was (53.9%). Excluding
    the 2005 income tax impact and revaluation of the deferred taxes
    related to qualifying activities, the Companys effective
    tax rate for the year ended December 24, 2006 was 9.5%. The
    Company modified its trade routes between the U.S. west coast
    and Guam and Asia during 2007. As such, the Companys
    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, the Company recorded
    a $7.7 million tax benefit related 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. This benefit was recorded in connection with the
    filing of the 2006 income tax return in September 2007.
    Excluding the loss on extinguishment and the related tax
    benefits, the benefit associated with the revaluation of
    deferred taxes related to activities qualifying for the
    application of tonnage tax and the benefits related to the
    refinements in methodology of applying tonnage tax, the
    Companys effective tax rate was 14.1% for the year ended
    December 23, 2007.(4)
    
    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, the Company redeemed all shares of its
    non-voting $.01 par value Series A Preferred Stock for
    $62.2 million.(5)
    
    Concurrent with the issuance of the 4.25% convertible senior
    notes, the Company entered into note hedge transactions whereby
    the Company has the option to receive shares of the
    Companys common stock when the share price is between
    certain amounts and the Company sold warrants to financial
    institutions whereby the financial institutions have the option
    to receive shares when the share price is above certain levels.
    The cost of the note hedge transactions to the Company was
    approximately $33.4 million, net of tax benefits, and the
    Company received proceeds of $11.9 million related to the
    sale of the warrants.(6)
    
    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 is a
    meaningful disclosure for the following reasons: (i) EBITDA
    is a component of the measure used by our board of directors and
    management team to evaluate our operating performance,
    (ii) the senior credit facility contains covenants that
    requires the Company to maintain certain interest expense
    coverage and leverage ratios, which contain EBITDA as a
    component, and restrict certain cash payments if certain ratios
    are not met, subject to certain exclusions, and our management
    team uses EBITDA to monitor compliance with such covenants,
    (iii) EBITDA is a component of the measure used by our
    management team to make day-to-day operating decisions,
    (iv) EBITDA is a component 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 32




---



##### Table of Contents



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 as a component.
    We acknowledge that there are limitations when using EBITDA.
    EBITDA is not a recognized term under GAAP and does 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 is 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 may not be comparable to other similarly titled
    measures of other companies. A reconciliation of net income
    (loss) to EBITDA is included below (in thousands):  Horizon Lines, Inc.



Predecessor A



Predecessor BPeriod



Period





Period



Periodfrom



from





from



fromJuly 7,



Dec. 22,





Feb. 27,



Dec. 23,Year


Year


Year


Year


2004



2003


Year


2003



2002Ended


Ended


Ended


Ended


through



through


Ended


through



throughDec. 23,


Dec. 24,


Dec. 25,


Dec. 26,


Dec. 26,



July 6,


Dec. 21,


Dec. 21,



Feb. 26,2007


2006


2005


2004


2004



2004


2003


2003



2003Net income (loss)

$
28,859


$
72,357


$
(18,321
)

$
13,561


$
5,600



$
7,961


$
15,113


$
17,162



$
(2,049
)Interest expense, net


41,672



48,552



51,357



29,567



21,770




7,797



13,417



12,996




421Income tax expense (benefit)


(13,983
)


(25,332
)


438



8,439



3,543




4,896



9,615



10,576




(961
)Depreciation and amortization


65,361



64,875



66,907



61,431



31,751




29,680



46,297



40,023




6,274EBITDA

$
121,909


$
160,452


$
100,381


$
112,998


$
62,664



$
50,334


$
84,442


$
80,757



$
3,685     Horizon Lines, Inc.



Predecessor A



Predecessor BPeriod



Period





Period



Periodfrom



from





from



fromJuly 7,



Dec. 22,





Feb. 27,



Dec. 23,Year


Year


Year


Year


2004



2003


Year


2003



2002Ended


Ended


Ended


Ended


through



through


Ended


through



throughDec. 23,


Dec. 24,


Dec. 25,


Dec. 26,


Dec. 26,



July 6,


Dec. 21,


Dec. 21,



Feb. 26,2007


2006


2005


2004


2004



2004


2003


2003



2003Loss on extinguishment of debt

$
38,546


$
581


$
13,154


$



$




$



$



$




$
Transaction related expenses






2,032



2,200



2,934



692




2,242



250



4,287




Compensation charges(a)










18,953

























Management fees(b)










9,698



2,204



1,573




246



250



250




     (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. 33




---



##### Table of Contents



(7)
    
    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.
    Includes vessel purchases of $11.9 million,
    $7.7 million and $21.9 million for the period from
    December 22, 2003 through July 6, 2004, the period
    from July 7, 2004 through December 26, 2004 and the
    period from February 27, 2003 through December 21,
    2003, respectively.(8)
    
    During 2003, the amounts in cash flows provided by (used in)
    investing and financing activities primarily represent the
    accounting for the February 27, 2003 purchase transaction.
    During 2004, the amounts in cash flows provided by (used in)
    investing primarily represent the accounting for the
    Acquisition-Related Transactions and financing activities
    primarily represent the accounting for the Acquisition-Related
    Transactions and subsequent financing transactions. 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 the Companys 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. The Company 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 the Companys tender offer and
    (iii) purchase 1,000,000 shares of the Companys
    common stock. Also during 2007, the Companys Board of
    Directors approved a stock repurchase program under which the
    Company acquired 1,172,000 shares of its common stock at a
    total cost of $20.6 million.(9)
    
    For purposes of calculating the ratio of earnings to fixed
    charges, earnings represent income before income taxes plus
    fixed charges. Fixed charges consist of interest expense,
    including amortization of net discount or premium and financing
    costs, accretion of preferred stock, and the portion of
    operating rental expense (33%) which management believes is
    representative of the interest component of rent expense. For
    the year ended December 2005 and the period from
    December 23, 2002 through February 26, 2003, earnings
    were insufficient to cover fixed charges by $17.9 million
    and $3.0 million, respectively. The calculation of the
    ratio of earnings to fixed charges is noted below (in thousands):  Horizon Lines, Inc.



Predecessor A



Predecessor BPeriod



Period





Period



Periodfrom



from





from



fromJuly 7,



Dec. 22,





Feb. 27,



Dec. 23,Year


Year


Year


Year


2004



2003


Year


2003



2002Ended


Ended


Ended


Ended


through



through


Ended


through



throughDec. 23,


Dec. 24,


Dec. 25,


Dec. 26,


Dec. 26,



July 6,


Dec. 21,


Dec. 21,



Feb. 26,2007


2006


2005


2004


2004



2004


2003


2003



2003Pretax income (loss)

$
14,876


$
47,025


$
(17,883
)

$
22,000


$
9,143



$
12,857


$
24,728


$
27,738



$
(3,010
)Interest expense


43,064



51,328



53,057



29,829



21,954




7,875



13,593



13,126




467Preferred stock accretion










5,073



6,756



6,756

















Rentals


31,814



23,616



24,530



26,193



11,836




14,357



26,662



22,113




4,549Total fixed charges

$
74,878


$
74,944


$
82,660


$
62,778


$
40,546



$
22,232


$
40,255


$
35,239



$
5,016Pretax earnings plus fixed charges

$
89,754


$
121,969


$
64,777


$
84,778


$
49,689



$
35,089


$
64,983


$
62,977



$
2,006Ratio of earnings to fixed charges


1.20 x



1.63 x







1.35 x



1.23 x




1.58 x



1.61 x



1.79 x




  34




---



##### 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 23,


December 24,


December 25,2007


2006


2005(In thousands)Operating revenue

$
1,206,515


$
1,156,892


$
1,096,156Operating expense


1,111,342



1,060,921



1,049,502Operating income

$
95,173


$
95,971


$
46,654Operating ratio


92.1
%


91.7
%


95.7
%Revenue containers (units)


285,880



296,566



307,895           General
   35




---



##### Table of Contents



U.S.-organized
  History and
    Transactions
  Sea-Land
  Sea-Land, Form 10-K
  Form 10-K
  Basis of
    Presentation
      Fiscal
    Year
   36




---



##### Table of Contents



Critical
    Accounting Policies
      Revenue
    Recognition
  No. 91-9
    Allowance for
    Doubtful Accounts and Revenue Adjustments
      Casualty
    Claims
   37




---



##### Table of Contents



Goodwill,
    Purchase Costs and Other Identifiable Intangible
    Assets
      Vessel
    Drydocking
  30-month
    Deferred Tax
    Assets and Liabilities
   38




---



##### Table of Contents



FIN 48
    Stock-Based
    Compensation
      Property and
    Equipment
      Recent Accounting
    Pronouncements
  FAS 157-b
 39




---



##### Table of Contents



FAS 157-b.
  14-a). 14-a
  instrument-by-instrument
     40




---



##### Table of Contents



Current
    Developments
  Form S-3.
         41




---



##### Table of Contents



Shipping
    Rates
    Seasonality
    Results of
    Operations
  Operating
    Revenue Overview
      Form 10-K,
 42




---



##### Table of Contents



Operating
    Expense Overview
    Year Ended
    December 23, 2007 Compared to Year Ended December 24,
    2006
  Year Ended


Year EndedDecember 23,


December 24,


%2007


2006


Change(In thousands)Operating revenue

$
1,206,515


$
1,156,892



4.3
%Operating expense:Vessel


368,727



319,581



15.4
%Marine


198,936



192,242



3.5
%Inland


206,008



201,963



2.0
%Land


134,954



138,193



(2.3
)%Rolling stock rent


45,381



44,332



2.4
%Operating expense


954,006



896,311



6.4
%Depreciation and amortization


47,870



50,223



(4.7
)%Amortization of vessel drydocking


17,491



14,652



19.4
%Selling, general and administrative


90,978



98,286



(7.4
)%Miscellaneous expense, net


997



1,449



(31.2
)%Total operating expense


1,111,342



1,060,921



4.8
%Operating income

$
95,173


$
95,971



(0.8
)%Operating ratio


92.1
%


91.7
%


(0.4
)%Revenue containers (units)


285,880



296,566



(3.6
)%   Operating Revenue.
  Revenue container volume decrease

$
(36,980
)More favorable cargo mix and general rate increases


51,578Bunker and intermodal fuel surcharges included in rates to
    offset rising fuel costs


6,216Revenue related to acquisitions


19,908Growth in other non-transportation services


8,901Total operating revenue increase

$
49,623    43




---



##### Table of Contents



Operating Expense.
    Increased vessel fuel costs

$
7,877Vessel lease expense increase


24,166Labor and other vessel operating increases


17,103Total vessel expense increase

$
49,146           44




---



##### Table of Contents



Year Ended


Year EndedDecember 23,


December 24,2007


2006


% Change(In thousands)Land expense:Maintenance

$
51,341


$
54,107



(5.1
)%Terminal overhead


51,848



49,316



5.1
%Yard and gate


23,728



26,649



(11.0
)%Warehouse


8,037



8,121



(1.0
)%Total land expense

$
134,954


$
138,193



(2.3
)%     Depreciation and Amortization.
  Year Ended


Year EndedDecember 23,


December 24,2007


2006


% Change(In thousands)Depreciation and amortization:Depreciation  owned vessels

$
9,996


$
10,893



(8.2
)%Depreciation and amortization  other


17,636



19,783



(10.9
)%Amortization of intangible assets


20,238



19,547



3.5
%Total depreciation and amortization

$
47,870


$
50,223



(4.7
)%Amortization of vessel drydocking

$
17,491


$
14,652



19.4
%     Amortization of Vessel
    Drydocking.
  Selling, General and Administrative.
 45




---



##### Table of Contents



Miscellaneous Expense, Net.
  Interest Expense, Net.
  Loss on Early Extinguishment of Debt.
  Income Tax Benefit.
 46




---



##### Table of Contents



Year Ended
    December 24, 2006 Compared to Year Ended December 25,
    2005
  Year Ended


Year EndedDecember 24,


December 25,


%2006


2005


Change(In thousands)Operating revenue

$
1,156,892


$
1,096,156



5.5
%Operating expense:Vessel


319,581



300,324



6.4
%Marine


192,242



195,279



(1.6
)%Inland


201,963



190,205



6.2
%Land


138,193



138,320



(0.1
)%Rolling stock rent


44,332



43,179



2.7
%Operating expense


896,311



867,307



3.3
%Depreciation and amortization


50,223



51,141



(1.8
)%Amortization of vessel drydocking


14,652



15,766



(7.1
)%Selling, general and administrative


98,286



114,639



(14.3
)%Miscellaneous expense, net


1,449



649



123.3
%Total operating expenses


1,060,921



1,049,502



1.1
%Operating income

$
95,971


$
46,654



105.7
%Operating ratio


91.7
%


95.7
%


(4.0
)%Revenue containers (units)


296,566



307,895



(3.7
)%   Operating Revenue.
  Revenue container volume decrease

$
(35,650
)More favorable cargo mix and general rate increases


44,442Bunker and intermodal fuel surcharges included in rates to
    offset rising fuel costs


48,639Growth in other non-transportation services


3,305Total operating revenue increase

$
60,736    47




---



##### Table of Contents



Operating Expense.
  Increased vessel fuel costs

$
27,124Reduction of vessel lease expense due to vessel purchases


(4,567
)Labor and other vessel operating decreases


(2,214
)Decrease in construction differential subsidy


(1,086
)Total vessel expense increase

$
19,257           Year Ended


Year EndedDecember 24,


December 25,2006


2005


% Change(In thousands)Land expense:Maintenance

$
54,107


$
54,343



(0.4
)%Terminal overhead


49,316



48,027



2.7
%Yard and gate


26,649



27,397



(2.7
)%Warehouse


8,121



8,553



(5.1
)%Total land expense

$
138,193


$
138,320



(0.1
)%    48




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##### Table of Contents



Depreciation and Amortization.
  Year Ended


Year EndedDecember 24,


December 25,2006


2005


% Change(In thousands)Depreciation and amortization:Depreciation  owned vessels

$
10,893


$
9,303



17.1
%Depreciation and amortization  other


19,783



22,277



(11.2
)%Amortization of intangible assets


19,547



19,561



(0.1
)%Total depreciation and amortization

$
50,223


$
51,141



(1.8
)%Amortization of vessel drydocking

$
14,652


$
15,766



(7.1
)%     Amortization of Vessel
    Drydocking.
  Selling, General and Administrative.
  Miscellaneous Expense, Net.
  Interest Expense, Net.
 49




---



##### Table of Contents



Loss on Early Extinguishment of Debt.
  Income Tax (Benefit) Expense.
  Liquidity and
    Capital Resources
   50




---



##### Table of Contents



Operating
    Activities
      Investing
    Activities
      Financing
    Activities
   51




---



##### Table of Contents



Stock Repurchase
    Program
    Outlook
    Capital
    Requirements and Liquidity
   52




---



##### Table of Contents



Contractual
    Obligations and Off-Balance Sheet Arrangements
    Total











AfterObligations


2008


2009-2010


2011-2012


2012Principal obligations:Senior credit facility

$
247,000


$
6,250


$
25,000


$
215,750


$
4.25% convertible senior notes


330,000











330,000



5.26% note payable


2,006



287



620



688



411Operating leases(1)


741,179



106,123



199,515



121,076



314,465Capital lease obligations


92



92











Subtotal


1,320,277



112,752



225,135



667,514



314,876Interest obligations:(2)Senior credit facility


75,736



16,133



33,298



26,305



4.25% convertible senior notes


70,125



14,025



28,050



28,050



Subtotal


145,861



30,158



61,348



54,355



Total principal and interest

$
1,466,138


$
142,910


$
286,483


$
721,869


$
314,876Other commitments(3)

$
20,503


$
12,020


$
1


$



$
8,482     (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 senior credit facility are
    variable and are based as of December 23, 2007 upon the
    London Inter-Bank Offered Rate (LIBOR) plus 1.50%. 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,
    beginning on February 15, 2008, until maturity on
    August 15, 2012.(3)
    
    Other commitments include standby letters of credit and other
    long term liabilities recorded by the Company   53




---



##### Table of Contents



Long-Term
    Debt
  Senior Credit
    Facility
        4.25% Convertible
    Senior Notes
     54




---



##### Table of Contents




    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 quarter exceeds 120%
    of the applicable conversion price in effect on the last trading
    day of the immediately preceding calendar quarter;
    Prior to May 15, 2012, if during the five business day
    period 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.      14-a). 14-a
 55




---



##### Table of Contents



No. 00-19, No. 00-19).The No. 00-19.
      Long-term Note
    Payable
    Interest Rate
    Risk
   56




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk            Fair ValueDecember 23,2008


2009


2010


2011


2012


Thereafter


Total


2007(1)Debt:Fixed rate

$
287


$
302


$
318


$
335


$
330,353


$
411


$
332,006


$
298,775Average interest rate


4.3
%


















5.3
%Variable rate

$
6,250


$
6,250


$
18,750


$
18,750


$
197,000


$



$
247,000


$
247,000Average interest rate


6.5
%     (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   57




---



##### 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)
    Form 10-K.
  Changes in
    Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   58




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##### 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   59




---



##### 



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 23, 2007: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-36    Exhibits:
  Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith2


Amended and Restated Merger Agreement, dated as of July 7,
    2004, by and among Horizon Lines, Inc., Horizon Lines Holding
    Corp., H-Lines Subcorp. and TC Group, L.L.C.

S-1

333-123073

3/2/05

23
.1

Amended and Restated Certificate of Incorporation of the
    Registrant.

10-K

001-32627

3/6/06

3.13
.2

Form of Amended and Restated Bylaws of the Registrant.

S-1

333-123073

9/19/05

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

Indenture, dated as of July 7, 2004, by and among Horizon
    Lines Holding Corp., Horizon Lines, LLC, the guarantors party
    thereto and The Bank of New York Trust Company, N.A., as
    Trustee.

S-1

333-123073

3/2/05

4.14
.2

Indenture, dated as of December 10, 2004 between H-Lines
    Finance Holding Corp. and The Bank of New York
    Trust Company, N.A., as Trustee.

S-1

333-123073

3/2/05

4.24
.3

Form of Guarantee (included in Exhibit 4.1).

S-1

333-123073

3/2/05

4.74
.4

Specimen of Common Stock Certificate.

S-1

333-123073

9/19/05

4.84
.5

First Supplemental Indenture, dated as of July 31, 2007, to
    the Indenture dated as of July 7, 2004, by and among
    Horizon Lines Holding Corp., Horizon Lines, LLC, the guarantors
    party thereto and The Bank of New York Trust Company, N.A.,
    as Trustee.

8-K

001-32627

8/2/07

4.1 60




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith4
.6

First Supplemental Indenture, dated as of July 31, 2007, to
    the Indenture dated as of December 10, 2004 by H-Lines
    Finance Holding Corp. and The Bank of New York
    Trust Company, N.A., as Trustee.

8-K

001-32627

8/2/07

4.24
.7

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
.8

Form of Note (included in Exhibit 4.7).

8-K

001-32627

8/13/07

4.410
.1

Stockholders Agreement, dated as of July 7, 2004, by and
    among Horizon Lines, Inc. and the other parties thereto.

S-1

333-123073

3/2/05

10.710
.2

First Amendment to Stockholders Agreement, dated as of
    October 15, 2004, by and among Horizon Lines, Inc. and the
    other parties thereto.

S-1

333-123073

3/2/05

10.810
.2.1

Form of Amended and Restated Stockholders Agreement.

S-1

333-123073

9/19/05

10.8.110
.3

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

10.1010
.4

Crane Relocation Agreement dated August 20, 1992, between
    Matson Navigation Company, Inc. (as successor in interest to
    American President Lines, Ltd., pursuant to an amendment to the
    Crane Relocation Agreement, dated 1996),
    Sea-Land
    Service, Inc. and Port Authority of Guam, as amended by
    Amendment No. 1 to Crane Relocation Agreement dated
    March 22, 1995, and by Assignment of and Second Amendment
    to Crane Relocation Agreement dated January 24, 1996.

S-1

333-123073

3/2/05

10.11 61




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.4.1

Second Assignment of and Third Amendment to Crane Relocation
    Agreement dated July 5, 2005 among SL Service, Inc.
    (formerly known as
    Sea-Land
    Service, Inc.), Horizon Lines, LLC, Matson Navigation Company,
    Inc. and Port Authority of Guam.

S-1

333-123073

7/29/05

10.11.110
.5

Employment Agreement dated as of July 7, 2004, between
    Horizon Lines, LLC and Charles G. Raymond.

S-1

333-123073

3/2/05

10.1210
.6

First Amended and Restated Employment Agreement dated as of
    September 16, 2005, between Horizon Lines, LLC and M. Mark
    Urbania.

S-1

333-123073

9/19/05

10.13.110
.7

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

10.2610
.8

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

99.410
.9

Horizon Lines Holding Corp. Stock Option Plan.

S-1

333-123073

3/2/05

10.2810
.10

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
.11

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
.12

TP1 Space Charter and Transportation Service Contract, dated
    May 9, 2004, between A.P. Møller-Maersk A/S and
    Horizon Lines, LLC.

S-4

333-123681

6/23/05

10.16 62




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.12.1

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
.12.2

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
.13

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

10.1710
.13.1

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
.14

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
.14.1

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
.15

Bareboat Charter Party in relation to the
    U.S.-flag
    vessel Horizon Pacific, dated as of December 1, 1998, by
    and between State Street Bank and Trust Company (as
    successor in interest to The Connecticut National Bank), as
    owner trustee, and Horizon Lines, LLC (formerly known as CSX
    Lines LLC, as successor in interest to
    Sea-Land
    Service, Inc. pursuant to an assignment and assumption agreement
    dated as of September 2, 1999 by and between
    Sea-Land
    Service, Inc., as assignor, and CSX Lines, LLC (as successor in
    interest to
    Sea-Land
    Domestic Shipping, LLC)), as charterer.

S-4

333-123681

3/30/05

10.19 63




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.16

Bareboat Charter Party in relation to the
    U.S.-flag
    vessel Horizon Enterprise, dated as of December 1, 1998, by
    and between State Street Bank and Trust Company (as
    successor in interest to The Connecticut National Bank), as
    owner trustee, and Horizon Lines, LLC (formerly known as CSX
    Lines LLC, as successor in interest to
    Sea-Land
    Service, Inc. pursuant to an assignment and assumption agreement
    dated as of September 2, 1999 by and between
    Sea-Land
    Service, Inc., as assignor, and CSX Lines, LLC (as successor in
    interest to
    Sea-Land
    Domestic Shipping, LLC)), as charterer.

S-4

333-123681

3/30/05

10.2010
.17.1

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
.17.2

Asset Purchase Agreement, dated September 2, 2005, by and
    among DaimlerChrysler Services North America LLC, Elspeth
    Pacific, Inc. and Horizon Lines, LLC.

S-1

333-123073

9/7/05

10.35.110
.18

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
.19

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
.20

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
.21

Agreement dated March 29, 2001, between Horizon Lines of
    Puerto Rico, Inc. (formerly known as CSX Lines of Puerto Rico,
    Inc.) and The Puerto Rico Ports Authority.

S-1

333-123073

3/2/05

10.39 64




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.22

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
.22.1

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

10.40.110
.23

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
.23.1

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
.24

Sublease, Easement and Preferential Use Agreement dated
    October 2, 1990, between the City of Unalaska and Horizon

S-1

333-123073

3/2/05

10.42Lines, 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..10
.24.1

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

10.42.110
.25

Form of Directors and Officers Indemnification
    Agreement.

S-1

333-123073

9/19/05

10.4310
.26

Employment Agreement dated as of September 16, 2005,
    between Horizon Lines, LLC and John V. Keenan.

S-1

333-123073

9/19/05

10.4410
.26.1

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

10.44.110
.27

Horizon Lines, Inc., Equity Incentive Plan.

S-1

333-123073

9/19/05

10.4510
.27.1

Amended and Restated Equity Incentive Plan.

8-K

001-32627

10/24/05

99.510
.28

Horizon Lines, Inc., Employee Stock Purchase Plan.

S-1

333-123073

9/19/05

10.4610
.29

Form of Registration Rights Agreement.

S-1

333-123073

9/19/05

10.47 65




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##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.30

Amendment to Horizon Lines Holding Corp. Stock Option Plan.

8-K

001-32627

10/24/05

99.610
.31

Stock Option Award Agreement.

8-K

001-32627

4/11/06

10.110
.32

Bareboat Charter Agreement dated as of April 7, 2006, by
    and among HL Eagle and Horizon Lines, LLC.

S-1

333-134270

5/19/06

10.5210
.33

Bareboat Charter Agreement dated as of April 7, 2006, by
    and among HL Falcon and Horizon Lines, LLC.

S-1

333-134270

5/19/06

10.5310
.34

Bareboat Charter Agreement dated as of April 7, 2006, by
    and among HL Hunter and Horizon Lines, LLC.

S-1

333-134270

5/16/06

10.5410
.35

Bareboat Charter Agreement dated as of April 7, 2006, by
    and among HL Tiger and Horizon Lines, LLC.

S-1

333-134270

5/19/06

10.5510
.36

Bareboat Charter Agreement dated as of April 7, 2006, by
    and among HL Hawk and Horizon Lines, LLC.

S-1

333-134270

5/19/06

10.5610
.37

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
.38

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
.39

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
.40

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
.41

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
.42

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
.43

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
.44

Confirmation of Issuer Warrant Transaction, dated as of
    August 1, 2007, by and among Horizon Lines, Inc. and Bank
    of America, N.A.

8-K

001-32627

8/13/07

10.7 66




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith10
.45

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
.46

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
.47

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
.48

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

10.1110
.49

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
.50

Restricted Stock Agreement between the Registrant and Charles G.
    Raymond dated June 28, 2007.

8-K

001-32627

7/3/07

10.114


Code of Ethics.









X21


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.









X 67




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of First

Exhibit

FiledNumber

Description

Form

File No.

Filing

Number

Herewith32
.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     
    
    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. 68




---



##### 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
    6th
    day of February 2008.
    By:
    /s/  Charles
    G. Raymond  Charles G. Raymond
 Chairman, Chief Executive
    Officer and President
  Pursuant to the requirements of the Securities 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
    6th
    day of February 2008.
  Signature

Title/s/  Charles
    G. RaymondCharles
    G. Raymond

Chairman, Chief Executive Officer and President (Principal
    Executive Officer)/s/  M.
    Mark UrbaniaM.
    Mark Urbania

Executive 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/  Ernie
    L. DannerErnie
    L. Danner

Director/s/  James
    W. DownJames
    W. Down

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  69




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           , Accounting for Uncertainty in Income Taxes, an
    interpretation of Financial Accounting Standard No. 109
    
    F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  
              
    F-2




---



##### Table of Contents



Horizon Lines,
    Inc.
  Consolidated
    Balance Sheets
  December 23,


December 24,2007


2006(In thousands, exceptper share data)ASSETSCurrent assets:Cash

$
6,276


$
93,949Accounts receivable, net of allowance


140,820



120,732Deferred tax asset


13,792



11,586Prepaid vessel rent


4,361



1,163Materials and supplies


31,576



24,658Other current assets


10,446



7,103Total current assets


207,271



259,191Property and equipment, net


194,679



188,652Goodwill


334,671



306,724Intangible assets, net


152,031



167,882Deferred tax asset


4,060



Other long-term assets


33,729



22,580Total assets

$
926,441


$
945,029LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
40,225


$
28,322Current portion of long-term debt


6,537



6,758Accrued vessel rent


6,503



25,426Other accrued liabilities


95,027



101,122Total current liabilities


148,292



161,628Long-term debt, net of current


572,469



503,708Deferred tax liability






31,339Deferred rent


31,531



36,003Other long-term liabilities


19,571



4,074Total liabilities


771,863



736,752Stockholders equity:Common stock, $.01 par value, 50,000 shares
    authorized, 33,674 shares issued and 31,502 shares
    outstanding at December 23, 2007 and 33,591 shares
    issued and outstanding at December 24, 2006


337



336Treasury stock, 2,172 shares at cost


(49,208
)


Additional paid in capital


163,760



179,599Retained earnings


39,994



29,353Accumulated other comprehensive loss


(305
)


(1,011
)Total stockholders equity


154,578



208,277Total liabilities and stockholders equity

$
926,441


$
945,029    F-3




---



##### Table of Contents



Horizon Lines,
    Inc.Consolidated Statements of Operations
  Fiscal Years EndedDecember 23,


December 24,


December 25,2007


2006


2005(In thousands, except per share amounts)Operating revenue

$
1,206,515


$
1,156,892


$
1,096,156Operating expense:Operating expense (excluding depreciation expense)


954,006



896,311



867,307Depreciation and amortization


47,870



50,223



51,141Amortization of vessel dry-docking


17,491



14,652



15,766Selling, general and administrative


90,978



98,286



114,639Miscellaneous expense


997



1,449



649Total operating expense


1,111,342



1,060,921



1,049,502Operating income


95,173



95,971



46,654Other expense (income):Interest expense, net


41,672



48,552



51,357Loss on early extinguishment of debt


38,546



581



13,154Other expense (income), net


79



(187
)


26Income (loss) before income taxes


14,876



47,025



(17,883
)Income tax (benefit) expense


(13,983
)


(25,332
)


438Net income (loss)


28,859



72,357



(18,321
)Less: accretion of preferred stock










5,073Net income (loss) available to common stockholders

$
28,859


$
72,357


$
(23,394
)Net income (loss) per share available to common stockholders:Basic

$
0.87


$
2.16


$
(1.05
)Diluted

$
0.85


$
2.14


$
(1.05
)Number of shares used in calculations:Basic


33,221



33,551



22,377Diluted


33,859



33,772



22,382Cash dividends per share

$
0.44


$
0.44


$
0.11    F-4




---



##### Table of Contents



Horizon Lines,
    Inc.
  Consolidated
    Statements of Cash Flows
  Fiscal Years EndedDecember 23,


December 24,


December 25,2007


2006


2005(In thousands)Cash flows from operating activities:Net income (loss)

$
28,859


$
72,357


$
(18,321
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation


27,631



30,676



31,580Amortization of intangibles


20,239



19,547



19,561Amortization of vessel dry-docking


17,491



14,652



15,766Amortization of deferred financing costs


2,973



3,990



3,363Deferred income taxes


(13,983
)


(25,088
)


(7,438
)(Gain) loss on equipment disposals


(171
)


242



(993
)Loss on early extinguishment of debt


38,546



581



13,154Accretion on 11% senior discount notes


6,062



9,174



12,057Stock-based compensation


3,769



949



19,052Tax (deficiency) benefit from exercise of stock options


101



(1,289
)


5,495Changes in operating assets and liabilities:Accounts receivable, net


(12,653
)


(894
)


(9,037
)Materials and supplies


(7,368
)


1,819



(5,309
)Other current assets


(3,340
)


(664
)


9,846Accounts payable


11,106



5,954



(2,907
)Accrued liabilities


(15,305
)


1,395



5,371Vessel rent


(26,013
)


(1,973
)


(834
)Vessel dry-docking payments


(21,414
)


(16,815
)


(16,038
)Other assets/liabilities


(1,694
)


911



2,008Net cash provided by operating activities


54,837



115,524



76,376Cash flows from investing activities:Purchases of equipment


(31,426
)


(21,288
)


(41,234
)Purchases of businesses, net of cash acquired


(31,323
)






Proceeds from sale of equipment


3,362



2,192



2,417Other investing activities






(244
)


Net cash used in investing activities


(59,387
)


(19,340
)


(38,817
)Cash flows from financing activities:Payments of long-term debt


(517,167
)


(28,776
)


(98,696
)Proceeds from issuance of convertible notes


330,000







Borrowing of term loan


125,000







Borrowing under revolving credit facility


163,500







Payments on revolving credit facility


(41,500
)






Payment of financing costs


(12,912
)


(1,182
)


(1,754
)Purchase of call options


(52,541
)






Sale of common stock warrants


11,958







Purchase of treasury stock


(49,208
)






Redemption premiums


(25,592
)






(9,522
)Dividend to stockholders


(14,653
)


(14,764
)


(3,690
)Proceeds from exercise of stock options


216



101



Tax (deficiency) benefit from exercise of stock options


(101
)


1,289



(5,495
)Payments on capital lease obligation


(152
)


(195
)


(170
)Proceeds from issuance of common stock


29







1,108Initial public offering proceeds










143,750Costs associated with initial public offering






(158
)


(15,717
)Redemption of preferred stock










(62,689
)Net cash used in financing activities


(83,123
)


(43,685
)


(52,875
)Net (decrease) increase in cash


(87,673
)


52,499



(15,316
)Cash at beginning of year


93,949



41,450



56,766Cash at end of year

$
6,276


$
93,949


$
41,450    F-5




---



##### Table of Contents



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


Retained


OtherCommon


Common


Treasury


Paid in


Earnings


Comprehensive


StockholdersShares


Stock


Stock


Capital


(Loss)


Income (Loss)


Equity(In thousands)Stockholders equity at December 26, 2004


16,345


$
163


$



$
26,530


$
(1,156
)

$
71


$
25,608Issuance of restricted stock


1,855



20







634











654Restricted stock compensation














18,952











18,952Exercise of stock options


969



9







(9
)










Initial public offering


14,375



144







143,606











143,750Costs associated with initial public offering














(15,717
)










(15,717
)Tax benefit from exercise of stock options














5,495











5,495Dividend to shareholders


















(3,690
)






(3,690
)Stock-based compensation














99











99Accretion of discount on preferred stock


















(5,073
)






(5,073
)Net loss


















(18,321
)






(18,321
)Unrealized gain on pension






















58



58Change in fair value of fuel contract






















(55
)


(55
)Comprehensive income (loss)


























(18,318
)Stockholders equity at December 25, 2005


33,544



336







179,590



(28,240
)


74



151,760Exercise of stock options


24











101











101Costs associated with initial public offering














(221
)










(221
)Tax deficiency from exercise of stock options














(1,289
)










(1,289
)Dividend to shareholders


















(14,764
)






(14,764
)Stock-based compensation














949











949Stock issued under Employee Stock Purchase Plan


23











469











469Net income


















72,357







72,357Change in fair value of fuel contract






















(74
)


(74
)Comprehensive income


























72,283Adjustment to apply SFAS 158, net of tax






















(1,011
)


(1,011
)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
)Net income


















28,859







28,859Unrecognized actuarial gains, net of tax






















597



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






















101



101Comprehensive income


























29,557Stockholders equity at December 23, 2007


31,502


$
337


$
(49,208
)

$
163,760


$
39,994


$
(305
)

$
154,578    F-6




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes
    to Consolidated Financial Statements
  1.
    Basis of
    Presentation and Operations      2.
    Significant
    Accounting Policies  Cash
    Allowance for
    Doubtful Accounts and Revenue Adjustments
        Materials and
    Supplies
    Property and
    Equipment
   F-7




---



##### Table of Contents



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


25 yearsContainers


15 yearsVessels


20-40 yearsSoftware


3 yearsOther


3-10 years     Vessel
    Drydocking
  30-month
    Intangible
    Assets
      Revenue
    Recognition
  No. 91-9
 F-8




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Casualty and
    Other Reserves
    Derivative
    Instruments
        Income
    Taxes
    U.S.-flag
 F-9




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Stock-based
    Compensation
      Pension and
    Post-retirement Benefits
        Computation of
    Net Income (Loss) per Share
   F-10




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Fiscal
    Period
    Use of
    Estimates
    Recent
    Accounting Pronouncements
  FAS 157-b FAS 157-b.
  14-a). 14-a
 F-11




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  instrument-by-instrument
      Supplemental
    Cash Flow Information
        Fiscal Years EndedDecember 23,

December 24,

December 25,2007

2006

2005Interest

$
33,277


$
36,693


$
36,476Income taxes


444



868



(7,319
)  F-12




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  3.
    Acquisitions        Current assets

$
8,370Property and equipment


4,732Identifiable intangible assets


7,412Goodwill


27,947Long-term assets


552Total assets acquired


49,013Current liabilities


(5,998
)Long-term liabilities


(7,518
)Long-term debt


(2,646
)Total liabilities assumed


(16,162
)Net assets acquired

$
32,851      F-13




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Fiscal Years EndedDecember 23,


December 24,


December 25,2007


2006


2005Operating revenue

$
1,233,749


$
1,198,109


$
1,125,490Net income (loss)


28,865



71,182



(25,448
)Earnings (loss) per share (basic)


0.87



2.12



(1.14
)Earnings (loss) per share (diluted)


0.85



2.11



(1.14
)   4.
    SFL
    Agreements       F-14




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    5.
    Initial Public
    Offering and Related Transactions  Initial Public
    Offering
      Fiscal YearEndedDecember 25,2005Operating revenue

$
1,096,156Net income


12,767Earnings per share (basic)


0.38Earnings per share (diluted)


0.38   6.
    Shelf
    Registration and Secondary Offerings   F-15




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  7.
    Property and
    Equipment    December 23,


December 24,2007


2006Vessels

$
141,776


$
137,129Containers


24,522



27,682Chassis


14,923



14,535Cranes


25,179



15,903Machinery & equipment


23,923



19,716Facilities & land improvement


10,847



8,416Software


30,214



29,887Construction in progress


20,275



7,715Total property and equipment


291,659



260,983Accumulated depreciation


(96,980
)


(72,331
)Property and equipment, net

$
194,679


$
188,652     8.
    Intangible
    Assets    December 23,


December 24,2007


2006Customer contracts/relationships

$
144,824


$
137,675Trademarks


63,800



63,800Deferred financing costs


12,872



23,075Non-compete agreements


262



Total intangibles with definite lives


221,758



224,550Less: accumulated amortization


(69,727
)


(56,668
)Net intangibles with definite lives


152,031



167,882Goodwill


334,671



306,724Total intangible assets, net

$
486,702


$
474,606      F-16




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Fiscal Year Ending2008

$
23,8872009


23,8432010


23,8282011


23,4162012


19,112   9.
    Other Accrued
    Liabilities    December 23,


December 24,2007


2006Marine operations

$
9,682


$
9,452Terminal operations


9,278



12,400Vessel operations


23,064



18,608Fuel


14,885



10,899Bonus






10,500Interest


6,986



7,219Other liabilities


31,132



32,044Total other accrued liabilities

$
95,027


$
101,122   10.
    Long-Term
    Debt    December 23,


December 24,2007


2006Senior credit facility

$
247,000


$
4.25% convertible senior notes


330,000



Other


2,006



4,513Prior senior credit facility






219,3759% senior notes






197,01411% senior discount notes






89,564Total long-term debt


579,006



510,466Current portion


(6,537
)


(6,758
)Long-term debt, net of current

$
572,469


$
503,708  F-17




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Senior Credit
    Facility
        4.25% Convertible
    Senior Notes
     F-18




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      
    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 quarter exceeds 120%
    of the applicable conversion price in effect on the last trading
    day of the immediately preceding calendar quarter;
    Prior to May 15, 2012, if during the five business day
    period 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.       F-19




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  No. 00-19, No. 00-19).The No. 00-19.
    anti-dilutive
  Prior Senior
    Credit Facility
    Other
    Debt
      Fair Value of
    Financial Instruments
   F-20




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2008

$
6,5372009


6,5522010


19,0682011


19,0852012


527,353Thereafter


411$
579,006   11.
    Net Income (Loss)
    Per Common Share    Fiscal Years EndedDecember 23,


December 24,


December 25,2007


2006


2005Numerator:Net Income (loss)

$
28,859


$
72,357


$
(18,321
)Less: Accretion of preferred stock










5,073Net income (loss) available to common stockholders

$
28,859


$
72,357


$
(23,394
)Denominator:Denominator for basic income (loss) per common share:Weighted average shares outstanding


33,221



33,551



22,377Effect of dilutive securities:Stock-based compensation


638



221



5Denominator for diluted net income (loss) per common share


33,859



33,772



22,382Basic net income (loss) per common share

$
0.87


$
2.16


$
(1.05
)Diluted net income (loss) per common share

$
0.85


$
2.14


$
(1.05
)    F-21




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  12.
    Preferred
    Stock    13.
    Derivative
    Financial Instruments    14.
    Leases        Non-CancelablePeriod Ending

Operating


CapitalDecember

Leases


Lease2008

$
106,123


$
922009


101,589



2010


97,926



2011


59,691



2012


61,385



Thereafter


314,465



Total future minimum lease obligation

$
741,179



92Less: amounts representing interest






2Present value of future minimum lease obligation






90Current portion of capital lease obligation






90Long-term portion of capital lease obligation





$
  F-22




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  15.
    Related
    Parties      16.
    Employee Benefit
    Plans  Savings
    Plans
    Pension
    Plans
      Post-retirement
    Benefit Plans
  his/her his/her
 F-23




---



##### Table of Contents



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


Post-retirementPlans


Benefit Plans2007


2006


2007


2006(In thousands)Change in Benefit ObligationBeginning obligations

$
(2,541
)

$
(2,022
)

$
(2,225
)

$
(1,857
)Obligation assumed as a result of acquisition


(6,433
)






(5,359
)


Service cost


(277
)


(251
)


(394
)


(385
)Interest cost


(338
)


(125
)


(285
)


(113
)Participants contributions














Actuarial (loss) gain


344



(143
)


702



130Transition entry to change measurement date


(27
)










Benefits paid


165







184



Ending obligations


(9,107
)


(2,541
)


(7,377
)


(2,225
)Change in Plans AssetsBeginning fair value


1,136



738







Assets of acquired plan


4,034











Actual return on plans assets


161



87







Employer contributions


576



311







Participants contributions














Benefits paid


(165
)










Ending fair value


5,742



1,136







Funded status at end of year

$
(3,365
)

$
(1,405
)

$
(7,377
)

$
(2,225
)  F-24




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Net Periodic
    Benefit Cost
  Pension


Post-retirementPlans


Benefit Plans2007


2006


2007


2006(In thousands)Service cost

$
277


$
251


$
394


$
385Interest cost


338



125



285



113Expected return on plan assets


(250
)


(68
)






Amortization of prior service cost










59



58Amortization of transition obligation


103



103







Net periodic benefit cost

$
468


$
411


$
738


$
556   Rate
    Assumptions
  Pension


Post-retirementBenefits


Benefits2007


2006


2007


2006Weighted-average discount rate used in determining net periodic
    cost


5.80
%


6.10
%


5.80
%


6.10
%Weighted-average expected long-term rate of return on
    plans assets in determination of net periodic costs


7.50
%


7.50
%


0.00
%


0.00
%Weighted-average rate of compensation increase(1)


0.00
%


0.00
%


0.00
%


0.00
%Weighted-average discount rate used in determination of
    projected benefit obligation


6.20
%


5.80
%


6.20
%


5.80
%Assumed health care cost trend:Initial trend


N/A



N/A



7.00
%


8.00
%Ultimate trend rate


N/A



N/A



5.00
%


5.00
%Ultimate trend year


N/A



N/A



2010



2010     (1)
    
    The defined benefit plan benefit payments are not based on
    compensation, but rather on years of service.    Pension





Post-retirementFiscal Year End

Benefits





Benefits2008

$
386






$
3842009


371







3842010


402







3942011


440







3972012


481







4162013-2017


2,855







2,264$
4,935






$
4,239  F-25




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Pension Benefits atDecember 23,Asset Category

2007Cash


3
%Equity securities


70
%Debt securities


27
%100
%       Other
    Plans
    17.
    Stock-Based
    Compensation    Stock
    Options
  10-year
 F-26




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    1 2
        2007


2006Expected dividend yield


1.3
%

2.8%-3.5%Expected stock price volatility


27.0
%

24.7%-26.2%Weighted average risk-free interest rate


4.51
%

4.92%-5.00%Expected life of options (years)


6.5


6.5     Expected Life:
  Expected Volatility:
 F-27




---



##### 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 25, 2005


705,100


$
10.00Granted


655,575



12.74Exercised


(31,938
)


10.00Forfeited


(37,729
)


11.30Outstanding at December 24, 2006


1,291,008



11.35



9.16


$
20,975Granted


329,000



33.51Exercised


(21,000
)


10.00Forfeited


Outstanding at December 23, 2007


1,599,008


$
15.93



8.40


$
9,696Vested or expected to vest at December 23, 2007


1,546,651


$
15.76



8.40


$
9,472Exercisable at December 23, 2007


34,562


$
10.00



7.88


$
311     (a)
    
    The aggregate intrinsic value of stock options exercised during
    the years ended December 23, 2007 and December 24,
    2006 was $0.3 million and $0.5 million, respectively.    Restricted
    Stock
     F-28




---



##### Table of Contents



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


at GrantRestricted Shares

Shares


DateNonvested at December 25, 2005


Granted


70,000


$
12.57Vested


Forfeited


Nonvested at December 24, 2006


70,000



12.57Granted


237,559



31.96Vested


Forfeited


Nonvested at December 23, 2007


307,559


$
27.54     Employee Stock
    Purchase Plan
   F-29




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
        2007Expected dividend yield

1.4%-2.4%Expected stock price volatility

23.0%-51.0%Weighted average risk-free interest rate

3.92%-5.07%Expected term (years)

0.25Fair value at grant date

$3.25-$4.42     18.
    Income
    Taxes   F-30




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Fiscal Year EndedDecember 23,


December 24,


December 25,2007


2006


2005Income tax expense (benefit):Current:Federal

$



$
(842
)

$
7,028State/territory






598



848Total current






(244
)


7,876Deferred:Federal


(12,720
)


(24,127
)


(7,287
)State/territory


(1,263
)


(961
)


(151
)Total deferred


(13,983
)


(25,088
)


(7,438
)Net income tax (benefit) expense

$
(13,983
)

$
(25,332
)

$
438     Fiscal Year EndedDecember 23,


December 24,


December 25,2007


2006


2005Income tax (benefit) at statutory rates:

$
5,207


$
16,459


$
(6,258
)State/territory, net of federal income tax benefit


(124
)


(255
)


454Qualified shipping income


(11,837
)


(24,702
)


Revaluation of deferred taxes for tonnage tax regime


(7,702
)


(18,801
)


Restricted stock compensation










5,977Transaction costs






711



Other Items


473



1,256



265Net income tax (benefit) expense

$
(13,983
)

$
(25,332
)

$
438    F-31




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 23,


December 24,2007


2006Deferred tax assets:Leases

$
13,063


$
22,272Convertible note hedge


17,935



Allowance for doubtful accounts


1,029



677Net operating losses and AMT carryforwards


33,804



16,649Post retirement benefits


848



822Other


6,942



4,932Valuation allowances


(1,262
)


(1,262
)Total deferred tax assets


72,359



44,090Deferred tax liabilities:Depreciation


(18,301
)


(19,968
)Capital construction fund


(13,126
)


(14,124
)Intangibles


(19,629
)


(27,915
)Other


(3,451
)


(1,836
)Total deferred tax liabilities


(54,507
)


(63,843
)Net deferred tax asset (liability)

$
17,852


$
(19,753
)       Balance at December 25, 2006

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


3,550Additions for tax positions of prior years


2,049Reductions for tax positions of prior years


(647
)Balance at December 23, 2007

$
8,482  F-32




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
        non-U.S. income 2004-2007.
    19.
    Commitments and
    Contingencies  Legal
    Proceedings
  and/or
  1996-1998
   F-33




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Standby
    Letters of Credit
    Labor
    Relations
   F-34




---



##### Table of Contents



Horizon Lines,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  20.
    Quarterly
    Financial Data (Unaudited)    Fiscal Year 2007First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterOperating revenue

$
273,664


$
295,701


$
321,145


$
316,005Operating income


16,479



22,905



35,283



20,507Net income(1)(2)


7,052



9,560



1,570



10,677Basic net income per share


0.21



0.28



0.05



0.33Diluted net income per share


0.21



0.28



0.05



0.31   Fiscal Year 2006First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterOperating revenue

$
274,934


$
289,847


$
304,657


$
287,454Operating income


15,872



22,419



35,197



22,483Net income(3)(4)


2,366



6,401



52,945



10,645Basic net income per share


0.07



0.19



1.58



0.32Diluted net income per share


0.07



0.19



1.57



0.31     (1)
    
    The first quarter of 2007 includes a $2.5 million tax
    benefit related to the revaluation of deferred taxes associated
    with the qualified shipping income expected to be generated by
    the vessels in the Companys modified trade routes between
    the U.S. west cost and Guam and Asia.(2)
    
    The third quarter of 2007 includes a $23.9 million loss,
    net of tax benefits, on extinguishment related to the
    refinancing of the Companys long term debt.(3)
    
    During the third quarter of 2006, the Company elected the
    application of a tonnage tax.(4)
    
    The fourth quarter of 2006 results include a $1.8 million
    adjustment, or $0.05 per share, reflecting the cumulative effect
    of the periodic costs related to the Companys
    post-retirement benefit plan. This amount was not material to
    any affected prior quarter or annual reporting period and as
    such, was recorded in the fourth quarter of 2006. F-35




---



##### Table of Contents



Schedule II  Horizon Lines,
    Inc.
    Valuation and Qualifying Accounts
    Years Ended December 2007, 2006 and 2005
  Chargedto Cost





ChargedBeginning


and





to other


EndingBalance


Expenses


Deductions


Accounts


Balance(In thousands)Accounts receivable reserve:For the year ended December 23, 2007

$
4,972


$
7,674


$
(6,455
)

$



$
6,191For the year ended December 24, 2006

$
6,063


$
8,633


$
(9,724
)

$



$
4,972For the year ended December 25, 2005

$
7,937


$
9,057


$
(10,931
)

$



$
6,063Deferred tax assets valuation allowance:For the year ended December 23, 2007

$
1,262


$



$



$



$
1,262For the year ended December 24, 2006

$
3,881


$



$
(711
)

$
(1,908
)(1)

$
1,262For the year ended December 25, 2005

$
2,320


$
1,561


$



$



$
3,881     (1)
    
    As a result of the removal of certain deferred tax assets and
    the related valuation allowances. F-36