##### 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 21, 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
 Yes o No 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 April 21, 2010, 30,445,781 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
    
    
    274. Controls and Procedures
    
    
    27Part II. Other Information
    
    
    281. Legal Proceedings
    
    
    281A. Risk Factors
    
    
    302. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    303. Defaults Upon Senior Securities
    
    
    304. Reserved
    
    
    305. Other Information
    
    
    306. Exhibits
    
    
    30Signature
    
    
    31Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




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PART I. FINANCIAL INFORMATION
 
 1. Financial Statements
 Horizon Lines, Inc.

Unaudited Condensed Consolidated Balance Sheets
(in thousands, except per share data)
 March 21,
    
    
    December 20,2010
    
    
    2009AssetsCurrent assetsCash
    
    $
    4,672
    
    
    $
    6,419Accounts receivable, net of allowance of $7,780 and
$7,578 at March 21, 2010 and December 20, 2009,
respectively
    
    
    135,856
    
    
    
    123,536Prepaid vessel rent
    
    
    18,211
    
    
    
    4,580Materials and supplies
    
    
    27,177
    
    
    
    30,254Deferred tax asset
    
    
    2,929
    
    
    
    2,929Other current assets
    
    
    9,680
    
    
    
    9,027Total current assets
    
    
    198,525
    
    
    
    176,745Property and equipment, net
    
    
    188,943
    
    
    
    193,438Goodwill
    
    
    317,068
    
    
    
    317,068Intangible assets, net
    
    
    99,390
    
    
    
    105,405Other long-term assets
    
    
    32,010
    
    
    
    25,854Total assets
    
    $
    835,936
    
    
    $
    818,510Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    50,475
    
    
    $
    43,257Current portion of long-term debt
    
    
    18,750
    
    
    
    18,750Accrued vessel rent
    
    
    
    
    
    
    4,339Other accrued liabilities
    
    
    102,068
    
    
    
    110,473Total current liabilities
    
    
    171,293
    
    
    
    176,819Long-term debt, net of current portion
    
    
    534,040
    
    
    
    496,105Deferred rent
    
    
    21,467
    
    
    
    22,585Deferred tax liability
    
    
    4,248
    
    
    
    4,248Other long-term liabilities
    
    
    17,131
    
    
    
    17,475Total liabilities
    
    
    748,179
    
    
    
    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, 34,213 shares issued and 30,413 shares
outstanding as of March 21, 2010 and 34,091 shares
issued and 30,291 shares outstanding as of
December 20, 2009
    
    
    341
    
    
    
    341Treasury stock, 3,800 shares at cost
    
    
    (78,538
    )
    
    
    (78,538
    )Additional paid in capital
    
    
    196,181
    
    
    
    196,900Accumulated deficit
    
    
    (29,118
    )
    
    
    (15,874
    )Accumulated other comprehensive loss
    
    
    (1,109
    )
    
    
    (1,551
    )Total stockholders equity
    
    
    87,757
    
    
    
    101,278Total liabilities and stockholders equity
    
    $
    835,936
    
    
    $
    818,510
   1




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Horizon Lines, Inc.


Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
 Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009Operating revenue
    
    $
    286,132
    
    
    $
    272,351Operating expense:Cost of services (excluding depreciation expense)
    
    
    252,787
    
    
    
    229,659Depreciation and amortization
    
    
    11,015
    
    
    
    10,975Amortization of vessel dry-docking
    
    
    3,053
    
    
    
    3,798Selling, general and administrative
    
    
    21,701
    
    
    
    27,768Restructuring charge
    
    
    
    
    
    
    788Miscellaneous expense, net
    
    
    560
    
    
    
    182Total operating expense
    
    
    289,116
    
    
    
    273,170Operating loss
    
    
    (2,984
    )
    
    
    (819
    )Other expense:Interest expense, net
    
    
    10,283
    
    
    
    9,431Other expense, net
    
    
    2
    
    
    
    Loss before income tax benefit
    
    
    (13,269
    )
    
    
    (10,250
    )Income tax benefit
    
    
    (25
    )
    
    
    (297
    )Net loss
    
    $
    (13,244
    )
    
    $
    (9,953
    )Net loss per share:Basic
    
    $
    (0.43
    )
    
    $
    (0.33
    )Diluted
    
    $
    (0.43
    )
    
    $
    (0.33
    )Number of shares used in calculations:Basic
    
    
    30,521
    
    
    
    30,424Diluted
    
    
    30,521
    
    
    
    30,424Dividends declared per common share
    
    $
    0.05
    
    
    $
    0.11
   2




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##### Table of Contents



Horizon Lines, Inc.


Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (13,244
    )
    
    $
    (9,953
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    5,855
    
    
    
    5,817Amortization of other intangible assets
    
    
    5,160
    
    
    
    5,158Amortization of vessel dry-docking
    
    
    3,053
    
    
    
    3,798Amortization of deferred financing costs
    
    
    855
    
    
    
    577Restructuring charge
    
    
    
    
    
    
    788Deferred income taxes
    
    
    
    
    
    
    (199
    )Loss (gain) on equipment disposals
    
    
    53
    
    
    
    (15
    )Stock-based compensation
    
    
    600
    
    
    
    941Accretion of interest on 4.25% convertible notes
    
    
    2,623
    
    
    
    2,422Changes in operating assets and liabilities:Accounts receivable
    
    
    (12,320
    )
    
    
    1,525Materials and supplies
    
    
    3,077
    
    
    
    746Other current assets
    
    
    (652
    )
    
    
    529Accounts payable
    
    
    7,218
    
    
    
    (13,194
    )Accrued liabilities
    
    
    (7,812
    )
    
    
    1,261Vessel rent
    
    
    (18,892
    )
    
    
    (18,137
    )Vessel dry-docking payments
    
    
    (9,826
    )
    
    
    (3,147
    )Other assets/liabilities
    
    
    107
    
    
    
    (1,277
    )Net cash used in operating activities
    
    
    (34,145
    )
    
    
    (22,360
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,521
    )
    
    
    (3,315
    )Proceeds from the sale of property and equipment
    
    
    99
    
    
    
    89Net cash used in investing activities
    
    
    (1,422
    )
    
    
    (3,226
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (4,688
    )
    
    
    (1,612
    )Borrowing under revolving credit facility
    
    
    55,000
    
    
    
    40,000Payments on revolving credit facility
    
    
    (15,000
    )
    
    
    (10,000
    )Dividends to stockholders
    
    
    (1,526
    )
    
    
    (3,348
    )Common stock issued under employee stock purchase plan
    
    
    34
    
    
    
    19Net cash provided by financing activities
    
    
    33,820
    
    
    
    25,059Net decrease in cash
    
    
    (1,747
    )
    
    
    (527
    )Cash at beginning of period
    
    
    6,419
    
    
    
    5,487Cash at end of period
    
    $
    4,672
    
    
    $
    4,960
   3




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HORIZON LINES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. Organization
  2. Basis of Presentation
      3. Restructuring
   Balance at
    
    
    
    
    
    
    Balance atDecember 20,
    
    
    
    
    
    
    March 21,2009
    
    
    Payments
    
    
    2010Personnel related costs
    
    $
    150
    
    
    $
    (150
    )
    
    $
    
  4




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4. Long-Term Debt
  March 21,
    
    
    December 20,2010
    
    
    2009Senior credit facilityTerm loan
    
    $
    107,812
    
    
    $
    112,500Revolving credit facility
    
    
    140,000
    
    
    
    100,0004.25% convertible senior notes
    
    
    304,978
    
    
    
    302,355Total long-term debt
    
    
    552,790
    
    
    
    514,855Less current portion
    
    
    (18,750
    )
    
    
    (18,750
    )Long-term debt, net of current portion
    
    $
    534,040
    
    
    $
    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
  5. Income Taxes
  6. Stock-Based Compensation
   Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009Stock options
    
    $
    276
    
    
    $
    381Restricted stock
    
    
    283
    
    
    
    560ESPP
    
    
    41
    
    
    
    Total
    
    $
    600
    
    
    $
    941
  7




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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
    
    
    (4,500
    )
    
    
    33.51Expired
    
    
    (11,800
    )
    
    
    10.91Outstanding at March 21, 2010
    
    
    1,498,890
    
    
    $
    15.75
    
    
    
    6.31
    
    
    $
    Vested or expected to vest at March 21, 2010
    
    
    1,493,203
    
    
    $
    15.75
    
    
    
    6.30
    
    
    $
    Exercisable at March 21, 2010
    
    
    1,078,354
    
    
    $
    11.85
    
    
    
    5.85
    
    
    $
    
  Restricted Stock
  Weighted-AverageFair ValueNumber of
    
    
    at GrantRestricted Shares
    
    Shares
    
    
    DateNonvested at December 20, 2009
    
    
    607,221
    
    
    $
    10.21Granted
    
    
    343,200
    
    
    
    4.92Vested
    
    
    (84,093
    )
    
    
    32.58Forfeited
    
    
    (12,300
    )
    
    
    11.37Nonvested at March 21, 2010
    
    
    854,028
    
    
    $
    5.86
   8




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7. Net Income (Loss) per Common Share
   Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009Numerator:Net loss
    
    $
    (13,244
    )
    
    $
    (9,953
    )Denominator:Denominator for basic loss per common share:Weighted average shares outstanding
    
    
    30,521
    
    
    
    30,424Effect of dilutive securities:Stock-based compensation
    
    
    
    
    
    
    Denominator for diluted net loss per common share
    
    
    30,521
    
    
    
    30,424Basic net loss per common share
    
    $
    (0.43
    )
    
    $
    (0.33
    )Diluted net loss per common share
    
    $
    (0.43
    )
    
    $
    (0.33
    )
  8. Comprehensive Loss
  Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009Net loss
    
    $
    (13,244
    )
    
    $
    (9,953
    )Change in fair value of interest rate swap
    
    
    338
    
    
    
    (175
    )Amortization of pension and
post-retirement benefit transition
obligation
    
    
    103
    
    
    
    103Comprehensive loss
    
    $
    (12,803
    )
    
    $
    (10,025
    )
  9




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9. Property and Equipment
  March 21,
    
    
    December 20,2010
    
    
    2009Vessels and vessel improvements
    
    $
    149,057
    
    
    $
    147,823Containers
    
    
    23,885
    
    
    
    24,035Chassis
    
    
    14,492
    
    
    
    14,599Cranes
    
    
    37,195
    
    
    
    36,965Machinery and equipment
    
    
    28,804
    
    
    
    28,637Facilities and land improvements
    
    
    24,967
    
    
    
    24,006Software
    
    
    24,108
    
    
    
    24,072Construction in progress
    
    
    21,351
    
    
    
    22,541Total property and equipment
    
    
    323,859
    
    
    
    322,678Accumulated depreciation
    
    
    (134,916
    )
    
    
    (129,240
    )Property and equipment, net
    
    $
    188,943
    
    
    $
    193,438
 10. Intangible Assets
  March 21,
    
    
    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
    
    
    (121,978
    )
    
    
    (115,963
    )Net intangibles with definite lives
    
    
    99,390
    
    
    
    105,405Goodwill
    
    
    317,068
    
    
    
    317,068Intangible assets, net
    
    $
    416,458
    
    
    $
    422,473
 11. Other Accrued Liabilities
  March 21,
    
    
    December 20,2010
    
    
    2009Vessel operations
    
    $
    20,533
    
    
    $
    17,922Payroll and employee benefits
    
    
    12,004
    
    
    
    17,035Marine operations
    
    
    10,778
    
    
    
    10,668Terminal operations
    
    
    9,580
    
    
    
    10,481Fuel
    
    
    6,010
    
    
    
    9,418Interest
    
    
    3,857
    
    
    
    7,298Settlement of class action lawsuit
    
    
    15,000
    
    
    
    15,000Other liabilities
    
    
    24,306
    
    
    
    22,651Total other accrued liabilities
    
    $
    102,068
    
    
    $
    110,473
  10




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12. 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
    13. Pension and Post-retirement Benefit Plans
  Pension Plans
    Post-retirement Benefit Plans
    11




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Other Plans
  14. Commitments and Contingencies
 Legal Proceedings
         12




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13




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




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16. Subsequent Events
    15




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2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
    Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009($ in thousands)Operating revenue
    
    $
    286,132
    
    
    $
    272,351Operating expense
    
    
    289,116
    
    
    
    273,170Operating loss
    
    $
    (2,984
    )
    
    $
    (819
    )Operating ratio
    
    
    101.0
    %
    
    
    100.3
    %Revenue containers (units)
    
    
    60,288
    
    
    
    61,477Average unit revenue
    
    $
    3,955
    
    
    $
    3,741
   16




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Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009(in thousands)Net loss
    
    $
    (13,244
    )
    
    $
    (9,953
    )Interest expense, net
    
    
    10,283
    
    
    
    9,431Income tax benefit
    
    
    (25
    )
    
    
    (297
    )Depreciation and amortization
    
    
    14,068
    
    
    
    14,773EBITDA
    
    
    11,082
    
    
    
    13,954Department of Justice antitrust investigation costs
    
    
    958
    
    
    
    4,424Union severance charge
    
    
    263
    
    
    
    Restructuring charge
    
    
    
    
    
    
    788Adjusted EBITDA
    
    $
    12,303
    
    
    $
    19,166
   Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009Net loss
    
    $
    (13,244
    )
    
    $
    (9,953
    )Adjustments:Department of Justice antitrust investigation costs
    
    
    958
    
    
    
    4,424Union severance charge
    
    
    263
    
    
    
    Restructuring charge
    
    
    
    
    
    
    788Total adjustments
    
    
    1,221
    
    
    
    5,212Adjusted net loss
    
    $
    (12,023
    )
    
    $
    (4,741
    )
 Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009Net loss per share
    
    $
    (0.43
    )
    
    $
    (0.33
    )Adjustments:Department of Justice antitrust investigation costs
    
    
    0.03
    
    
    
    0.15Union severance charge
    
    
    0.01
    
    
    
    Restructuring charge
    
    
    
    
    
    
    0.03Total adjustments
    
    
    0.04
    
    
    
    0.18Adjusted net loss per share
    
    $
    (0.39
    )
    
    $
    (0.15
    )
  17




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General
  Recent Developments
     History
  Critical Accounting Policies
    18




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Seasonality
  Results of Operations
 Operating Revenue Overview
    Cost of Services Overview
   19




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Quarter Ended March 21, 2010 Compared with the Quarter Ended March 22, 2009
 Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009
    
    
    Change
    
    
    % Change($ in thousands)Operating revenue
    
    $
    286,132
    
    
    $
    272,351
    
    
    $
    13,781
    
    
    
    5.1
    %Operating expense:Vessel
    
    
    102,432
    
    
    
    84,812
    
    
    
    17,620
    
    
    
    20.8
    %Marine
    
    
    52,228
    
    
    
    49,419
    
    
    
    2,809
    
    
    
    5.7
    %Inland
    
    
    51,438
    
    
    
    49,689
    
    
    
    1,749
    
    
    
    3.5
    %Land
    
    
    36,811
    
    
    
    36,594
    
    
    
    217
    
    
    
    0.6
    %Rolling stock rent
    
    
    9,878
    
    
    
    9,145
    
    
    
    733
    
    
    
    8.0
    %Cost of services
    
    
    252,787
    
    
    
    229,659
    
    
    
    23,128
    
    
    
    10.0
    %Depreciation and amortization
    
    
    11,015
    
    
    
    10,975
    
    
    
    40
    
    
    
    0.4
    %Amortization of vessel dry-docking
    
    
    3,053
    
    
    
    3,798
    
    
    
    (745
    )
    
    
    (19.6
    )%Selling, general and administrative
    
    
    21,701
    
    
    
    27,768
    
    
    
    (6,067
    )
    
    
    (21.8
    )%Restructuring charge
    
    
    
    
    
    
    788
    
    
    
    (788
    )
    
    
    (100.0
    )%Miscellaneous expense, net
    
    
    560
    
    
    
    182
    
    
    
    378
    
    
    
    207.7
    %Total operating expense
    
    
    289,116
    
    
    
    273,170
    
    
    
    15,946
    
    
    
    5.8
    %Operating loss
    
    $
    (2,984
    )
    
    $
    (819
    )
    
    $
    (2,165
    )
    
    
    264.3
    %Operating ratio
    
    
    101.0
    %
    
    
    100.3
    %
    
    
    
    
    
    
    0.7
    %Revenue containers (units)
    
    
    60,288
    
    
    
    61,477
    
    
    
    (1,189
    )
    
    
    (1.9
    )%Average unit revenue
    
    $
    3,955
    
    
    $
    3,741
    
    
    $
    214
    
    
    
    5.7
    %
 Operating Revenue.
 Bunker and intermodal fuel surcharges increase
    
    $
    14,810Other increase
    
    
    3,866Revenue container volume decrease
    
    
    (3,961
    )General rate decrease
    
    
    (934
    )Total operating revenue increase
    
    $
    13,781
  Cost of Services.
  20




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##### Table of Contents



Vessel fuel costs increase
    
    $
    22,437Vessel space charter expense increase
    
    
    597Labor and other vessel operating expense decrease
    
    
    (5,414
    )Total vessel expense increase
    
    $
    17,620
     Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009
    
    

%
Change(in thousands)Land expense:Maintenance
    
    $
    13,070
    
    
    $
    12,319
    
    
    
    6.1
    %Terminal overhead
    
    
    14,102
    
    
    
    14,875
    
    
    
    (5.2
    )%Yard and gate
    
    
    7,559
    
    
    
    7,583
    
    
    
    (0.3
    )%Warehouse
    
    
    2,080
    
    
    
    1,817
    
    
    
    2.2
    %Total land expense
    
    $
    36,811
    
    
    $
    36,594
    
    
    
    0.6
    %
    21




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##### Table of Contents



Depreciation and Amortization.
 Quarters EndedMarch 21,
    
    
    March 22,2010
    
    
    2009
    
    

% Change(in thousands)Depreciation and amortization:Depreciationowned vessels
    
    $
    2,335
    
    
    $
    2,206
    
    
    
    5.8
    %Depreciation and amortizationother
    
    
    3,521
    
    
    
    3,611
    
    
    
    (2.5
    )%Amortization of intangible assets
    
    
    5,159
    
    
    
    5,158
    
    
    
    0.0
    %Total depreciation and amortization
    
    $
    11,015
    
    
    $
    10,975
    
    
    
    0.4
    %Amortization of vessel dry-docking
    
    $
    3,053
    
    
    $
    3,798
    
    
    
    (19.6
    )%
 Amortization of Vessel Dry-docking.
 Selling, General and Administrative.
 Miscellaneous Expense, Net
 Interest Expense, Net.
 Income Tax Expense.
 Liquidity and Capital Resources
    22




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##### Table of Contents



Operating Activities
  Earnings adjusted for non-cash charges
    
    $
    (4,447
    )Increase in payments related to dry-dockings
    
    
    (6,679
    )Other changes in working capital, net
    
    
    (5,288
    )Decrease in payments related to restructuring and early termination of leased assets
    
    
    2,365Decrease in payments related to Department of Justice antitrust investigation and
related legal proceedings
    
    
    2,264$
    (11,785
    )
 Investing Activities
  Financing Activities
  Capital Requirements and Commitments
     Long-Term Debt
 Senior Credit Facility
   23




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Derivative Instruments
   4.25% Convertible Senior Notes
   24




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##### Table of Contents




    
    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.
    Goodwill
  Outlook
   25




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##### Table of Contents



Interest Rate Risk
    Recent Accounting Pronouncements
     Forward Looking Statements
    26




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##### Table of Contents



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




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##### Table of Contents



PART II. OTHER INFORMATION
 
 1. Legal Proceedings
          28




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29




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##### 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
 10.1*+
    
    Memorandum of Understanding among Horizon Lines, LLC and APM Terminals North America, Inc. dated
January 27, 2010.10.2*+
    
    Form of 2010 Performance-Based Restricted Stock Award.10.3*
    
    Form of 2010 Time-Vested Restricted Stock Award.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.  30




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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)  31




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
No.
    
    Description10.1*+
    
    Memorandum of Understanding among Horizon Lines, LLC and APM Terminals North America, Inc. dated
January 27, 2010.10.2*+
    
    Form of 2010 Performance-Based Restricted Stock Award.10.3*
    
    Form of 2010 Time-Vested Restricted Stock Award.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.