##### 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 27, 2011
 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)
 o þ
  At April 25, 2011, 30,884,040 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
    
    
    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
    
    
    183. Quantitative and Qualitative Disclosures About Market Risk
    
    
    304. Controls and Procedures
    
    
    30Part II. Other Information
    
    
    311. Legal Proceedings
    
    
    311A. Risk Factors
    
    
    332. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    333. Defaults Upon Senior Securities
    
    
    334. Reserved
    
    
    335. Other Information
    
    
    336. Exhibits
    
    
    33Signature
    
    
    34Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




---



##### 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 27,
    
    
    December 26,2011
    
    
    2010AssetsCurrent assetsCash
    
    $
    5,771
    
    
    $
    2,751Accounts receivable, net of allowance of $6,195 and $6,959
at March 27, 2011 and December 26, 2010 respectively
    
    
    131,510
    
    
    
    112,196Prepaid vessel rent
    
    
    5,385
    
    
    
    4,076Materials and supplies
    
    
    32,009
    
    
    
    29,413Deferred tax asset
    
    
    3,250
    
    
    
    2,964Assets of discontinued operations
    
    
    5,394
    
    
    
    6,883Other current assets
    
    
    9,729
    
    
    
    7,406Total current assets
    
    
    193,048
    
    
    
    165,689Property and equipment, net
    
    
    190,419
    
    
    
    194,657Goodwill
    
    
    314,149
    
    
    
    314,149Intangible assets, net
    
    
    77,554
    
    
    
    80,824Other long-term assets
    
    
    28,838
    
    
    
    30,438Total assets
    
    $
    804,008
    
    
    $
    785,757Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    35,295
    
    
    $
    43,413Current portion of long-term debt, including capital lease
    
    
    564,497
    
    
    
    508,793Accrued vessel rent
    
    
    
    
    
    
    3,697Liabilities of discontinued operations
    
    
    3,553
    
    
    
    3,699Other accrued liabilities
    
    
    120,105
    
    
    
    108,499Total current liabilities
    
    
    723,450
    
    
    
    668,101Long-term debt, including capital lease, net of current portion
    
    
    7,104
    
    
    
    7,530Deferred rent
    
    
    16,908
    
    
    
    18,026Deferred tax liability
    
    
    4,775
    
    
    
    4,775Other long-term liabilities
    
    
    45,114
    
    
    
    47,533Total liabilities
    
    
    797,351
    
    
    
    745,965Stockholders equityPreferred stock, $.01 par value, 30,500 shares authorized,
no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 100,000 shares authorized,
34,572 shares issued and 30,772 shares outstanding as of
March 27, 2011 and 34,546 shares issued and 30,746 shares
outstanding as of December 26, 2010
    
    
    346
    
    
    
    345Treasury stock, 3,800 shares at cost
    
    
    (78,538
    )
    
    
    (78,538
    )Additional paid in capital
    
    
    193,631
    
    
    
    193,266Accumulated deficit
    
    
    (107,916
    )
    
    
    (73,843
    )Accumulated other comprehensive loss
    
    
    (866
    )
    
    
    (1,438
    )Total stockholders equity
    
    
    6,657
    
    
    
    39,792Total liabilities and stockholders equity
    
    $
    804,008
    
    
    $
    785,757
   1




---



##### Table of Contents



Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Statements of Operations
 (in thousands, except per share amounts)
 Quarters EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Operating revenue
    
    $
    285,353
    
    
    $
    274,658Operating expense:Cost of services (excluding depreciation expense)
    
    
    267,328
    
    
    
    241,957Depreciation and amortization
    
    
    11,213
    
    
    
    10,845Amortization of vessel dry-docking
    
    
    4,077
    
    
    
    3,053Selling, general and administrative
    
    
    24,294
    
    
    
    20,517Miscellaneous expense, net
    
    
    488
    
    
    
    134Total operating expense
    
    
    307,400
    
    
    
    276,506Operating loss
    
    
    (22,047
    )
    
    
    (1,848
    )Other expense:Interest expense, net
    
    
    10,716
    
    
    
    9,830Loss on modification of debt
    
    
    620
    
    
    
    Other expense, net
    
    
    14
    
    
    
    2Loss from continuing operations before income tax (benefit) expense
    
    
    (33,397
    )
    
    
    (11,680
    )Income tax (benefit) expense
    
    
    (86
    )
    
    
    15Net loss from continuing operations
    
    
    (33,311
    )
    
    
    (11,695
    )Net loss from discontinued operations
    
    
    (760
    )
    
    
    (1,549
    )Net loss
    
    $
    (34,071
    )
    
    $
    (13,244
    )Basic and diluted net loss per share:Continuing operations
    
    $
    (1.08
    )
    
    $
    (0.38
    )Discontinued operations
    
    
    (0.02
    )
    
    
    (0.05
    )Basic and diluted net loss per share
    
    $
    (1.10
    )
    
    $
    (0.43
    )Number of shares used in calculations:Basic
    
    
    30,925
    
    
    
    30,521Diluted
    
    
    30,925
    
    
    
    30,521Dividends declared per common share
    
    $
    
    
    
    $
    0.05
   2




---



##### Table of Contents



Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Three Months EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Cash flows from operating activities:Net loss from continuing operations
    
    $
    (33,311
    )
    
    $
    (11,695
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    6,135
    
    
    
    5,767Amortization of other intangible assets
    
    
    5,078
    
    
    
    5,078Amortization of vessel dry-docking
    
    
    4,077
    
    
    
    3,053Amortization of deferred financing costs
    
    
    815
    
    
    
    855Loss on modification of debt
    
    
    620
    
    
    
    Deferred income taxes
    
    
    (287
    )
    
    
    40(Gain) loss on equipment disposals
    
    
    (10
    )
    
    
    53Stock-based compensation
    
    
    282
    
    
    
    600Accretion of interest on 4.25% convertible notes
    
    
    2,850
    
    
    
    2,623Accretion of interest on legal settlement
    
    
    240
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (19,314
    )
    
    
    (12,757
    )Materials and supplies
    
    
    (2,595
    )
    
    
    3,077Other current assets
    
    
    (2,323
    )
    
    
    (654
    )Accounts payable
    
    
    (8,173
    )
    
    
    7,218Accrued liabilities
    
    
    12,979
    
    
    
    (7,287
    )Vessel rent
    
    
    (5,925
    )
    
    
    (18,892
    )Vessel dry-docking payments
    
    
    (4,968
    )
    
    
    (9,826
    )Other assets/liabilities
    
    
    338
    
    
    
    108Net cash used in operating activities
    
    
    (43,492
    )
    
    
    (32,639
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,413
    )
    
    
    (1,460
    )Proceeds from the sale of property and equipment
    
    
    206
    
    
    
    99Net cash used in investing activities
    
    
    (3,207
    )
    
    
    (1,361
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (4,688
    )
    
    
    (4,688
    )Borrowing under revolving credit facility
    
    
    63,500
    
    
    
    55,000Payments on revolving credit facility
    
    
    (6,000
    )
    
    
    (15,000
    )Payment of financing costs
    
    
    (3,243
    )
    
    
    Payments on capital lease obligations
    
    
    (384
    )
    
    
    Dividends to stockholders
    
    
    
    
    
    
    (1,526
    )Common stock issued under employee stock purchase plan
    
    
    
    
    
    
    34Net cash provided by financing activities
    
    
    49,185
    
    
    
    33,820Net increase (decrease) in cash from continuing operations
    
    
    2,486
    
    
    
    (180
    )Net increase (decrease) in cash from discontinued operations
    
    
    534
    
    
    
    (1,567
    )Net increase (decrease) in cash
    
    
    3,020
    
    
    
    (1,747
    )Cash at beginning of period
    
    
    2,751
    
    
    
    6,419Cash at end of period
    
    $
    5,771
    
    
    $
    4,672
   3




---



##### Table of Contents



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




---



##### Table of Contents



3. Long-Term Debt
  March 27,
    
    
    December 26,2011
    
    
    2010Senior credit facilityTerm loan
    
    $
    89,063
    
    
    $
    93,750Revolving credit facility
    
    
    157,500
    
    
    
    100,0004.25% convertible senior notes
    
    
    316,264
    
    
    
    313,414Capital lease obligations
    
    
    8,774
    
    
    
    9,159Total long-term debt
    
    
    571,601
    
    
    
    516,323Less current portion
    
    
    (564,497
    )
    
    
    (508,793
    )Long-term debt, net of current portion
    
    $
    7,104
    
    
    $
    7,530
    Senior Credit Facility
    5




---



##### Table of Contents



Derivative Instruments
    6




---



##### 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 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.
    Fair Value of Financial Instruments
   7




---



##### Table of Contents



4. Restructuring
   Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 26,
    
    
    
    
    
    
    
    
    
    
    March 27,2010
    
    
    Provision
    
    
    Payments
    
    
    2011Personnel related costs
    
    $
    2,032
    
    
    $
    
    
    
    $
    (395
    )
    
    $
    1,637Other associated costs
    
    
    10
    
    
    
    
    
    
    
    (7
    )
    
    
    3Total
    
    $
    2,042
    
    
    $
    
    
    
    $
    (402
    )
    
    $
    1,640
  5. Discontinued Operations
   March 27,
    
    
    December 26,2011
    
    
    2010Accounts receivable, net of allowance
    
    $
    8,791
    
    
    $
    10,319Property and equipment, net
    
    
    732
    
    
    
    721Deferred tax asset
    
    
    668
    
    
    
    648Other assets
    
    
    186
    
    
    
    178Subtotal
    
    
    10,377
    
    
    
    11,866Valuation allowance
    
    
    (4,983
    )
    
    
    (4,983
    )Total current assets of discontinued operations
    
    $
    5,394
    
    
    $
    6,883
 March 27,
    
    
    December 26,2011
    
    
    2010Accounts payable
    
    $
    840
    
    
    $
    890Other accrued liabilities
    
    
    2,713
    
    
    
    2,809Total current liabilities of discontinued operations
    
    $
    3,553
    
    
    $
    3,699
  8




---



##### Table of Contents



Three Months EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Operating revenue
    
    $
    10,583
    
    
    $
    11,474Operating loss
    
    
    (780
    )
    
    
    (1,589
    )Net loss
    
    
    (760
    )
    
    
    (1,549
    )
  Three Months EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Cash provided by (used in) operating activities
    
    $
    591
    
    
    $
    (1,506
    )Cash used in investing activities
    
    
    (57
    )
    
    
    (61
    )Net increase (decrease) in cash from discontinued
operations
    
    $
    534
    
    
    $
    (1,567
    )
 6. Income Taxes
  7. Stock-Based Compensation
   Three Months EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Stock options
    
    $
    52
    
    
    $
    276Restricted stock / vested shares
    
    
    199
    
    
    
    283ESPP
    
    
    31
    
    
    
    41Total
    
    $
    282
    
    
    $
    600
  9




---



##### Table of Contents



Stock Options
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    ValueOptions
    
    Options
    
    
    Price
    
    
    Term (years)
    
    
    (000s)Outstanding at December 26, 2010
    
    
    1,437,713
    
    
    $
    15.78Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    (19,926
    )
    
    
    16.95Outstanding at March 27, 2011
    
    
    1,417,787
    
    
    $
    15.77
    
    
    
    5.48
    
    
    $
    Vested or expected to vest at March 27, 2011
    
    
    1,417,367
    
    
    $
    15.77
    
    
    
    5.48
    
    
    $
    Exercisable at March 27, 2011
    
    
    1,279,787
    
    
    $
    15.93
    
    
    
    5.30
    
    
    $
    
  Restricted Stock
  Weighted-AverageFair ValueNumber of
    
    
    at GrantRestricted Shares
    
    Shares
    
    
    DateNonvested at December 26, 2010
    
    
    631,705
    
    
    $
    5.64Granted
    
    
    83,565
    
    
    
    3.59Vested
    
    
    
    
    
    
    Forfeited
    
    
    (16,000
    )
    
    
    14.63Nonvested at March 27, 2011
    
    
    699,270
    
    
    $
    5.19
  Employee Stock Purchase Plan
   10




---



##### Table of Contents



8. Net Loss per Common Share
   Three Months EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Numerator:Net loss from continuing operations
    
    $
    (33,311
    )
    
    $
    (11,695
    )Net loss from discontinued operations
    
    
    (760
    )
    
    
    (1,549
    )Net loss
    
    $
    (34,071
    )
    
    $
    (13,244
    )Denominator:Denominator for basic net loss per common share:Weighted average shares outstanding
    
    
    30,925
    
    
    
    30,521Effect of dilutive securities:Stock-based compensation
    
    
    
    
    
    
    Denominator for diluted net loss per common share
    
    
    30,925
    
    
    
    30,521Basic and diluted net loss per common shareFrom continuing operations
    
    $
    (1.08
    )
    
    $
    (0.38
    )From discontinued operations
    
    
    (0.02
    )
    
    
    (0.05
    )Basic and diluted net loss per common share
    
    $
    (1.10
    )
    
    $
    (0.43
    )
  9. Comprehensive Loss
  Three Months EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Net loss
    
    $
    (34,071
    )
    
    $
    (13,244
    )Change in fair value of interest rate swap
    
    
    454
    
    
    
    338Amortization of pension and
post-retirement benefit transition
obligation
    
    
    118
    
    
    
    103Comprehensive loss
    
    $
    (33,499
    )
    
    $
    (12,803
    )
  11




---



##### Table of Contents



10. Property and Equipment
  March 27,
    
    
    December 26,2011
    
    
    2010Vessels and vessel improvements
    
    $
    154,252
    
    
    $
    152,641Containers
    
    
    37,024
    
    
    
    37,212Chassis
    
    
    14,812
    
    
    
    14,524Cranes
    
    
    37,953
    
    
    
    37,294Machinery and equipment
    
    
    31,019
    
    
    
    29,756Facilities and land improvements
    
    
    26,521
    
    
    
    26,368Software
    
    
    24,458
    
    
    
    23,837Construction in progress
    
    
    23,154
    
    
    
    25,850Total property and equipment
    
    
    349,193
    
    
    
    347,482Accumulated depreciation
    
    
    (158,774
    )
    
    
    (152,825
    )Property and equipment, net
    
    $
    190,419
    
    
    $
    194,657
  11. Intangible Assets
  March 27,
    
    
    December 26,2011
    
    
    2010Customer contracts/relationships
    
    $
    141,430
    
    
    $
    141,430Trademarks
    
    
    63,800
    
    
    
    63,800Deferred financing costs
    
    
    17,528
    
    
    
    14,906Total intangibles with definite lives
    
    
    222,758
    
    
    
    220,136Accumulated amortization
    
    
    (145,204
    )
    
    
    (139,312
    )Net intangibles with definite lives
    
    
    77,554
    
    
    
    80,824Goodwill
    
    
    314,149
    
    
    
    314,149Intangible assets, net
    
    $
    391,703
    
    
    $
    394,973
  12. Other Accrued Liabilities
  March 27,
    
    
    December 26,2011
    
    
    2010Vessel operations
    
    $
    19,335
    
    
    $
    20,147Payroll and employee benefits
    
    
    16,001
    
    
    
    13,996Marine operations
    
    
    14,130
    
    
    
    8,777Terminal operations
    
    
    12,410
    
    
    
    11,863Fuel
    
    
    13,541
    
    
    
    8,032Interest
    
    
    4,396
    
    
    
    7,344Legal settlements
    
    
    12,767
    
    
    
    12,767Restructuring
    
    
    1,442
    
    
    
    1,853Other liabilities
    
    
    26,083
    
    
    
    23,720Total other accrued liabilities
    
    $
    120,105
    
    
    $
    108,499
   12




---



##### Table of Contents



13. 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
    14. Pension and Post-retirement Benefit Plans
  Pension Plans
    Post-retirement Benefit Plans
   13




---



##### Table of Contents



Other Plans
  15. Commitments and Contingencies
 Legal Proceedings
 Antitrust Matters
      14




---



##### Table of Contents



15




---



##### Table of Contents



parens patriae
   Environmental Matters
   SFL Agreements
    16




---



##### Table of Contents



Standby Letters of Credit
  16. Recent Accounting Pronouncements
  17. Subsequent Events
    17




---



##### Table of Contents



2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
     Quarters EndedMarch 27,
    
    
    March 21,2011
    
    
    2010($ in thousands)Operating revenue
    
    $
    285,353
    
    
    $
    274,658Operating expense
    
    
    307,400
    
    
    
    276,506Operating loss
    
    $
    (22,047
    )
    
    $
    (1,848
    )Operating ratio
    
    
    107.7
    %
    
    
    100.7
    %Revenue containers (units)
    
    
    71,529
    
    
    
    60,288Average unit revenue
    
    $
    3,729
    
    
    $
    3,955
   18




---



##### Table of Contents



Quarters EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Net loss
    
    $
    (34,071
    )
    
    $
    (13,244
    )Net loss from discontinued
operations
    
    
    (760
    )
    
    
    (1,549
    )Net loss from continuing operations
    
    
    (33,311
    )
    
    
    (11,695
    )Interest expense, net
    
    
    10,716
    
    
    
    9,830Income tax (benefit) expense
    
    
    (86
    )
    
    
    15Depreciation and amortization
    
    
    15,290
    
    
    
    13,898EBITDA
    
    
    (7,391
    )
    
    
    12,048Union/other severance charge
    
    
    2,813
    
    
    
    263Department of Justice antitrust
investigation costs
    
    
    2,178
    
    
    
    958Loss on modification of debt
    
    
    620
    
    
    
    Adjusted EBITDA
    
    $
    (1,780
    )
    
    $
    13,269
   Quarters EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Net loss
    
    $
    (34,071
    )
    
    $
    (13,244
    )Net loss from discontinued
operations
    
    
    (760
    )
    
    
    (1,549
    )Net loss from continuing operations
    
    
    (33,311
    )
    
    
    (11,695
    )Adjustments:Union/other severance charge
    
    
    2,813
    
    
    
    263Department of Justice
antitrust investigation
costs
    
    
    2,178
    
    
    
    958Loss on modification of debt
    
    
    620
    
    
    
    Tax impact of adjustments
    
    
    (255
    )
    
    
    Total adjustments
    
    
    5,356
    
    
    
    1,221Adjusted net loss
    
    $
    (27,955
    )
    
    $
    (10,474
    )
  19




---



##### Table of Contents



Quarters EndedMarch 27,
    
    
    March 21,2011
    
    
    2010Net loss per share
    
    $
    (1.10
    )
    
    $
    (0.43
    )Net loss per share from discontinued
operations
    
    
    (0.02
    )
    
    
    (0.05
    )Net loss per share from continuing operations
    
    
    (1.08
    )
    
    
    (0.38
    )Adjustments:Union/other severance charge
    
    
    0.09
    
    
    
    0.01Department of Justice antitrust
investigation costs
    
    
    0.07
    
    
    
    0.03Loss on modification of debt
    
    
    0.02
    
    
    
    Total adjustments
    
    
    0.18
    
    
    
    0.04Adjusted net loss per share
    
    $
    (0.90
    )
    
    $
    (0.34
    )
 General
  History
  Critical Accounting Policies
    20




---



##### Table of Contents



Seasonality
  Results of Operations
 Operating Revenue Overview
    Cost of Services Overview
   21




---



##### Table of Contents



Quarter Ended March 27, 2011 Compared with the Quarter March 21, 2010
 Quarters EndedMarch 27,
    
    
    March 21,2011
    
    
    2010
    
    
    Change
    
    
    % Change($ in thousands)Operating revenue
    
    $
    285,353
    
    
    $
    274,658
    
    
    $
    10,695
    
    
    
    3.9
    %Operating expense:Vessel
    
    
    108,171
    
    
    
    102,445
    
    
    
    5,726
    
    
    
    5.6
    %Marine
    
    
    60,167
    
    
    
    51,916
    
    
    
    8,251
    
    
    
    15.9
    %Inland
    
    
    49,877
    
    
    
    41,945
    
    
    
    7,932
    
    
    
    18.9
    %Land
    
    
    37,565
    
    
    
    35,846
    
    
    
    1,719
    
    
    
    4.8
    %Rolling stock rent
    
    
    11,548
    
    
    
    9,805
    
    
    
    1,743
    
    
    
    17.8
    %Cost of services
    
    
    267,328
    
    
    
    241,957
    
    
    
    25,371
    
    
    
    10.5
    %Depreciation and amortization
    
    
    11,213
    
    
    
    10,845
    
    
    
    368
    
    
    
    3.4
    %Amortization of vessel dry-docking
    
    
    4,077
    
    
    
    3,053
    
    
    
    1,024
    
    
    
    33.5
    %Selling, general and administrative
    
    
    24,294
    
    
    
    20,517
    
    
    
    3,777
    
    
    
    18.4
    %Miscellaneous expense, net
    
    
    488
    
    
    
    134
    
    
    
    354
    
    
    
    264.2
    %Total operating expense
    
    
    307,400
    
    
    
    276,506
    
    
    
    30,894
    
    
    
    11.2
    %Operating loss
    
    $
    (22,047
    )
    
    $
    (1,848
    )
    
    $
    (20,199
    )
    
    
    (1,093.0)
    %Operating ratio
    
    
    107.7
    %
    
    
    100.7
    %
    
    
    
    
    
    
    7.0
    %Revenue containers (units)
    
    
    71,529
    
    
    
    60,288
    
    
    
    11,241
    
    
    
    18.6
    %Average unit revenue
    
    $
    3,729
    
    
    $
    3,955
    
    
    $
    (226
    )
    
    
    (5.7)
    %
 Operating Revenue.
 International revenue
    
    $
    23,180Other non-transportation revenue increase
    
    
    3,675Revenue container rate increase
    
    
    2,286Bunker and intermodal fuel surcharges increase
    
    
    2,098Revenue container volume increase
    
    
    138Space charter revenue decrease
    
    
    (20,682
    )Total operating revenue increase
    
    $
    10,695
  Cost of Services.
  22




---



##### Table of Contents



Vessel fuel costs increase
    
    $
    8,491Vessel space charter expense decrease
    
    
    (1,381
    )Labor and other vessel operating expense decrease
    
    
    (762
    )Vessel lease expense decrease
    
    
    (622
    )Total vessel expense increase
    
    $
    5,726
     Quarters EndedMarch 27,
    
    
    March 21,2011
    
    
    2010
    
    
    % Change(in thousands)Land expense:Maintenance
    
    $
    14,008
    
    
    $
    13,029
    
    
    
    7.5
    %Terminal overhead
    
    
    14,196
    
    
    
    13,300
    
    
    
    6.7
    %Yard and gate
    
    
    7,729
    
    
    
    7,559
    
    
    
    2.2
    %Warehouse
    
    
    1,632
    
    
    
    1,958
    
    
    
    (16.6)
    %Total land expense
    
    $
    37,565
    
    
    $
    35,846
    
    
    
    4.8
    %
    23




---



##### Table of Contents



Depreciation and Amortization.
 Quarters EndedMarch 27,
    
    
    March 21,2011
    
    
    2010
    
    
    % Change(in thousands)Depreciation and amortization:Depreciationowned vessels
    
    $
    2,403
    
    
    $
    2,335
    
    
    
    2.8
    %Depreciation and amortizationother
    
    
    3,732
    
    
    
    3,432
    
    
    
    8.7
    %Amortization of intangible assets
    
    
    5,078
    
    
    
    5,078
    
    
    
    0.0
    %Total depreciation and amortization
    
    $
    11,213
    
    
    $
    10,845
    
    
    
    3.4
    %Amortization of vessel dry-docking
    
    $
    4,077
    
    
    $
    3,053
    
    
    
    33.5
    %
 Amortization of Vessel Dry-docking.
 Selling, General and Administrative.
 Miscellaneous Expense, Net
 Interest Expense, Net.
 Income Tax (Benefit) Expense.
  24




---



##### Table of Contents



Liquidity and Capital Resources
  Operating Activities
  Earnings adjusted for non-cash charges
    
    $
    (19,823
    )Increase in accounts receivable
    
    
    (6,557
    )Increase in materials and supplies
    
    
    (5,672
    )Decrease in payments related to vessel leases
    
    
    12,967Decrease in payments related to dry-dockings
    
    
    4,858Other changes in working capital, net
    
    
    3,374$
    (10,853
    )
 Investing Activities
  Financing Activities
  Liquidity Outlook
      25




---



##### Table of Contents



Long-Term Debt
 Senior Credit Facility
     26




---



##### 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;
  27




---



##### Table of Contents




    
    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.
    Goodwill
  Outlook
     28




---



##### Table of Contents



Interest Rate Risk
    Vessel
Lease Charters
  Recent Accounting Pronouncements
  Forward Looking Statements
    
    
    our ability to maintain adequate liquidity to operate our business,
 
    
    our ability to repay or extend our indebtedness when it becomes due or if maturity is
accelerated,
 
    
    our ability to obtain waivers or reach agreements with respect to
indebtedness that we expect to default upon during the second quarter of 2011,
 
    
    volatility in fuel prices
 
    
    cyclical nature of international shipping industry and resulting volatile changes in freight
rates,
 
    
    decreases in shipping volumes,
 
    
    our ability to continue as a going concern,
 
    
    failure to comply with the terms of our probation imposed by the
court in connection with our plea relating to antitrust matters,
 
    
    any new developments relating to antitrust matters in any of our trades,
 
    
    failure to resolve or successfully defend pending and future civil antitrust claims in
Puerto Rico,
 
    
    our ability to integrate new and retain management,
 
    
    government investigations related to recordkeeping and reporting
requirements for vessel generated pollution and any other government
investigations and legal proceedings,
  29




---



##### Table of Contents




    
    suspension or debarment by the federal government
 
    
    compliance with safety and environmental protection and other governmental requirements,
 
    
    increased inspection procedures and tighter import and export controls,
 
    
    repeal or substantial amendment of the coastwise laws of the United States, also known as
the Jones Act,
 
    
    catastrophic losses and other liabilities,
 
    
    the arrest of our vessels by maritime claimants,
 
    
    severe weather and natural disasters, or
 
    
    the aging of our vessels; unexpected substantial dry-docking costs for our vessels.
   
 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
   30




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 1. Legal Proceedings
 Antitrust Matters
         31




---



##### Table of Contents



parens
patriae
    32




---



##### Table of Contents



Environmental Matters
   
 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.  33




---



##### Table of Contents



SIGNATURE
   HORIZON LINES, INC.By:
    /s/ MICHAEL T. AVARAMichael T. AvaraExecutive Vice President & Chief Financial Officer
(Principal Financial Officer & Authorized Signatory)  34




---



##### 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.