##### 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 September 19, 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
    
    74-3123672(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 4064 Colony Road, Suite 200, Charlotte, North Carolina
    
    28211(Address of principal executive offices)
    
    (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 October 20, 2010, 30,741,210 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
    
    
    314. 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
    
    
    344. Reserved
    
    
    345. Other Information
    
    
    346. Exhibits
    
    
    34Signature
    
    
    35Exhibit 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)
 September 19,
    
    
    December 20,2010
    
    
    2009AssetsCurrent assetsCash
    
    $
    4,419
    
    
    $
    6,419Accounts receivable, net of allowance of
$8,478 and $7,578 at September 19, 2010 and
December 20, 2009, respectively
    
    
    138,134
    
    
    
    123,536Prepaid vessel rent
    
    
    7,132
    
    
    
    4,580Materials and supplies
    
    
    28,129
    
    
    
    30,254Deferred tax asset
    
    
    2,929
    
    
    
    2,929Other current assets
    
    
    10,176
    
    
    
    9,027Total current assets
    
    
    190,919
    
    
    
    176,745Property and equipment, net
    
    
    186,026
    
    
    
    193,438Goodwill
    
    
    317,068
    
    
    
    317,068Intangible assets, net
    
    
    87,396
    
    
    
    105,405Other long-term assets
    
    
    29,024
    
    
    
    25,854Total assets
    
    $
    810,433
    
    
    $
    818,510Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    39,364
    
    
    $
    43,257Current portion of long-term debt
    
    
    18,750
    
    
    
    18,750Accrued vessel rent
    
    
    
    
    
    
    4,339Other accrued liabilities
    
    
    110,827
    
    
    
    110,473Total current liabilities
    
    
    168,941
    
    
    
    176,819Long-term debt, net of current portion
    
    
    502,387
    
    
    
    496,105Deferred rent
    
    
    19,230
    
    
    
    22,585Deferred tax liability
    
    
    4,248
    
    
    
    4,248Other long-term liabilities
    
    
    17,778
    
    
    
    17,475Total liabilities
    
    
    712,584
    
    
    
    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, 34,516 shares issued and 30,716
shares outstanding as of September 19, 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
    
    
    194,544
    
    
    
    196,900Accumulated deficit
    
    
    (17,722
    )
    
    
    (15,874
    )Accumulated other comprehensive loss
    
    
    (780
    )
    
    
    (1,551
    )Total stockholders equity
    
    
    97,849
    
    
    
    101,278Total liabilities and stockholders equity
    
    $
    810,433
    
    
    $
    818,510
   1




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##### Table of Contents



Horizon Lines, Inc.
 
 Unaudited

Condensed Consolidated Statements of Operations
 (in thousands, except per share amounts)
 Quarters Ended
    
    
    Nine Months EndedSeptember 19,
    
    
    September 20,
    
    
    September 19,
    
    
    September 20,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating revenue
    
    $
    311,009
    
    
    $
    307,972
    
    
    $
    902,727
    
    
    $
    858,807Operating expense:Cost of services (excluding depreciation expense)
    
    
    254,138
    
    
    
    248,364
    
    
    
    762,941
    
    
    
    704,362Depreciation and amortization
    
    
    11,009
    
    
    
    11,285
    
    
    
    33,226
    
    
    
    33,425Amortization of vessel dry-docking
    
    
    4,310
    
    
    
    3,530
    
    
    
    10,681
    
    
    
    10,936Selling, general and administrative
    
    
    21,047
    
    
    
    23,739
    
    
    
    64,638
    
    
    
    79,512Impairment charge
    
    
    1,799
    
    
    
    1,208
    
    
    
    1,799
    
    
    
    1,867Settlement of class action lawsuit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Restructuring charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001Miscellaneous expense, net
    
    
    609
    
    
    
    890
    
    
    
    416
    
    
    
    773Total operating expense
    
    
    292,912
    
    
    
    289,016
    
    
    
    873,701
    
    
    
    851,876Operating income
    
    
    18,097
    
    
    
    18,956
    
    
    
    29,026
    
    
    
    6,931Other expense:Interest expense, net
    
    
    10,306
    
    
    
    10,563
    
    
    
    30,872
    
    
    
    29,249Loss on modification of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Other expense, net
    
    
    11
    
    
    
    1
    
    
    
    18
    
    
    
    11Income (loss) before income tax expense (benefit)
    
    
    7,780
    
    
    
    8,392
    
    
    
    (1,864
    )
    
    
    (22,379
    )Income tax expense (benefit)
    
    
    33
    
    
    
    (46
    )
    
    
    (17
    )
    
    
    10,219Net income (loss)
    
    $
    7,747
    
    
    $
    8,438
    
    
    $
    (1,847
    )
    
    $
    (32,598
    )Net income (loss) per share:Basic
    
    $
    0.25
    
    
    $
    0.28
    
    
    $
    (0.06
    )
    
    $
    (1.07
    )Diluted
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    (0.06
    )
    
    $
    (1.07
    )Number of shares used in calculations:Basic
    
    
    30,865
    
    
    
    30,430
    
    
    
    30,660
    
    
    
    30,431Diluted
    
    
    31,196
    
    
    
    30,914
    
    
    
    30,660
    
    
    
    30,431Dividends declared per common share
    
    $
    0.05
    
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.33
   2




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Horizon Lines, Inc.
 
 Unaudited

Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Nine Months EndedSeptember 19,
    
    
    September 20,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (1,847
    )
    
    $
    (32,598
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation
    
    
    17,753
    
    
    
    17,950Amortization of other intangible assets
    
    
    15,473
    
    
    
    15,475Amortization of vessel dry-docking
    
    
    10,681
    
    
    
    10,936Amortization of deferred financing costs
    
    
    2,535
    
    
    
    2,081Impairment charge
    
    
    1,799
    
    
    
    1,867Restructuring charge
    
    
    
    
    
    
    1,001Loss on modification of debt
    
    
    
    
    
    
    50Deferred income taxes
    
    
    
    
    
    
    10,312Gain on equipment disposals
    
    
    (27
    )
    
    
    (45
    )Gain on sale of interest in joint venture
    
    
    (724
    )
    
    
    Stock-based compensation
    
    
    1,890
    
    
    
    2,464Accretion of interest on 4.25% convertible notes
    
    
    8,045
    
    
    
    7,428Changes in operating assets and liabilities:Accounts receivable
    
    
    (14,599
    )
    
    
    (2,551
    )Materials and supplies
    
    
    2,090
    
    
    
    (4,425
    )Other current assets
    
    
    (1,149
    )
    
    
    (2,349
    )Accounts payable
    
    
    (3,893
    )
    
    
    (7,050
    )Accrued liabilities
    
    
    (1,595
    )
    
    
    10,466Vessel rent
    
    
    (9,657
    )
    
    
    (9,650
    )Vessel dry-docking payments
    
    
    (15,761
    )
    
    
    (11,269
    )Other assets/liabilities
    
    
    705
    
    
    
    (664
    )Net cash provided by operating activities
    
    
    11,719
    
    
    
    9,429Cash flows from investing activities:Purchases of property and equipment
    
    
    (8,773
    )
    
    
    (8,181
    )Proceeds from the sale of interest in joint venture
    
    
    1,100
    
    
    
    Proceeds from the sale of property and equipment
    
    
    283
    
    
    
    1,009Net cash used in investing activities
    
    
    (7,390
    )
    
    
    (7,172
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (14,063
    )
    
    
    (4,913
    )Borrowing under revolving credit facility
    
    
    87,800
    
    
    
    64,000Payments on revolving credit facility
    
    
    (75,500
    )
    
    
    (49,000
    )Dividends to stockholders
    
    
    (4,636
    )
    
    
    (10,041
    )Common stock issued under employee stock purchase plan
    
    
    70
    
    
    
    75Payments of financing costs
    
    
    
    
    
    
    (3,475
    )Net cash used in financing activities
    
    
    (6,329
    )
    
    
    (3,354
    )Net decrease in cash
    
    
    (2,000
    )
    
    
    (1,097
    )Cash at beginning of period
    
    
    6,419
    
    
    
    5,487Cash at end of period
    
    $
    4,419
    
    
    $
    4,390
   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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##### Table of Contents



3. Long-Term Debt
  September 19,
    
    
    December 20,2010
    
    
    2009Senior credit facilityTerm loan
    
    $
    98,437
    
    
    $
    112,500Revolving credit facility
    
    
    112,300
    
    
    
    100,0004.25% convertible senior notes
    
    
    310,400
    
    
    
    302,355Total long-term debt
    
    
    521,137
    
    
    
    514,855Less current portion
    
    
    (18,750
    )
    
    
    (18,750
    )Long-term debt, net of current portion
    
    $
    502,387
    
    
    $
    496,105
 Senior Credit Facility
     Derivative Instruments
   5




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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
    
    
    Nine Months EndedSeptember 19,
    
    
    September 20,
    
    
    September 19,
    
    
    September 20,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock options
    
    $
    53
    
    
    $
    278
    
    
    $
    374
    
    
    $
    949Restricted stock / vested shares
    
    
    227
    
    
    
    186
    
    
    
    1,384
    
    
    
    1,435ESPP
    
    
    47
    
    
    
    80
    
    
    
    132
    
    
    
    80Total
    
    $
    327
    
    
    $
    544
    
    
    $
    1,890
    
    
    $
    2,464
  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
    )
    
    
    16.55Expired
    
    
    (63,977
    )
    
    
    13.65Outstanding at September 19, 2010
    
    
    1,437,713
    
    
    $
    15,78
    
    
    
    5.90
    
    
    $
    Vested or expected to vest at September 19, 2010
    
    
    1,434,773
    
    
    $
    15,79
    
    
    
    5.90
    
    
    $
    Exercisable at September 19, 2010
    
    
    1,274,713
    
    
    $
    15.97
    
    
    
    5.68
    
    
    $
    
  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
    
    
    (46,789
    )
    
    
    6.77Nonvested at September 19, 2010
    
    
    769,905
    
    
    $
    5.51
   8




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6. Net Income (Loss) per Common Share
   Quarters Ended
    
    
    Nine Months EndedSeptember 19,
    
    
    September 20,
    
    
    September 19,
    
    
    September 20,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net income (loss)
    
    $
    7,747
    
    
    $
    8,438
    
    
    $
    (1,847
    )
    
    $
    (32,598
    )Denominator:Denominator for basic net income
(loss) per common share:Weighted average shares outstanding
    
    
    30,865
    
    
    
    30,430
    
    
    
    30,660
    
    
    
    30,431Effect of dilutive securities:Stock-based compensation
    
    
    331
    
    
    
    484
    
    
    
    
    
    
    
    Denominator for diluted net income (loss)
per common share
    
    
    31,196
    
    
    
    30,914
    
    
    
    30,660
    
    
    
    30,431Basic net income (loss) per common share
    
    $
    0.25
    
    
    $
    0.28
    
    
    $
    (0.06
    )
    
    $
    (1.07
    )Diluted net income (loss) per common share
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    (0.06
    )
    
    $
    (1.07
    )
  7. Comprehensive Income (Loss)
  Quarters Ended
    
    
    Nine Months EndedSeptember 19,
    
    
    September 20,
    
    
    September 19,
    
    
    September 20,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    7,747
    
    
    $
    8,438
    
    
    $
    (1,847
    )
    
    $
    (32,598
    )Change in fair value of interest rate swap
    
    
    (35
    )
    
    
    (427
    )
    
    
    461
    
    
    
    630Amortization of pension and
post-retirement benefit transition
obligation
    
    
    104
    
    
    
    115
    
    
    
    310
    
    
    
    332Comprehensive income (loss)
    
    $
    7,816
    
    
    $
    8,126
    
    
    $
    (1,076
    )
    
    $
    (31,636
    )
  9




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8. Property and Equipment
  September 19,
    
    
    December 20,2010
    
    
    2009Vessels and vessel improvements
    
    $
    152,036
    
    
    $
    148,823Containers
    
    
    28,165
    
    
    
    24,035Chassis
    
    
    14,661
    
    
    
    14,599Cranes
    
    
    37,177
    
    
    
    36,965Machinery and equipment
    
    
    29,148
    
    
    
    28,637Facilities and land improvements
    
    
    25,421
    
    
    
    24,006Software
    
    
    24,415
    
    
    
    24,072Construction in progress
    
    
    22,556
    
    
    
    22,541Total property and equipment
    
    
    333,579
    
    
    
    323,678Accumulated depreciation
    
    
    (147,553
    )
    
    
    (130,240
    )Property and equipment, net
    
    $
    186,026
    
    
    $
    193,438
  9. Intangible Assets
  September 19,
    
    
    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
    
    
    (133,972
    )
    
    
    (115,963
    )Net intangibles with definite lives
    
    
    87,396
    
    
    
    105,405Goodwill
    
    
    317,068
    
    
    
    317,068Intangible assets, net
    
    $
    404,464
    
    
    $
    422,473
 10. Other Accrued Liabilities
  September 19,
    
    
    December 20,2010
    
    
    2009Vessel operations
    
    $
    16,466
    
    
    $
    17,922Payroll and employee benefits
    
    
    15,223
    
    
    
    17,035Marine operations
    
    
    9,982
    
    
    
    10,668Terminal operations
    
    
    11,569
    
    
    
    10,481Fuel
    
    
    10,985
    
    
    
    9,418Interest
    
    
    3,050
    
    
    
    7,298Settlement of class action lawsuit
    
    
    15,000
    
    
    
    15,000Other liabilities
    
    
    28,552
    
    
    
    22,651Total other accrued liabilities
    
    $
    110,827
    
    
    $
    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
     14




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Standby Letters of Credit
  14. Recent Accounting Pronouncements
     15. Subsequent Events
   15




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2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
 rd
   Quarters Ended
    
    
    Nine Months EndedSeptember 19,
    
    
    September 20,
    
    
    September 19,
    
    
    September 20,2010
    
    
    2009
    
    
    2010
    
    
    2009($ in thousands)Operating revenue
    
    $
    311,009
    
    
    $
    307,972
    
    
    $
    902,727
    
    
    $
    858,807Operating expense
    
    
    292,912
    
    
    
    289,016
    
    
    
    873,701
    
    
    
    851,876Operating income
    
    $
    18,097
    
    
    $
    18,956
    
    
    $
    29,026
    
    
    $
    6,931Operating ratio
    
    
    94.2
    %
    
    
    93.8
    %
    
    
    96.8
    %
    
    
    99.2
    %Revenue containers (units)
    
    
    65,726
    
    
    
    67,649
    
    
    
    190,610
    
    
    
    193,305Average unit revenue
    
    $
    3,921
    
    
    $
    3,818
    
    
    $
    3,936
    
    
    $
    3,750
   16




---



##### Table of Contents



Quarters Ended
    
    
    Nine Months EndedSeptember 19,
    
    
    September 20,
    
    
    September 19,
    
    
    September 20,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    7,747
    
    
    $
    8,438
    
    
    $
    (1,847
    )
    
    $
    (32,598
    )Interest expense, net
    
    
    10,306
    
    
    
    10,563
    
    
    
    30,872
    
    
    
    29,249Income tax expense (benefit)
    
    
    33
    
    
    
    (46
    )
    
    
    (17
    )
    
    
    10,219Depreciation and amortization
    
    
    15,319
    
    
    
    14,815
    
    
    
    43,907
    
    
    
    44,361EBITDA
    
    
    33,405
    
    
    
    33,770
    
    
    
    72,915
    
    
    
    51,231Department of Justice antitrust
investigation costs
    
    
    1,475
    
    
    
    1,959
    
    
    
    3,463
    
    
    
    10,445Impairment charge
    
    
    1,799
    
    
    
    1,208
    
    
    
    1,799
    
    
    
    1,867Union severance charge
    
    
    107
    
    
    
    
    
    
    
    468
    
    
    
    Settlement of class action lawsuit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Restructuring charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001Loss on modification of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Adjusted EBITDA
    
    $
    36,786
    
    
    $
    36,937
    
    
    $
    78,645
    
    
    $
    84,594
   Quarters Ended
    
    
    Nine Months EndedSeptember 19,
    
    
    September 20,
    
    
    September 19,
    
    
    September 20,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    7,747
    
    
    $
    8,438
    
    
    $
    (1,847
    )
    
    $
    (32,598
    )Adjustments:Department of Justice
antitrust investigation
costs
    
    
    1,475
    
    
    
    1,959
    
    
    
    3,463
    
    
    
    10,445Impairment charge
    
    
    1,799
    
    
    
    1,208
    
    
    
    1,799
    
    
    
    1,867Union severance charge
    
    
    107
    
    
    
    
    
    
    
    468
    
    
    
    Settlement of class action
lawsuit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Restructuring charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001Loss on modification of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Tax valuation allowance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,561Tax impact of adjustments
    
    
    (168
    )
    
    
    (219
    )
    
    
    (174
    )
    
    
    (520
    )Total adjustments
    
    
    3,213
    
    
    
    2,948
    
    
    
    5,556
    
    
    
    43,404Adjusted net income
    
    $
    10,960
    
    
    $
    11,386
    
    
    $
    3,709
    
    
    $
    10,806
  17




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##### Table of Contents



Quarters Ended
    
    
    Nine Months EndedSeptember 19,
    
    
    September 20,
    
    
    September 19,
    
    
    September 20,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss) per diluted share
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    (0.06
    )
    
    $
    (1.07
    )Adjustments:Department of Justice
antitrust investigation
costs
    
    
    0.05
    
    
    
    0.06
    
    
    
    0.11
    
    
    
    0.34Impairment charge
    
    
    0.05
    
    
    
    0.04
    
    
    
    0.05
    
    
    
    0.06Union severance charge
    
    
    
    
    
    
    
    
    
    
    0.02
    
    
    
    Settlement of class action
lawsuit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.66Restructuring charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.03Tax valuation allowance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.35Tax impact of adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Total adjustments
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.18
    
    
    
    1.42Adjusted net income per diluted
share
    
    $
    0.35
    
    
    $
    0.37
    
    
    $
    0.12
    
    
    $
    0.35
 General
  Developments
      18




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##### Table of Contents



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




---



##### Table of Contents



Quarter Ended September 19, 2010 Compared with the Quarter Ended September 20, 2009
 Quarters EndedSeptember 19,
    
    
    September 20,2010
    
    
    2009
    
    
    Change
    
    
    % Change($ in thousands)Operating revenue
    
    $
    311,009
    
    
    $
    307,972
    
    
    $
    3,037
    
    
    
    1.0
    %Operating expense:Vessel
    
    
    95,717
    
    
    
    95,008
    
    
    
    709
    
    
    
    0.7
    %Marine
    
    
    52,125
    
    
    
    55,126
    
    
    
    (3,001
    )
    
    
    (5.4
    )%Inland
    
    
    57,565
    
    
    
    52,074
    
    
    
    5,491
    
    
    
    10.5
    %Land
    
    
    38,678
    
    
    
    36,631
    
    
    
    2,047
    
    
    
    5.6
    %Rolling stock rent
    
    
    10,053
    
    
    
    9,525
    
    
    
    528
    
    
    
    5.5
    %Cost of services
    
    
    254,138
    
    
    
    248,364
    
    
    
    5,774
    
    
    
    2.3
    %Depreciation and amortization
    
    
    11,009
    
    
    
    11,285
    
    
    
    (276
    )
    
    
    (2.4
    )%Amortization of vessel dry-docking
    
    
    4,310
    
    
    
    3,530
    
    
    
    780
    
    
    
    22.1
    %Selling, general and administrative
    
    
    21,047
    
    
    
    23,739
    
    
    
    (2,692
    )
    
    
    (11.3
    )%Impairment charge
    
    
    1,799
    
    
    
    1,208
    
    
    
    591
    
    
    
    48.9
    %Miscellaneous expense, net
    
    
    609
    
    
    
    890
    
    
    
    (281
    )
    
    
    (31.6
    )%Total operating expense
    
    
    292,912
    
    
    
    289,016
    
    
    
    3,896
    
    
    
    1.3
    %Operating income
    
    $
    18,097
    
    
    $
    18,956
    
    
    $
    (859
    )
    
    
    (4.5
    )%Operating ratio
    
    
    94.2
    %
    
    
    93.8
    %
    
    
    
    
    
    
    0.4
    %Revenue containers (units)
    
    
    65,726
    
    
    
    67,649
    
    
    
    (1,923
    )
    
    
    (2.8
    )%Average unit revenue
    
    $
    3,921
    
    
    $
    3,818
    
    
    $
    103
    
    
    
    2.7
    %
 Operating Revenue.
 Third-party logistics increase
    
    $
    6,930Bunker and intermodal fuel surcharges increase
    
    
    4,920Other revenue increase
    
    
    2,284Revenue container rate increase
    
    
    1,718Revenue container volume decrease
    
    
    (6,243
    )Expiration of government vessel management contract
    
    
    (6,572
    )Total operating revenue increase
    
    $
    3,037
  Cost of Services.
  20




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##### Table of Contents



Vessel fuel costs increase
    
    $
    6,698Labor and other vessel operating expense increase
    
    
    1,817Vessel space charter expense increase
    
    
    94Government vessel management contract expense decrease
    
    
    (7,900
    )Total vessel expense increase
    
    $
    709
     Quarters EndedSeptember 19,
    
    
    September 20,2010
    
    
    2009
    
    
    % Change(in thousands)Land expense:Maintenance
    
    $
    14,041
    
    
    $
    12,852
    
    
    
    9.3
    %Terminal overhead
    
    
    14,758
    
    
    
    14,256
    
    
    
    3.5
    %Yard and gate
    
    
    7,745
    
    
    
    7,514
    
    
    
    3.1
    %Warehouse
    
    
    2,134
    
    
    
    2,009
    
    
    
    6.2
    %Total land expense
    
    $
    38,678
    
    
    $
    36,631
    
    
    
    5.6
    %
    21




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##### Table of Contents



Depreciation and Amortization.
 Quarters EndedSeptember 19,
    
    
    September 20,2010
    
    
    2009
    
    
    % Change(in thousands)Depreciation and amortization:Depreciationowned vessels
    
    $
    2,351
    
    
    $
    2,343
    
    
    
    0.4
    %Depreciation and amortizationother
    
    
    3,502
    
    
    
    3,783
    
    
    
    (7.4
    )%Amortization of intangible assets
    
    
    5,156
    
    
    
    5,159
    
    
    
    0.0
    %Total depreciation and amortization
    
    $
    11,009
    
    
    $
    11,285
    
    
    
    (2.4
    )%Amortization of vessel dry-docking
    
    $
    4,310
    
    
    $
    3,530
    
    
    
    22.1
    %
 Amortization of Vessel Dry-docking.
 Selling, General and Administrative.
 Impairment Charge
 Miscellaneous Expense, Net
 Interest Expense, Net.
 Income Tax Expense (Benefit).
  22




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##### Table of Contents



Nine Months Ended September 19, 2010 Compared with the Nine Months Ended September 20, 2009
 Nine Months EndedSeptember 19,
    
    
    September 20,2010
    
    
    2009
    
    
    Change
    
    
    % Change($ in thousands)Operating revenue
    
    $
    902,727
    
    
    $
    858,807
    
    
    $
    43,920
    
    
    
    5.1
    %Operating expense:Vessel
    
    
    296,601
    
    
    
    262,321
    
    
    
    34,280
    
    
    
    13.1
    %Marine
    
    
    158,135
    
    
    
    153,831
    
    
    
    4,304
    
    
    
    2.8
    %Inland
    
    
    165,993
    
    
    
    150,995
    
    
    
    14,998
    
    
    
    9.9
    %Land
    
    
    112,168
    
    
    
    108,613
    
    
    
    3,555
    
    
    
    3.3
    %Rolling stock rent
    
    
    30,044
    
    
    
    28,602
    
    
    
    1,442
    
    
    
    5.0
    %Cost of services
    
    
    762,941
    
    
    
    704,362
    
    
    
    58,579
    
    
    
    8.3
    %Depreciation and amortization
    
    
    33,226
    
    
    
    33,425
    
    
    
    (199
    )
    
    
    (0.6
    )%Amortization of vessel dry-docking
    
    
    10,681
    
    
    
    10,936
    
    
    
    (255
    )
    
    
    (2.3
    )%Selling, general and administrative
    
    
    64,638
    
    
    
    79,512
    
    
    
    (14,874
    )
    
    
    (18.7
    )%Impairment charge
    
    
    1,799
    
    
    
    1,867
    
    
    
    (68
    )
    
    
    (3.6
    )%Settlement of class action lawsuit
    
    
    
    
    
    
    20,000
    
    
    
    (20,000
    )
    
    
    (100.0
    )%Restructuring charge
    
    
    
    
    
    
    1,001
    
    
    
    (1,001
    )
    
    
    (100.0
    )%Miscellaneous expense, net
    
    
    416
    
    
    
    773
    
    
    
    (357
    )
    
    
    (46.2
    )%Total operating expense
    
    
    873,701
    
    
    
    851,876
    
    
    
    21,825
    
    
    
    2.6
    %Operating income
    
    $
    29,026
    
    
    $
    6,931
    
    
    $
    22,095
    
    
    
    318.8
    %Operating ratio
    
    
    96.8
    %
    
    
    99.2
    %
    
    
    
    
    
    
    (2.4
    )%Revenue containers (units)
    
    
    190,610
    
    
    
    193,305
    
    
    
    (2,695
    )
    
    
    (1.4
    )%Average unit revenue
    
    $
    3,936
    
    
    $
    3,750
    
    
    $
    186
    
    
    
    5.0
    %
 Operating Revenue.
 Bunker and intermodal fuel surcharges increase
    
    $
    38,266Third-party logistics increase
    
    
    17,954Other revenue increase
    
    
    15,201Revenue container rate increase
    
    
    632Expiration of government vessel management contract
    
    
    (19,270
    )Revenue container volume decrease
    
    
    (8,863
    )Total operating revenue increase
    
    $
    43,920
  Cost of Services.
  23




---



##### Table of Contents



Vessel fuel costs increase
    
    $
    50,445Labor and other vessel operating expense increase
    
    
    4,654Vessel space charter expense increase
    
    
    292Government vessel management contract expense decrease
    
    
    (21,111
    )Total vessel expense increase
    
    $
    34,280
     Nine Months EndedSeptember 19,
    
    
    September 20,2010
    
    
    2009
    
    
    % Change(in thousands)Land expense:Maintenance
    
    $
    39,988
    
    
    $
    37,389
    
    
    
    7.0
    %Terminal overhead
    
    
    43,483
    
    
    
    43,461
    
    
    
    0.1
    %Yard and gate
    
    
    22,217
    
    
    
    21,965
    
    
    
    1.1
    %Warehouse
    
    
    6,480
    
    
    
    5,798
    
    
    
    11.8
    %Total land expense
    
    $
    112,168
    
    
    $
    108,613
    
    
    
    3.3
    %
    24




---



##### Table of Contents



Depreciation and Amortization.
 Nine Months EndedSeptember 19,
    
    
    September 20,2010
    
    
    2009
    
    
    % Change(in thousands)Depreciation and amortization:Depreciationowned vessels
    
    $
    7,017
    
    
    $
    6,775
    
    
    
    3.6
    %Depreciation and amortizationother
    
    
    10,734
    
    
    
    11,175
    
    
    
    (3.9
    )%Amortization of intangible assets
    
    
    15,475
    
    
    
    15,475
    
    
    
    0.0
    %Total depreciation and amortization
    
    $
    33,226
    
    
    $
    33,425
    
    
    
    (0.6
    )%Amortization of vessel dry-docking
    
    $
    10,681
    
    
    $
    10,936
    
    
    
    (2.3
    )%
 Amortization of Vessel Dry-docking.
 Selling, General and Administrative.
 Settlement of Class Action Lawsuit
 Impairment Charge
 Restructuring Charge.
 Miscellaneous Expense, Net
 Interest Expense, Net.
 Income Tax (Benefit) Expense.
  25




---



##### Table of Contents



Liquidity and Capital Resources
   Operating Activities
  Earnings adjusted for non-cash charges
    
    $
    18,639Decrease in payments related to Department of Justice antitrust investigation and
related legal proceedings
    
    
    7,363Decrease in payments related to restructuring and early termination of leased assets
    
    
    4,578Other changes in working capital, net
    
    
    3,250Increase in payments related to dry-dockings
    
    
    (4,492
    )Increase in accounts receivable
    
    
    (12,048
    )Decrease in accrual for settlement of class action lawsuit
    
    
    (15,000
    )$
    2,290
 Investing Activities
  Financing Activities
  Capital Requirements and Commitments
   26




---



##### Table of Contents



Long-Term Debt
 Senior Credit Facility
      27




---



##### Table of Contents



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 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




---



##### Table of Contents



Goodwill
  Outlook
  Interest Rate Risk
    Recent Accounting Pronouncements
   29




---



##### Table of Contents



Forward Looking Statements
       30




---



##### 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
   31




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 1. Legal Proceedings
         32




---



##### Table of Contents



33




---



##### Table of Contents



1A. Risk Factors
  
 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 3. Defaults Upon Senior Securities
  
 4. Reserved
 
 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.  34




---



##### Table of Contents



SIGNATURE
   HORIZON LINES, INC.By:
    /s/ MICHAEL T. AVARAMichael T. AvaraSenior Vice President & Chief Financial Officer
(Principal Financial Officer & Authorized Signatory)  35




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##### 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.