##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 Form 10-Q
 
 (Mark one)
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 23, 2008
 OR
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission 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
    
    28211(Address of principal executive offices)
    
    (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)
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  At April 23, 2008, 29,917,488 shares of the Registrants common stock, par value $.01 per
share, were outstanding.




---



##### 



HORIZON LINES, INC.
Form 10-Q Index
 Page No.Part I. Financial Information
    
    
    31. Financial Statements
    
    
    3Unaudited Condensed Consolidated Balance Sheets
    
    
    3Unaudited Condensed Consolidated Statements of Operations
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    62. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    163. Quantitative and Qualitative Disclosures About Market Risk
    
    
    274. Controls and Procedures
    
    
    27Part II. Other Information
    
    
    281. Legal Proceedings
    
    
    281A. Risk Factors
    
    
    282. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    283. Defaults Upon Senior Securities
    
    
    294. Submission of Matters to a Vote of Security Holders
    
    
    295. Other Information
    
    
    296. Exhibits
    
    
    29Signature
    
    
    30Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 1. Financial Statements
 Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Balance Sheets
 (in thousands, except per share data)
 March 23,
    
    
    December 23,2008
    
    
    2007(1)AssetsCurrent assetsCash
    
    $
    3,265
    
    
    $
    6,276Accounts receivable, net of allowance of $6,804
and $6,191 at March 23, 2008 and December 23,
2007, respectively
    
    
    153,766
    
    
    
    140,820Deferred tax asset
    
    
    18,656
    
    
    
    13,792Prepaid vessel rent
    
    
    14,383
    
    
    
    4,361Materials and supplies
    
    
    30,432
    
    
    
    31,576Other current assets
    
    
    11,206
    
    
    
    10,446Total current assets
    
    
    231,708
    
    
    
    207,271Property and equipment, net
    
    
    192,025
    
    
    
    194,679Goodwill
    
    
    334,718
    
    
    
    334,671Intangible assets, net
    
    
    146,347
    
    
    
    152,031Deferred tax asset
    
    
    
    
    
    
    4,060Other long-term assets
    
    
    29,737
    
    
    
    33,729Total assets
    
    $
    934,535
    
    
    $
    926,441Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    25,842
    
    
    $
    40,225Current portion of long-term debt
    
    
    6,537
    
    
    
    6,537Accrued vessel rent
    
    
    
    
    
    
    6,503Other accrued liabilities
    
    
    96,294
    
    
    
    95,027Total current liabilities
    
    
    128,673
    
    
    
    148,292Long-term debt, net of current
    
    
    628,836
    
    
    
    572,469Deferred tax liability
    
    
    1,120
    
    
    
    Deferred rent
    
    
    30,412
    
    
    
    31,531Other long-term liabilities
    
    
    19,917
    
    
    
    19,571Total liabilities
    
    
    808,958
    
    
    
    771,863Stockholders equityCommon stock, $.01 par value, 50,000 shares
authorized, 33,696 shares issued and 29,896
shares outstanding as of March 23, 2008 and
33,674 shares issued and 31,502 shares
outstanding as of December 23, 2007
    
    
    337
    
    
    
    337Treasury stock, 3,800 and 2,172 shares at cost
as of March 23, 2008 and December 23, 2007,
respectively
    
    
    (78,550
    )
    
    
    (49,208
    )Additional paid in capital
    
    
    165,326
    
    
    
    163,760Retained earnings
    
    
    38,764
    
    
    
    39,994Accumulated other comprehensive loss
    
    
    (300
    )
    
    
    (305
    )Total stockholders equity
    
    
    125,577
    
    
    
    154,578Total liabilities and stockholders equity
    
    $
    934,535
    
    
    $
    926,441
 
 (1)
    
    The balance sheet at December 23, 2007 has been derived from the audited financial statements of Horizon Lines, Inc.   3




---



##### Table of Contents



Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Statements of Operations
 (in thousands, except per share amounts)
 Quarters EndedMarch 23,
    
    
    March 25,2008
    
    
    2007Operating revenue
    
    $
    305,947
    
    
    $
    273,664Operating expense:Operating expense (excluding
depreciation expense)
    
    
    252,970
    
    
    
    217,681Depreciation and amortization
    
    
    11,326
    
    
    
    13,467Amortization of vessel dry-docking
    
    
    4,374
    
    
    
    3,760Selling, general and administrative
    
    
    25,131
    
    
    
    21,893Miscellaneous expense, net
    
    
    545
    
    
    
    381Total operating expense
    
    
    294,346
    
    
    
    257,182Operating income
    
    
    11,601
    
    
    
    16,482Other expense (income):Interest expense, net
    
    
    9,009
    
    
    
    11,214Other income, net
    
    
    (3
    )
    
    
    Income before income tax expense (benefit)
    
    
    2,595
    
    
    
    5,268Income tax expense (benefit)
    
    
    504
    
    
    
    (1,784
    )Net income
    
    $
    2,091
    
    
    $
    7,052Net income per share:Basic
    
    $
    0.07
    
    
    $
    0.21Diluted
    
    $
    0.07
    
    
    $
    0.21Number of shares used in calculations:Basic
    
    
    30,291
    
    
    
    33,613Diluted
    
    
    30,793
    
    
    
    34,135Dividends declared per common share
    
    $
    0.11
    
    
    $
    0.11
   4




---



##### Table of Contents



Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Quarters EndedMarch 23,
    
    
    March 25,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    2,091
    
    
    $
    7,052Adjustments to reconcile net income to net cash used in operating activities:Depreciation
    
    
    5,984
    
    
    
    8,577Amortization of other intangible assets
    
    
    5,342
    
    
    
    4,890Amortization of vessel dry-docking
    
    
    4,374
    
    
    
    3,760Amortization of deferred financing costs
    
    
    673
    
    
    
    788Deferred income taxes
    
    
    316
    
    
    
    (2,069
    )Gain on equipment disposals
    
    
    (11
    )
    
    
    (148
    )Stock-based compensation
    
    
    1,186
    
    
    
    335Accretion of interest on 11% senior discount notes
    
    
    
    
    
    
    2,386Changes in operating assets and liabilities:Accounts receivable
    
    
    (12,947
    )
    
    
    (17,715
    )Materials and supplies
    
    
    1,145
    
    
    
    (643
    )Other current assets
    
    
    (760
    )
    
    
    (524
    )Accounts payable
    
    
    (14,485
    )
    
    
    (7,266
    )Accrued liabilities
    
    
    3,145
    
    
    
    1,382Vessel rent
    
    
    (17,446
    )
    
    
    (36,001
    )Vessel dry-docking payments
    
    
    (2,531
    )
    
    
    (2,403
    )Other assets/liabilities
    
    
    824
    
    
    
    (567
    )Net cash used in operating activities
    
    
    (23,100
    )
    
    
    (38,166
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,444
    )
    
    
    (3,338
    )Purchases of business
    
    
    (198
    )
    
    
    Proceeds from the sale of property and equipment
    
    
    112
    
    
    
    565Net cash used in investing activities
    
    
    (3,530
    )
    
    
    (2,773
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (1,632
    )
    
    
    (5,074
    )Borrowing under revolving credit facility
    
    
    67,000
    
    
    
    Payments on revolving credit facility
    
    
    (9,000
    )
    
    
    Dividends to stockholders
    
    
    (3,321
    )
    
    
    (3,699
    )Purchase of treasury stock
    
    
    (29,342
    )
    
    
    Payments of financing costs
    
    
    (76
    )
    
    
    (43
    )Payments on capital lease obligation
    
    
    (20
    )
    
    
    (47
    )Common stock issued under employee stock purchase plan
    
    
    10
    
    
    
    8Proceeds from exercise of stock options
    
    
    
    
    
    
    35Net cash provided by (used in) financing activities
    
    
    23,619
    
    
    
    (8,820
    )Net decrease in cash
    
    
    (3,011
    )
    
    
    (49,759
    )Cash at beginning of period
    
    
    6,276
    
    
    
    93,949Cash at end of period
    
    $
    3,265
    
    
    $
    44,190
   5




---



##### Table of Contents



HORIZON LINES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. Organization
  2. Basis of Presentation
    3. Acquisitions
    6




---



##### Table of Contents



QuarterEndedMarch 25,2007Operating revenue
    
    $
    285,395Net income
    
    
    7,046Earnings per share (basic)
    
    
    0.21Earnings per share (diluted)
    
    
    0.21
 4. Income Taxes
   5. Stock-Based Compensation
   Stock Options
   7




---



##### Table of Contents



Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    ValueOptions
    
    Options
    
    
    Price
    
    
    Term (years)
    
    

(000s)Outstanding at December 23, 2007
    
    
    1,599,008
    
    
    $
    15.93Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    (2,579
    )
    
    
    23.75Outstanding at March 23, 2008
    
    
    1,596,429
    
    
    $
    15.92
    
    
    
    8.15
    
    
    $
    9,649Vested or expected to vest at March 23, 2008
    
    
    1,554,416
    
    
    $
    15.75
    
    
    
    8.14
    
    
    $
    9,487Exercisable at March 23, 2008
    
    
    34,562
    
    
    $
    10.00
    
    
    
    7.62
    
    
    $
    311
 Restricted Stock
   Weighted-AverageFair ValueNumber of
    
    
    at GrantRestricted Shares
    
    Shares
    
    
    DateNonvested at December 23, 2007
    
    
    307,559
    
    
    $
    27.54Granted
    
    
    Vested
    
    
    Forfeited
    
    
    (3,000
    )
    
    
    27.50Nonvested at March 23, 2008
    
    
    304,559
    
    
    $
    27.54
 Employee Stock Purchase Plan
   8




---



##### Table of Contents



6. Net Income per Common Share
   Quarters EndedMarch 23,
    
    
    March 25,2008
    
    
    2007Numerator:Net income
    
    $
    2,091
    
    
    $
    7,052Denominator:Denominator for basic income per common share:Weighted average shares outstanding
    
    
    30,291
    
    
    
    33,613Effect of dilutive securities:Stock-based compensation
    
    
    502
    
    
    
    522Denominator for diluted net income per common share
    
    
    30,793
    
    
    
    34,135Basic net income per common share
    
    $
    0.07
    
    
    $
    0.21Diluted net income per common share
    
    $
    0.07
    
    
    $
    0.21
   7. Total Comprehensive Income
  Quarters EndedMarch 23,
    
    
    March 25,2008
    
    
    2007Net income
    
    $
    2,091
    
    
    $
    7,052Amortization of pension and post-retirement benefit transition obligation
    
    
    5
    
    
    
    Comprehensive income
    
    $
    2,096
    
    
    $
    7,052
 8. Segment Reporting
    9




---



##### Table of Contents



Quarter Ended March 23, 2008HorizonHL
    
    
    Logistics
    
    
    Eliminations
    
    
    ConsolidatedExternal revenue
    
    $
    297,806
    
    
    $
    8,141
    
    
    $
    
    
    
    $
    305,947Inter-segment revenue
    
    
    111
    
    
    
    43,316
    
    
    
    (43,427
    )
    
    
    Depreciation and amortization
    
    
    14,985
    
    
    
    746
    
    
    
    (31
    )
    
    
    15,700Operating income (loss)
    
    
    12,848
    
    
    
    (1,247
    )
    
    
    
    
    
    
    11,601Total assets
    
    
    929,931
    
    
    
    37,494
    
    
    
    (32,890
    )
    
    
    934,535Capital expenditures
    
    
    2,978
    
    
    
    466
    
    
    
    
    
    
    
    3,444
 Quarter Ended March 25, 2007HorizonHL
    
    
    Logistics
    
    
    Eliminations
    
    
    ConsolidatedExternal revenue
    
    $
    272,093
    
    
    $
    1,571
    
    
    $
    
    
    
    $
    273,664Inter-segment revenue
    
    
    
    
    
    
    41,205
    
    
    
    (41,205
    )
    
    
    Depreciation and amortization
    
    
    14,834
    
    
    
    2,514
    
    
    
    (121
    )
    
    
    17,227Operating income (loss)
    
    
    19,112
    
    
    
    (2,630
    )
    
    
    
    
    
    
    16,482Capital expenditures
    
    
    3,168
    
    
    
    170
    
    
    
    
    
    
    
    3,338
  Quarters EndedMarch 23,
    
    
    March 25,2008
    
    
    2007Reportable segment operating income
    
    $
    11,601
    
    
    $
    16,482Unallocated interest expense, net
    
    
    9,009
    
    
    
    11,214Unallocated other income, net
    
    
    (3
    )
    
    
    Consolidated income before income tax expense (benefit)
    
    $
    2,595
    
    
    $
    5,268
 9. Property and Equipment
  March 23,
    
    
    December 23,2008
    
    
    2007Vessels
    
    $
    146,108
    
    
    $
    141,776Containers
    
    
    24,398
    
    
    
    24,522Chassis
    
    
    14,928
    
    
    
    14,923Cranes
    
    
    25,923
    
    
    
    25,179Machinery and equipment
    
    
    24,133
    
    
    
    23,923Facilities and land improvements
    
    
    11,845
    
    
    
    10,847Software
    
    
    30,387
    
    
    
    30,214Other
    
    
    17,208
    
    
    
    20,275Total property and equipment
    
    
    294,930
    
    
    
    291,659Accumulated depreciation
    
    
    (102,905
    )
    
    
    (96,980
    )Property and equipment, net
    
    $
    192,025
    
    
    $
    194,679
  10




---



##### Table of Contents



10. Intangible Assets
  March 23,
    
    
    December 23,2008
    
    
    2007Customer contracts/relationships
    
    $
    145,079
    
    
    $
    144,824Trademarks
    
    
    63,800
    
    
    
    63,800Deferred financing costs
    
    
    12,947
    
    
    
    12,872Non-compete agreements
    
    
    262
    
    
    
    262Total intangibles with definite lives
    
    
    222,088
    
    
    
    221,758Accumulated amortization
    
    
    (75,741
    )
    
    
    (69,727
    )Net intangibles with definite lives
    
    
    146,347
    
    
    
    152,031Goodwill
    
    
    334,718
    
    
    
    334,671Intangible assets, net
    
    $
    481,065
    
    
    $
    486,702
 11. Accrued Liabilities
  March 23,
    
    
    December 23,2008
    
    
    2007Vessel operations
    
    $
    22,048
    
    
    $
    23,064Fuel
    
    
    13,055
    
    
    
    14,885Marine operations
    
    
    13,703
    
    
    
    9,682Terminal operations
    
    
    12,100
    
    
    
    9,278Interest
    
    
    4,722
    
    
    
    6,986Other liabilities
    
    
    30,666
    
    
    
    31,132Total other accrued liabilities
    
    $
    96,294
    
    
    $
    95,027
 12. Long-Term Debt
  March 23,
    
    
    December 23,2008
    
    
    2007Senior credit facility
    
    $
    303,437
    
    
    $
    247,0004.25% convertible senior notes
    
    
    330,000
    
    
    
    330,000Other
    
    
    1,936
    
    
    
    2,006Total long-term debt
    
    
    635,373
    
    
    
    579,006Current portion
    
    
    (6,537
    )
    
    
    (6,537
    )Long-term debt, net of current
    
    $
    628,836
    
    
    $
    572,469
 Senior Credit Facility
    11




---



##### Table of Contents



4.25% Convertible Senior Notes
   
    
    Prior to May 15, 2012, if during any calendar quarter, and only during such calendar
quarter, if the last reported sale price of 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.
    12




---



##### Table of Contents



Other Debt
  13. Pension and Post-retirement Benefit Plans
 Pension Plans
   Post-retirement Benefit Plans
   Other Plans
   13




---



##### Table of Contents



14. Commitments and Contingencies
 Legal Proceedings
   SFL Agreements
    Standby Letters of Credit
  15. Recent Accounting Pronouncements
   14




---



##### Table of Contents



16. Subsequent Events
  
  15




---



##### Table of Contents



2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
  Quarter Ended
    
    
    Quarter EndedMarch 23, 2008
    
    
    March 25, 2007(in thousands)Operating revenue
    
    $
    305,947
    
    
    $
    273,664Operating expense
    
    
    294,346
    
    
    
    257,182Operating income
    
    $
    11,601
    
    
    $
    16,482Operating ratio
    
    
    96.2
    %
    
    
    94.0
    %Revenue containers (units)
    
    
    66,230
    
    
    
    66,921
  Quarter Ended
    
    
    Quarter EndedMarch 23, 2008
    
    
    March 25, 2007(in thousands)Net income
    
    $
    2,091
    
    
    $
    7,052Interest expense, net
    
    
    9,009
    
    
    
    11,214Income tax expense (benefit)
    
    
    504
    
    
    
    (1,784
    )Depreciation and amortization
    
    
    15,700
    
    
    
    17,227EBITDA
    
    $
    27,304
    
    
    $
    33,709
 Recent Developments
   16




---



##### Table of Contents



General
   History
  Critical Accounting Policies
   Seasonality
  Results of Operations
 Operating Revenue Overview
   17




---



##### Table of Contents



Operating Expense Overview
  Quarter Ended March 23, 2008 Compared with the Quarter Ended March 25, 2007
 HL Segment
  Quarter Ended
    
    
    Quarter EndedMarch 23, 2008
    
    
    March 25, 2007
    
    
    Change
    
    
    % Change(in thousands)Operating revenue
    
    $
    297,806
    
    
    $
    272,093
    
    
    $
    25,713
    
    
    
    9.4
    %Operating expense:Vessel
    
    
    103,427
    
    
    
    82,721
    
    
    
    20,706
    
    
    
    25.0
    %Marine
    
    
    49,205
    
    
    
    45,766
    
    
    
    3,439
    
    
    
    7.5
    %Inland
    
    
    47,120
    
    
    
    45,645
    
    
    
    1,474
    
    
    
    3.2
    %Land
    
    
    35,202
    
    
    
    31,532
    
    
    
    3,670
    
    
    
    11.6
    %Rolling stock rent
    
    
    12,007
    
    
    
    11,022
    
    
    
    986
    
    
    
    8.9
    %Operating expense
    
    
    246,961
    
    
    
    216,686
    
    
    
    30,275
    
    
    
    14.0
    %Depreciation and amortization
    
    
    10,611
    
    
    
    11,074
    
    
    
    (463
    )
    
    
    (4.2
    )%Amortization of vessel dry-docking
    
    
    4,374
    
    
    
    3,760
    
    
    
    614
    
    
    
    16.3
    %Selling, general and administrative
    
    
    22,617
    
    
    
    21,109
    
    
    
    1,508
    
    
    
    7.1
    %Miscellaneous expense, net
    
    
    395
    
    
    
    352
    
    
    
    43
    
    
    
    12.2
    %Total operating expenses
    
    
    284,958
    
    
    
    252,981
    
    
    
    31,977
    
    
    
    12.6
    %Operating income
    
    $
    12,848
    
    
    $
    19,112
    
    
    $
    (6,264
    )
    
    
    (32.8
    )%Operating ratio
    
    
    95.7
    %
    
    
    93.0
    %
    
    
    
    
    
    
    2.7
    %Revenue containers (units)
    
    
    66,230
    
    
    
    66,921
    
    
    
    (691
    )
    
    
    (1.0
    )%
  18




---



##### Table of Contents



Operating Revenue.
 Bunker and intermodal fuel surcharges included in rates
    
    $
    14,559General rate increases
    
    
    6,609Revenue related to acquisition of HSI
    
    
    4,219Increase in non-transportation services
    
    
    2,805Revenue container volume decrease
    
    
    (2,479
    )Total operating revenue increase
    
    $
    25,713
  Operating Expense.
  Vessel fuel costs increase
    
    $
    15,290Vessel lease expense increase
    
    
    6,173Labor and other vessel operating decrease
    
    
    (757
    )Total vessel expense increase
    
    $
    20,706
     19




---



##### Table of Contents



Quarter Ended
    
    
    Quarter EndedMarch 23, 2008
    
    
    March 25, 2007
    
    
    % Change($ in thousands)Land expense:Maintenance
    
    $
    12,562
    
    
    $
    12,042
    
    
    
    4.3
    %Terminal overhead
    
    
    13,885
    
    
    
    12,089
    
    
    
    14.9
    %Yard and gate
    
    
    6,891
    
    
    
    5,741
    
    
    
    20.0
    %Warehouse
    
    
    1,864
    
    
    
    1,660
    
    
    
    12.3
    %Total land expense
    
    $
    35,202
    
    
    $
    31,532
    
    
    
    11.6
    %
  Depreciation and Amortization.
 Quarter Ended
    
    
    Quarter EndedMarch 23, 2008
    
    
    March 25, 2007
    
    
    % Change($ in thousands)Depreciation and amortization:Depreciationowned vessels
    
    $
    2,496
    
    
    $
    2,729
    
    
    
    (8.5
    )%Depreciation and amortizationother
    
    
    3,037
    
    
    
    3,455
    
    
    
    (12.1
    )%Amortization of intangible assets
    
    
    5,078
    
    
    
    4,890
    
    
    
    3.8
    %Total depreciation and amortization
    
    $
    10,611
    
    
    $
    11,074
    
    
    
    (4.2
    )%Amortization of vessel dry-docking
    
    $
    4,374
    
    
    $
    3,760
    
    
    
    16.3
    %
 Amortization of Vessel Dry-docking.
 Selling, General and Administrative.
 Miscellaneous
Expense, Net
  20




---



##### Table of Contents



Horizon Logistics Segment
  Quarter Ended
    
    
    Quarter EndedMarch 23, 2008
    
    
    March 25, 2007
    
    
    Change
    
    
    % Change(in thousands)Operating revenue
    
    $
    8,141
    
    
    $
    1,571
    
    
    $
    6,570
    
    
    
    418.2
    %Operating expense:Marine
    
    
    22
    
    
    
    
    
    
    
    22
    
    
    
    100.0
    %Inland
    
    
    5,275
    
    
    
    508
    
    
    
    4,767
    
    
    
    938.4
    %Land
    
    
    605
    
    
    
    487
    
    
    
    118
    
    
    
    24.2
    %Rolling stock rent
    
    
    107
    
    
    
    
    
    
    
    107
    
    
    
    100.0
    %Operating expense
    
    
    6,009
    
    
    
    995
    
    
    
    5,014
    
    
    
    503.9
    %Depreciation and amortization
    
    
    715
    
    
    
    2,393
    
    
    
    (1,678
    )
    
    
    (70.1
    )%Selling, general and administrative
    
    
    2,514
    
    
    
    784
    
    
    
    1,730
    
    
    
    220.7
    %Miscellaneous expense (income), net
    
    
    150
    
    
    
    29
    
    
    
    121
    
    
    
    417.2
    %Total operating expenses
    
    
    9,388
    
    
    
    4,201
    
    
    
    5,187
    
    
    
    123.5
    %Operating loss
    
    $
    (1,247
    )
    
    $
    (2,630
    )
    
    $
    1,383
    
    
    
    52.6
    %
 Operating Revenue.
 Operating Expense.
 Depreciation and Amortization.
 Quarter Ended
    
    
    Quarter EndedMarch 23, 2008
    
    
    March 25, 2007
    
    
    % Change($ in thousands)Depreciation and amortization:Depreciation and amortizationother
    
    $
    451
    
    
    $
    2,393
    
    
    
    (81.2
    )%Amortization of intangible assets
    
    
    264
    
    
    
    
    
    
    
    100.0
    %Total depreciation and amortization
    
    $
    715
    
    
    $
    2,393
    
    
    
    (70.1
    )%
 Selling, General and Administrative.
 Unallocated Expenses
 Interest Expense, Net.
 Income Tax Expense (Benefit).
  21




---



##### Table of Contents



Liquidity and Capital Resources
  Operating Activities
  Decrease in vessel payments in excess of accrual
    
    $
    18,555Decrease in management bonus payments
    
    
    10,500Earnings adjusted for non-cash charges
    
    
    (5,753
    )Interest payments in excess of accrual(a)
    
    
    (6,469
    )Other decreases in working capital, net
    
    
    (1,767
    )$
    15,066
 (a)
    
    This increase is primarily due to the February 2008 semi-annual interest payment on the
Companys convertible notes, slightly offset by lower interest rates payable on outstanding
debt. Investing Activities
  Financing Activities
    22




---



##### Table of Contents



Outlook
  Capital Requirements
   Long-Term Debt
 Senior Credit Facility
      23




---



##### Table of Contents



4.25% Convertible Senior Notes
   
    
    Prior to May 15, 2012, if during any calendar quarter, and only during such calendar
quarter, if the last reported sale price of 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.
     24




---



##### Table of Contents



Prior Senior Credit Facility
  Other Debt
  Interest Rate Risk
   Ratio of Earnings to Fixed Charges
  Quarter EndedMarch 23, 2008Pretax income
    
    $
    2,595Interest expense
    
    
    9,043Rentals
    
    
    8,953Total fixed charges
    
    $
    17,996Pretax earnings plus fixed charges
    
    $
    20,591Ratio of earnings to fixed charges
    
    
    1.14
    x
  Recent Accounting Pronouncements
   25




---



##### Table of Contents



Forward Looking Statements
    26




---



##### Table of Contents



3. Quantitative and Qualitative Disclosures About Market Risk
    
 4. Controls and Procedures
 Disclosure Controls and Procedures
  Internal Control over Financial Reporting
  Changes in Internal Control
   27




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 1. Legal Proceedings
   
 1A. Risk Factors
  The Company has received a Department of Justice subpoena, and a government investigation
could have a material effect on our business.
    
 2. Unregistered Sales of Equity Securities and Use of Proceeds
   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)12/24/07-01/20/08
    
    
    1,058,700
    
    
    $
    17.72
    
    
    
    1,058,700
    
    
    $
    10.5 million01/21/08-02/17/08
    
    
    568,800
    
    
    $
    18.52
    
    
    
    568,800
    
    
    $
    02/18/08-03/23/08
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    $
    Quarter ended March 23, 2008:
    
    
    1,627,500
    
    
    $
    18.00
    
    
    
    1,627,500
    
    
    $
    
 
 (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 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 $20.7 million under this program during the fourth
quarter of 2007. The Company completed its share repurchase program
during the quarter ended March 23, 2008, acquiring an additional
1,627,500 shares at a total cost of $29.3 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.  28




---



##### Table of Contents



3. Defaults Upon Senior Securities
  
 4. Submission of Matters to a Vote of Security-Holders
  
 5. Other Information
  
 6. Exhibits
 31.1*
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 *
    
    Filed herewith.  29




---



##### Table of Contents



SIGNATURE
   HORIZON LINES, INC.By:
    /s/ Michael T. AvaraMichael T. AvaraSenior Vice President & Chief Financial Officer
(Principal Financial Officer & Authorized Signatory)  30




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description31.1*
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 *
    
    Filed herewith.  31