##### 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 June 20, 2010
 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
(State or other jurisdiction of 
incorporation or organization)
    
    74-3123672
(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
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ
  At July 21, 2010, 30,710,846 shares of the Registrants common stock, par value $.01 per
share, were outstanding.




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##### 



HORIZON LINES, INC.
Form 10-Q Index
 Page No.Part I. Financial Information
    
    
    11. Financial Statements
    
    
    1Unaudited Condensed Consolidated Balance Sheets
    
    
    1Unaudited Condensed Consolidated Statements of Operations
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    42. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    163. Quantitative and Qualitative Disclosures About Market Risk
    
    
    304. Controls and Procedures
    
    
    31Part II. Other Information
    
    
    321. Legal Proceedings
    
    
    321A. Risk Factors
    
    
    342. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    343. Defaults Upon Senior Securities
    
    
    354. Reserved
    
    
    355. Other Information
    
    
    356. Exhibits
    
    
    35Signature
    
    
    36Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 1. Financial Statements
 Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Balance Sheets
 (in thousands, except per share data)
 June 20,
    
    
    December 20,2010
    
    
    2009AssetsCurrent assetsCash
    
    $
    4,572
    
    
    $
    6,419Accounts receivable, net of allowance of
$8,082 and $7,578 at June 20, 2010 and
December 20, 2009, respectively
    
    
    130,811
    
    
    
    123,536Prepaid vessel rent
    
    
    12,512
    
    
    
    4,580Materials and supplies
    
    
    27,991
    
    
    
    30,254Deferred tax asset
    
    
    2,929
    
    
    
    2,929Other current assets
    
    
    10,251
    
    
    
    9,027Total current assets
    
    
    189,066
    
    
    
    176,745Property and equipment, net
    
    
    190,020
    
    
    
    193,438Goodwill
    
    
    317,068
    
    
    
    317,068Intangible assets, net
    
    
    93,385
    
    
    
    105,405Other long-term assets
    
    
    30,655
    
    
    
    25,854Total assets
    
    $
    820,194
    
    
    $
    818,510Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    40,981
    
    
    $
    43,257Current portion of long-term debt
    
    
    18,750
    
    
    
    18,750Accrued vessel rent
    
    
    
    
    
    
    4,339Other accrued liabilities
    
    
    105,319
    
    
    
    110,473Total current liabilities
    
    
    165,050
    
    
    
    176,819Long-term debt, net of current portion
    
    
    522,043
    
    
    
    496,105Deferred rent
    
    
    20,349
    
    
    
    22,585Deferred tax liability
    
    
    4,248
    
    
    
    4,248Other long-term liabilities
    
    
    17,212
    
    
    
    17,475Total liabilities
    
    
    728,902
    
    
    
    717,232Stockholders equityPreferred stock, $.01 par value, 30,500 shares
authorized, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 100,000 shares
authorized, 34,470 shares issued and 30,670
shares outstanding as of June 20, 2010 and
34,091 shares issued and 30,291 shares
outstanding as of December 20, 2009
    
    
    345
    
    
    
    341Treasury stock, 3,800 shares at cost
    
    
    (78,538
    )
    
    
    (78,538
    )Additional paid in capital
    
    
    195,802
    
    
    
    196,900Accumulated deficit
    
    
    (25,469
    )
    
    
    (15,874
    )Accumulated other comprehensive loss
    
    
    (848
    )
    
    
    (1,551
    )Total stockholders equity
    
    
    91,292
    
    
    
    101,278Total liabilities and stockholders equity
    
    $
    820,194
    
    
    $
    818,510
   1




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Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Statements of Operations
 (in thousands, except per share amounts)
 Quarters Ended
    
    
    Six Months EndedJune 20,
    
    
    June 21,
    
    
    June 20,
    
    
    June 21,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating revenue
    
    $
    305,585
    
    
    $
    278,484
    
    
    $
    591,718
    
    
    $
    550,835Operating expense:Cost of services (excluding depreciation expense)
    
    
    256,013
    
    
    
    226,339
    
    
    
    508,800
    
    
    
    455,998Depreciation and amortization
    
    
    11,203
    
    
    
    11,165
    
    
    
    22,218
    
    
    
    22,140Amortization of vessel dry-docking
    
    
    3,318
    
    
    
    3,609
    
    
    
    6,371
    
    
    
    7,407Selling, general and administrative
    
    
    21,890
    
    
    
    28,006
    
    
    
    43,591
    
    
    
    55,774Settlement of class action lawsuit
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    20,000Restructuring charge
    
    
    
    
    
    
    213
    
    
    
    
    
    
    
    1,001Impairment charge
    
    
    
    
    
    
    659
    
    
    
    
    
    
    
    659Miscellaneous income, net
    
    
    (753
    )
    
    
    (300
    )
    
    
    (190
    )
    
    
    (119
    )Total operating expense
    
    
    291,671
    
    
    
    289,691
    
    
    
    580,790
    
    
    
    562,860Operating income (loss)
    
    
    13,914
    
    
    
    (11,207
    )
    
    
    10,928
    
    
    
    (12,025
    )Other expense:Interest expense, net
    
    
    10,283
    
    
    
    9,254
    
    
    
    20,566
    
    
    
    18,686Loss on modification of debt
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Other expense, net
    
    
    6
    
    
    
    11
    
    
    
    6
    
    
    
    10Income (loss) before income tax (benefit) expense
    
    
    3,625
    
    
    
    (20,522
    )
    
    
    (9,644
    )
    
    
    (30,771
    )Income tax (benefit) expense
    
    
    (25
    )
    
    
    10,561
    
    
    
    (50
    )
    
    
    10,264Net income (loss)
    
    $
    3,650
    
    
    $
    (31,083
    )
    
    $
    (9,594
    )
    
    $
    (41,035
    )Net income (loss) per share:Basic
    
    $
    0.12
    
    
    $
    (1.02
    )
    
    $
    (0.31
    )
    
    $
    (1.35
    )Diluted
    
    $
    0.12
    
    
    $
    (1.02
    )
    
    $
    (0.31
    )
    
    $
    (1.35
    )Number of shares used in calculations:Basic
    
    
    30,595
    
    
    
    30,438
    
    
    
    30,558
    
    
    
    30,431Diluted
    
    
    30,942
    
    
    
    30,438
    
    
    
    30,558
    
    
    
    30,431Dividends declared per common share
    
    $
    0.05
    
    
    $
    0.11
    
    
    $
    0.10
    
    
    $
    0.22
   2




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Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Six Months EndedJune 20,
    
    
    June 21,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (9,594
    )
    
    $
    (41,035
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    11,899
    
    
    
    11,824Amortization of other intangible assets
    
    
    10,319
    
    
    
    10,316Amortization of vessel dry-docking
    
    
    6,371
    
    
    
    7,407Amortization of deferred financing costs
    
    
    1,700
    
    
    
    1,209Impairment charge
    
    
    
    
    
    
    659Restructuring charge
    
    
    
    
    
    
    1,001Loss on modification of debt
    
    
    
    
    
    
    50Deferred income taxes
    
    
    
    
    
    
    10,357Gain on equipment disposals
    
    
    
    
    
    
    (291
    )Gain on sale of interest in joint venture
    
    
    (724
    )
    
    
    Stock-based compensation
    
    
    1,563
    
    
    
    1,919Accretion of interest on 4.25% convertible notes
    
    
    5,313
    
    
    
    4,905Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,276
    )
    
    
    663Materials and supplies
    
    
    2,263
    
    
    
    (3,070
    )Other current assets
    
    
    (1,224
    )
    
    
    150Accounts payable
    
    
    (2,276
    )
    
    
    (3,106
    )Accrued liabilities
    
    
    (9,016
    )
    
    
    12,780Vessel rent
    
    
    (14,115
    )
    
    
    (13,361
    )Vessel dry-docking payments
    
    
    (10,764
    )
    
    
    (8,593
    )Other assets/liabilities
    
    
    322
    
    
    
    (992
    )Net cash used in operating activities
    
    
    (15,239
    )
    
    
    (7,208
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (5,577
    )
    
    
    (7,154
    )Proceeds from the sale of interest in joint venture
    
    
    1,100
    
    
    
    Proceeds from the sale of property and equipment
    
    
    234
    
    
    
    853Net cash used in investing activities
    
    
    (4,243
    )
    
    
    (6,301
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (9,375
    )
    
    
    (3,275
    )Borrowing under revolving credit facility
    
    
    75,500
    
    
    
    45,000Payments on revolving credit facility
    
    
    (45,500
    )
    
    
    (20,000
    )Dividends to stockholders
    
    
    (3,060
    )
    
    
    (6,694
    )Common stock issued under employee stock purchase plan
    
    
    70
    
    
    
    75Payments of financing costs
    
    
    
    
    
    
    (3,406
    )Net cash provided by financing activities
    
    
    17,635
    
    
    
    11,700Net decrease in cash
    
    
    (1,847
    )
    
    
    (1,809
    )Cash at beginning of period
    
    
    6,419
    
    
    
    5,487Cash at end of period
    
    $
    4,572
    
    
    $
    3,678
   3




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HORIZON LINES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. Organization
  2. Basis of Presentation
       4




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3. Long-Term Debt
  June 20,
    
    
    December 20,2010
    
    
    2009Senior credit facilityTerm loan
    
    $
    103,125
    
    
    $
    112,500Revolving credit facility
    
    
    130,000
    
    
    
    100,0004.25% convertible senior notes
    
    
    307,668
    
    
    
    302,355Total long-term debt
    
    
    540,793
    
    
    
    514,855Less current portion
    
    
    (18,750
    )
    
    
    (18,750
    )Long-term debt, net of current portion
    
    $
    522,043
    
    
    $
    496,105
 Senior Credit Facility
      5




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Derivative Instruments
   4.25% Convertible Senior Notes
   
    
    Prior to May 15, 2012, if during any calendar quarter, and only during such calendar quarter, 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;
    
    During any five business day period prior to May 15, 2012, immediately after any five consecutive trading day
period (the measurement period) in which the trading price per $1,000 principal amount of notes for each
day of such measurement period was less than 98% of the product of the last reported sale price of the
Companys common stock on such date and the conversion rate on such date;
    
    If, at any time, a change in control occurs or if the Company is a party to a consolidation, merger, binding
share exchange or transfer or lease of all or substantially all of its assets, pursuant to which the
Companys common stock would be converted into cash, securities or other assets; or
    
    At any time after May 15, 2012 through the fourth scheduled trading day immediately preceding August 15, 2012.
    6




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Fair Value of Financial Instruments
  4. Income Taxes
  5. Stock-Based Compensation
   Quarters Ended
    
    
    Six Months EndedJune 20,
    
    
    June 21,
    
    
    June 20,
    
    
    June 21,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock options
    
    $
    44
    
    
    $
    290
    
    
    $
    321
    
    
    $
    671Restricted stock / vested shares
    
    
    874
    
    
    
    689
    
    
    
    1,157
    
    
    
    1,248ESPP
    
    
    44
    
    
    
    
    
    
    
    85
    
    
    
    Total
    
    $
    962
    
    
    $
    979
    
    
    $
    1,563
    
    
    $
    1,919
  7




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##### Table of Contents



Stock Options
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    ValueOptions
    
    Options
    
    
    Price
    
    
    Term (years)
    
    
    (000s)Outstanding at December 20, 2009
    
    
    1,515,190
    
    
    $
    15.77Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    (13,500
    )
    
    
    16.51Expired
    
    
    (33,452
    )
    
    
    10.90Outstanding at June 20, 2010
    
    
    1,468,238
    
    
    $
    15.80
    
    
    
    6.10
    
    
    $
    Vested or expected to vest at June 20, 2010
    
    
    1,464,038
    
    
    $
    15.81
    
    
    
    6.09
    
    
    $
    Exercisable at June 20, 2010
    
    
    1,305,238
    
    
    $
    15.99
    
    
    
    5.88
    
    
    $
    
  Restricted Stock
  Weighted-AverageFair ValueNumber of
    
    
    at GrantRestricted Shares
    
    Shares
    
    
    DateNonvested at December 20, 2009
    
    
    607,221
    
    
    $
    10.21Granted
    
    
    406,763
    
    
    
    4.78Vested
    
    
    (197,290
    )
    
    
    18.14Forfeited
    
    
    (42,989
    )
    
    
    6.77Nonvested at June 20, 2010
    
    
    773,705
    
    
    $
    5.52
   8




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6. Net Income (Loss) per Common Share
   Quarters Ended
    
    
    Six Months EndedJune 20,
    
    
    June 21,
    
    
    June 20,
    
    
    June 21,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net income (loss)
    
    $
    3,650
    
    
    $
    (31,083
    )
    
    $
    (9,594
    )
    
    $
    (41,035
    )Denominator:Denominator for basic loss per common share:Weighted average shares outstanding
    
    
    30,595
    
    
    
    30,438
    
    
    
    30,558
    
    
    
    30,431Effect of dilutive securities:Stock-based compensation
    
    
    347
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted net loss per common share
    
    
    30,942
    
    
    
    30,438
    
    
    
    30,558
    
    
    
    30,431Basic net income (loss) per common share
    
    $
    0.12
    
    
    $
    (1.02
    )
    
    $
    (0.31
    )
    
    $
    (1.35
    )Diluted net income (loss) per common share
    
    $
    0.12
    
    
    $
    (1.02
    )
    
    $
    (0.31
    )
    
    $
    (1.35
    )
  7. Comprehensive Income (Loss)
  Quarters Ended
    
    
    Six Months EndedJune 20,
    
    
    June 21,
    
    
    June 20,
    
    
    June 21,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    3,650
    
    
    $
    (31,083
    )
    
    $
    (9,594
    )
    
    $
    (41,035
    )Change in fair value of interest rate swap
    
    
    158
    
    
    
    1,232
    
    
    
    496
    
    
    
    1,057Amortization of pension and
post-retirement benefit transition
obligation
    
    
    104
    
    
    
    115
    
    
    
    207
    
    
    
    217Comprehensive income (loss)
    
    $
    3,912
    
    
    $
    (29,736
    )
    
    $
    (8,891
    )
    
    $
    (39,761
    )
  9




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8. Property and Equipment
  June 20,
    
    
    December 20,2010
    
    
    2009Vessels and vessel improvements
    
    $
    151,755
    
    
    $
    148,823Containers
    
    
    28,232
    
    
    
    24,035Chassis
    
    
    14,616
    
    
    
    14,599Cranes
    
    
    37,156
    
    
    
    36,965Machinery and equipment
    
    
    29,048
    
    
    
    28,637Facilities and land improvements
    
    
    25,487
    
    
    
    24,006Software
    
    
    24,204
    
    
    
    24,072Construction in progress
    
    
    21,321
    
    
    
    22,541Total property and equipment
    
    
    331,819
    
    
    
    323,678Accumulated depreciation
    
    
    (141,799
    )
    
    
    (130,240
    )Property and equipment, net
    
    $
    190,020
    
    
    $
    193,438
  9. Intangible Assets
  June 20,
    
    
    December 20,2010
    
    
    2009Customer contracts/relationships
    
    $
    142,475
    
    
    $
    142,475Trademarks
    
    
    63,800
    
    
    
    63,800Deferred financing costs
    
    
    14,831
    
    
    
    14,831Non-compete agreements
    
    
    262
    
    
    
    262Total intangibles with definite lives
    
    
    221,368
    
    
    
    221,368Accumulated amortization
    
    
    (127,983
    )
    
    
    (115,963
    )Net intangibles with definite lives
    
    
    93,385
    
    
    
    105,405Goodwill
    
    
    317,068
    
    
    
    317,068Intangible assets, net
    
    $
    410,453
    
    
    $
    422,473
 10. Other Accrued Liabilities
  June 20,
    
    
    December 20,2010
    
    
    2009Vessel operations
    
    $
    19,146
    
    
    $
    17,922Payroll and employee benefits
    
    
    13,553
    
    
    
    17,035Marine operations
    
    
    6,084
    
    
    
    10,668Terminal operations
    
    
    11,898
    
    
    
    10,481Fuel
    
    
    6,729
    
    
    
    9,418Interest
    
    
    7,188
    
    
    
    7,298Settlement of class action lawsuit
    
    
    15,000
    
    
    
    15,000Other liabilities
    
    
    25,721
    
    
    
    22,651Total other accrued liabilities
    
    $
    105,319
    
    
    $
    110,473
  10




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11. Fair Value Measurement
  Level 1:
    
    observable inputs such as quoted prices in active marketsLevel 2:
    
    inputs other than the quoted prices in active markets that are observable either
directly or indirectlyLevel 3:
    
    unobservable inputs in which there is little or no market data, which requires the
Company to develop its own assumptions
    12. Pension and Post-retirement Benefit Plans
  Pension Plans
    Post-retirement Benefit Plans
   11




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Other Plans
  13. Commitments and Contingencies
 Legal Proceedings
       12




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13




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SFL Agreements
    Standby Letters of Credit
  14. Recent Accounting Pronouncements
   14




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15. Subsequent Events
    15




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2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
    Quarters Ended
    
    
    Six Months EndedJune 20,
    
    
    June 21,
    
    
    June 20,
    
    
    June 21,2010
    
    
    2009
    
    
    2010
    
    
    2009($ in thousands)Operating revenue
    
    $
    305,585
    
    
    $
    278,484
    
    
    $
    591,718
    
    
    $
    550,835Operating expense
    
    
    291,671
    
    
    
    289,691
    
    
    
    580,790
    
    
    
    562,860Operating income (loss)
    
    $
    13,914
    
    
    $
    (11,207
    )
    
    $
    10,928
    
    
    $
    (12,025
    )Operating ratio
    
    
    95.4
    %
    
    
    104.0
    %
    
    
    98.2
    %
    
    
    102.2
    %Revenue containers (units)
    
    
    64,596
    
    
    
    64,176
    
    
    
    124,884
    
    
    
    125,653Average unit revenue
    
    $
    3,934
    
    
    $
    3,686
    
    
    $
    3,944
    
    
    $
    3,713
   16




---



##### Table of Contents



Quarters Ended
    
    
    Six Months EndedJune 20,
    
    
    June 21,
    
    
    June 20,
    
    
    June 21,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Net income (loss)
    
    $
    3,650
    
    
    $
    (31,083
    )
    
    $
    (9,594
    )
    
    $
    (41,035
    )Interest expense, net
    
    
    10,283
    
    
    
    9,254
    
    
    
    20,566
    
    
    
    18,686Income tax (benefit) expense
    
    
    (25
    )
    
    
    10,561
    
    
    
    (50
    )
    
    
    10,264Depreciation and amortization
    
    
    14,521
    
    
    
    14,774
    
    
    
    28,589
    
    
    
    29,547EBITDA
    
    
    28,429
    
    
    
    3,506
    
    
    
    39,511
    
    
    
    17,462Department of Justice antitrust
investigation costs
    
    
    1,030
    
    
    
    4,062
    
    
    
    1,988
    
    
    
    8,486Union severance charge
    
    
    97
    
    
    
    
    
    
    
    360
    
    
    
    Settlement of class action lawsuit
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    20,000Restructuring charge
    
    
    
    
    
    
    213
    
    
    
    
    
    
    
    1,001Impairment charge
    
    
    
    
    
    
    659
    
    
    
    
    
    
    
    659Loss on modification of debt
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Adjusted EBITDA
    
    $
    29,556
    
    
    $
    28,490
    
    
    $
    41,859
    
    
    $
    47,658
   Quarters Ended
    
    
    Six Months EndedJune 20,
    
    
    June 21,
    
    
    June 20,
    
    
    June 21,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    3,650
    
    
    $
    (31,083
    )
    
    $
    (9,594
    )
    
    $
    (41,035
    )Adjustments:Department of Justice
antitrust investigation
costs
    
    
    1,030
    
    
    
    4,062
    
    
    
    1,988
    
    
    
    8,486Union severance charge
    
    
    97
    
    
    
    
    
    
    
    360
    
    
    
    Settlement of class action
lawsuit
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    20,000Restructuring charge
    
    
    
    
    
    
    213
    
    
    
    
    
    
    
    1,001Impairment charge
    
    
    
    
    
    
    659
    
    
    
    
    
    
    
    659Loss on modification of debt
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Tax valuation allowance
    
    
    
    
    
    
    10,561
    
    
    
    
    
    
    
    10,561Tax impact of adjustments
    
    
    (7
    )
    
    
    (339
    )
    
    
    (5
    )
    
    
    (302
    )Total adjustments
    
    
    1,120
    
    
    
    35,206
    
    
    
    2,343
    
    
    
    40,455Adjusted net income (loss)
    
    $
    4,770
    
    
    $
    4,123
    
    
    $
    (7,251
    )
    
    $
    (580
    )
  17




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##### Table of Contents



Quarters Ended
    
    
    Six Months EndedJune 20,
    
    
    June 21,
    
    
    June 20,
    
    
    June 21,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss) per share
    
    $
    0.12
    
    
    $
    (1.02
    )
    
    $
    (0.31
    )
    
    $
    (1.35
    )Adjustments:Department of Justice
antitrust investigation
costs
    
    
    0.03
    
    
    
    0.14
    
    
    
    0.06
    
    
    
    0.29Union severance charge
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    Settlement of class action
lawsuit
    
    
    
    
    
    
    0.65
    
    
    
    
    
    
    
    0.66Restructuring charge
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    0.03Impairment charge
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.02Tax valuation allowance
    
    
    
    
    
    
    0.34
    
    
    
    
    
    
    
    0.34Tax impact of adjustments
    
    
    0.00
    
    
    
    (0.01
    )
    
    
    0.00
    
    
    
    (0.01
    )Total adjustments
    
    
    0.03
    
    
    
    1.15
    
    
    
    0.07
    
    
    
    1.33Adjusted net income (loss) per share
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    (0.24
    )
    
    $
    (0.02
    )
 General
  Recent Developments
     History
   18




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##### Table of Contents



Critical Accounting Policies
   Seasonality
  Results of Operations
 Operating Revenue Overview
    Cost of Services Overview
   19




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##### Table of Contents



Quarter Ended June 20, 2010 Compared with the Quarter Ended June 21, 2009
 Quarters EndedJune 20,
    
    
    June 21,2010
    
    
    2009
    
    
    Change
    
    
    % Change($ in thousands)Operating revenue
    
    $
    305,585
    
    
    $
    278,484
    
    
    $
    27,101
    
    
    
    9.7
    %Operating expense:Vessel
    
    
    98,451
    
    
    
    82,501
    
    
    
    15,950
    
    
    
    19.3
    %Marine
    
    
    53,782
    
    
    
    49,285
    
    
    
    4,497
    
    
    
    9.1
    %Inland
    
    
    56,990
    
    
    
    49,233
    
    
    
    7,757
    
    
    
    15.8
    %Land
    
    
    36,679
    
    
    
    35,388
    
    
    
    1,291
    
    
    
    3.6
    %Rolling stock rent
    
    
    10,111
    
    
    
    9,932
    
    
    
    179
    
    
    
    1.8
    %Cost of services
    
    
    256,013
    
    
    
    226,339
    
    
    
    29,674
    
    
    
    13.1
    %Depreciation and amortization
    
    
    11,203
    
    
    
    11,165
    
    
    
    38
    
    
    
    0.3
    %Amortization of vessel dry-docking
    
    
    3,318
    
    
    
    3,609
    
    
    
    (291
    )
    
    
    (8.1)
    %Selling, general and administrative
    
    
    21,890
    
    
    
    28,006
    
    
    
    (6,116
    )
    
    
    (21.8)
    %Settlement of class action lawsuit
    
    
    
    
    
    
    20,000
    
    
    
    (20,000
    )
    
    
    (100.0)
    %Restructuring charge
    
    
    
    
    
    
    213
    
    
    
    (213
    )
    
    
    (100.0)
    %Impairment charge
    
    
    
    
    
    
    659
    
    
    
    (659
    )
    
    
    (100.0)
    %Miscellaneous income, net
    
    
    (753
    )
    
    
    (300
    )
    
    
    (453
    )
    
    
    151.0
    %Total operating expense
    
    
    291,671
    
    
    
    289,691
    
    
    
    1,980
    
    
    
    0.7
    %Operating income (loss)
    
    $
    13,914
    
    
    $
    (11,207
    )
    
    $
    25,121
    
    
    
    224.2
    %Operating ratio
    
    
    95.4
    %
    
    
    104.0
    %
    
    
    
    
    
    
    (8.6)
    %Revenue containers (units)
    
    
    64,596
    
    
    
    64,176
    
    
    
    420
    
    
    
    0.7
    %Average unit revenue
    
    $
    3,934
    
    
    $
    3,686
    
    
    $
    248
    
    
    
    6.7
    %
 Operating Revenue.
 Bunker and intermodal fuel surcharges increase
    
    $
    18,535Third-party logistics increase
    
    
    6,903Other revenue increase
    
    
    7,670Revenue container volume increase
    
    
    1,383Expiration of government vessel management contract
    
    
    (6,324
    )Revenue container rate decrease
    
    
    (1,066
    )Total operating revenue increase
    
    $
    27,101
  Cost of Services.
  20




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##### Table of Contents



Vessel fuel costs increase
    
    $
    21,310Labor and other vessel operating expense increase
    
    
    2,035Government vessel management contract expense decrease
    
    
    (6,995
    )Vessel space charter expense decrease
    
    
    (400
    )Total vessel expense increase
    
    $
    15,950
     Quarters EndedJune 20,
    
    
    June 21,2010
    
    
    2009
    
    
    % Change(in thousands)Land expense:Maintenance
    
    $
    12,877
    
    
    $
    12,217
    
    
    
    5.4
    %Terminal overhead
    
    
    14,624
    
    
    
    14,330
    
    
    
    2.1
    %Yard and gate
    
    
    6,913
    
    
    
    6,869
    
    
    
    0.6
    %Warehouse
    
    
    2,265
    
    
    
    1,972
    
    
    
    14.9
    %Total land expense
    
    $
    36,679
    
    
    $
    35,388
    
    
    
    3.6
    %
    21




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##### Table of Contents



Depreciation and Amortization.
 Quarters EndedJune 20,
    
    
    June 21,2010
    
    
    2009
    
    
    % Change(in thousands)Depreciation and amortization:Depreciationowned vessels
    
    $
    2,331
    
    
    $
    2,227
    
    
    
    4.7
    %Depreciation and amortizationother
    
    
    3,713
    
    
    
    3,781
    
    
    
    (1.8)
    %Amortization of intangible assets
    
    
    5,159
    
    
    
    5,157
    
    
    
    0.0
    %Total depreciation and amortization
    
    $
    11,203
    
    
    $
    11,165
    
    
    
    0.3
    %Amortization of vessel dry-docking
    
    $
    3,318
    
    
    $
    3,609
    
    
    
    (8.1)
    %
 Amortization of Vessel Dry-docking.
 Selling, General and Administrative.
 Settlement of Class Action Lawsuit
 Impairment Charge
 Miscellaneous Income, Net
 Interest Expense, Net.
 Income Tax (Benefit) Expense.
  22




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##### Table of Contents



Six Months Ended June 20, 2010 Compared with the Six Months Ended June 21, 2009
 Six Months EndedJune 20,
    
    
    June 21,2010
    
    
    2009
    
    
    Change
    
    
    % Change($ in thousands)Operating revenue
    
    $
    591,718
    
    
    $
    550,835
    
    
    $
    40,883
    
    
    
    7.4
    %Operating expense:Vessel
    
    
    200,883
    
    
    
    167,313
    
    
    
    33,570
    
    
    
    20.1
    %Marine
    
    
    106,010
    
    
    
    98,704
    
    
    
    7,306
    
    
    
    7.4
    %Inland
    
    
    108,428
    
    
    
    98,922
    
    
    
    9,506
    
    
    
    9.6
    %Land
    
    
    73,490
    
    
    
    71,982
    
    
    
    1,508
    
    
    
    2.1
    %Rolling stock rent
    
    
    19,989
    
    
    
    19,077
    
    
    
    912
    
    
    
    4.8
    %Cost of services
    
    
    508,800
    
    
    
    455,998
    
    
    
    52,802
    
    
    
    11.6
    %Depreciation and amortization
    
    
    22,218
    
    
    
    22,140
    
    
    
    78
    
    
    
    0.4
    %Amortization of vessel dry-docking
    
    
    6,371
    
    
    
    7,407
    
    
    
    (1,036
    )
    
    
    (14.0)
    %Selling, general and administrative
    
    
    43,591
    
    
    
    55,774
    
    
    
    (12,183
    )
    
    
    (21.8)
    %Settlement of class action lawsuit
    
    
    
    
    
    
    20,000
    
    
    
    (20,000
    )
    
    
    (100.0)
    %Restructuring charge
    
    
    
    
    
    
    1,001
    
    
    
    (1,001
    )
    
    
    (100.0)
    %Impairment charge
    
    
    
    
    
    
    659
    
    
    
    (659
    )
    
    
    (100.0)
    %Miscellaneous income, net
    
    
    (190
    )
    
    
    (119
    )
    
    
    (71
    )
    
    
    60.0
    %Total operating expense
    
    
    580,790
    
    
    
    562,860
    
    
    
    17,930
    
    
    
    3.2
    %Operating income (loss)
    
    $
    10,928
    
    
    $
    (12,025
    )
    
    $
    22,953
    
    
    
    190.9
    %Operating ratio
    
    
    98.2
    %
    
    
    102.2
    %
    
    
    
    
    
    
    (4.0)
    %Revenue containers (units)
    
    
    124,884
    
    
    
    125,653
    
    
    
    (769
    )
    
    
    (0.6)
    %Average unit revenue
    
    $
    3,944
    
    
    $
    3,713
    
    
    $
    231
    
    
    
    6.2
    %
 Operating Revenue.
 Bunker and intermodal fuel surcharges increase
    
    $
    33,345Other revenue increase
    
    
    14,403Third-party logistics increase
    
    
    11,010Expiration of government vessel management contract
    
    
    (12,698
    )Revenue container volume decrease
    
    
    (2,547
    )Revenue container rate decrease
    
    
    (2,630
    )Total operating revenue increase
    
    $
    40,883
  Cost of Services.
  23




---



##### Table of Contents



Vessel fuel costs increase
    
    $
    43,747Labor and other vessel operating expense increase
    
    
    3,426Vessel space charter expense increase
    
    
    197Government vessel management contract expense decrease
    
    
    (13,800
    )Total vessel expense increase
    
    $
    33,570
     Six Months EndedJune 20,
    
    
    June 21,2010
    
    
    2009
    
    
    % Change(in thousands)Land expense:Maintenance
    
    $
    25,947
    
    
    $
    24,536
    
    
    
    5.8
    %Terminal overhead
    
    
    28,725
    
    
    
    29,206
    
    
    
    (1.6)
    %Yard and gate
    
    
    14,473
    
    
    
    14,451
    
    
    
    0.2
    %Warehouse
    
    
    4,345
    
    
    
    3,789
    
    
    
    14.7
    %Total land expense
    
    $
    73,490
    
    
    $
    71,982
    
    
    
    2.1
    %
    24




---



##### Table of Contents



Depreciation and Amortization.
 Six Months EndedJune 20,
    
    
    June 21,2010
    
    
    2009
    
    
    % Change(in thousands)Depreciation and amortization:Depreciationowned vessels
    
    $
    4,666
    
    
    $
    4,432
    
    
    
    5.3
    %Depreciation and amortizationother
    
    
    7,233
    
    
    
    7,392
    
    
    
    (2.2)
    %Amortization of intangible assets
    
    
    10,319
    
    
    
    10,316
    
    
    
    0.0
    %Total depreciation and amortization
    
    $
    22,218
    
    
    $
    22,140
    
    
    
    0.4
    %Amortization of vessel dry-docking
    
    $
    6,371
    
    
    $
    7,407
    
    
    
    (14.0)
    %
 Amortization of Vessel Dry-docking.
 Selling, General and Administrative.
 Settlement of Class Action Lawsuit
 Impairment Charge
 Restructuring Charge.
 Miscellaneous Income, Net
 Interest Expense, Net.
 Income Tax (Benefit) Expense.
  25




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##### Table of Contents



Liquidity and Capital Resources
   Operating Activities
  Increase in accounts receivable
    
    $
    (7,939
    )Decrease in accrual for settlement of class action lawsuit
    
    
    (20,000
    )Other changes in working capital, net
    
    
    (5,949
    )Increase in payments related to dry-dockings
    
    
    (2,171
    )Earnings adjusted for non-cash charges
    
    
    18,235Decrease in payments related to restructuring and early termination of leased assets
    
    
    3,807Decrease in payments related to Department of Justice antitrust investigation and
related legal proceedings
    
    
    5,986$
    (8,031
    )
 Investing Activities
  Financing Activities
  Capital Requirements and Commitments
     26




---



##### Table of Contents



Long-Term Debt
 Senior Credit Facility
     Derivative Instruments
   27




---



##### Table of Contents



4.25% Convertible Senior Notes
   
    
    Prior to May 15, 2012, if during any calendar quarter, and only during
such calendar quarter, the last reported sale price of our common
stock for at least 20 trading days in a period of 30 consecutive
trading days ending on the last trading day of the preceding calendar
quarter exceeds 120% of the applicable conversion price in effect on
the last trading day of the immediately preceding calendar quarter;
    
    During any five business day period prior to May 15, 2012, immediately
after any five consecutive trading day period (the measurement
period) in which the trading price per $1,000 principal amount of
notes for each day of such measurement period was less than 98% of the
product of the last reported sale price of our common stock on such
date and the conversion rate on such date;
    
    If, at any time, a change in control occurs or if we are a party to a
consolidation, merger, binding share exchange or transfer or lease of
all or substantially all of its assets, pursuant to which the
Companys common stock would be converted into cash, securities or
other assets; or
    
    At any time after May 15, 2012 through the fourth scheduled trading
day immediately preceding August 15, 2012.
     28




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##### Table of Contents



Goodwill
  Outlook
  Interest Rate Risk
    Recent Accounting Pronouncements
     29




---



##### Table of Contents



Forward Looking Statements
      
 3. Quantitative and Qualitative Disclosures About Market Risk
     30




---



##### Table of Contents



4. Controls and Procedures
 Disclosure Controls and Procedures
  Internal Control over Financial Reporting
  Changes in Internal Control
   31




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 1. Legal Proceedings
           32




---



##### Table of Contents



33




---



##### Table of Contents



1A. Risk Factors
  The Trans-Pacific Ocean Transportation Market Between Asia and the West Coast of the United
States is Highly Competitive, and We May Not be Able to Compete Successfully With Established
Companies That Have Greater Resources or Other New Entrants.
   The Cyclical Nature of the International Shipping Industry May Lead to Volatile Changes in
Freight Rates Which May Adversely Affect Our Operating Results and Financial Condition.
   Our Trans-Pacific Service Faces a Regulatory and Currency Environment That Does Not Exist in Our
Domestic Tradelanes and is Specific to Operating as an Ocean Common Carrier in the International
Marketplace.
   
 2. Unregistered Sales of Equity Securities and Use of Proceeds
   34




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##### Table of Contents



3. Defaults Upon Senior Securities
  
 4. Reserved
 
 5. Other Information
  
 6. Exhibits
 10.1
    *+
    
    Amendment No. 3 to Stevedoring and Terminal Services Agreement among Horizon Lines, LLC and APM
Terminals North America, Inc. dated June 8, 2010.31.1
    *
    
    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.+
    
    Portions of this document were omitted and filed separately pursuant to a request for
confidential treatment in accordance with Rule 24b-2 of the Securities Act.  35




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##### Table of Contents



SIGNATURE
   HORIZON LINES, INC.By:
    /s/ MICHAEL T. AVARAMichael T. AvaraSenior Vice President & Chief Financial Officer
(Principal Financial Officer & 
Authorized Signatory)  36




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description10.1
    *+
    
    Amendment No. 3 to Stevedoring and Terminal Services Agreement among Horizon Lines, LLC and APM
Terminals North America, Inc. dated June 8, 2010.31.1
    *
    
    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.+
    
    Portions of this document were omitted and filed separately pursuant to a request for confidential treatment in
accordance with Rule 24b-2 of the Securities Act.