##### 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 22, 2009
 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
 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 22, 2009, 30,175,543 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
    
    
    31. Financial Statements
    
    
    3Unaudited Condensed Consolidated Balance Sheets
    
    
    3Unaudited Condensed Consolidated Statements of Operations
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    62. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    193. Quantitative and Qualitative Disclosures About Market Risk
    
    
    314. Controls and Procedures
    
    
    32Part II. Other Information
    
    
    331. Legal Proceedings
    
    
    331A. Risk Factors
    
    
    342. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    343. Defaults Upon Senior Securities
    
    
    344. Submission of Matters to a Vote of Security Holders
    
    
    345. Other Information
    
    
    346. Exhibits
    
    
    34Signature
    
    
    35Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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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)
 March 22,
    
    
    December 21,2009
    
    
    2008(As Adjusted)AssetsCurrent assetsCash
    
    $
    4,960
    
    
    $
    5,487Accounts receivable, net of allowance of
$7,955 and $8,217 at March 22, 2009 and
December 21, 2008, respectively
    
    
    133,774
    
    
    
    135,299Deferred tax asset
    
    
    4,150
    
    
    
    7,450Prepaid vessel rent
    
    
    16,273
    
    
    
    4,471Materials and supplies
    
    
    22,898
    
    
    
    23,644Other current assets
    
    
    9,896
    
    
    
    10,424Total current assets
    
    
    191,951
    
    
    
    186,775Property and equipment, net
    
    
    205,115
    
    
    
    208,453Goodwill
    
    
    317,068
    
    
    
    317,068Intangible assets, net
    
    
    119,805
    
    
    
    125,542Deferred tax asset
    
    
    14,213
    
    
    
    10,669Other long-term assets
    
    
    27,149
    
    
    
    24,122Total assets
    
    $
    875,301
    
    
    $
    872,629Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    28,753
    
    
    $
    41,947Current portion of long-term debt
    
    
    9,677
    
    
    
    6,552Accrued vessel rent
    
    
    
    
    
    
    5,421Other accrued liabilities
    
    
    102,096
    
    
    
    97,720Total current liabilities
    
    
    140,526
    
    
    
    151,640Long-term debt, net of current portion
    
    
    553,945
    
    
    
    526,259Deferred rent
    
    
    25,940
    
    
    
    27,058Other long-term liabilities
    
    
    29,847
    
    
    
    30,836Total liabilities
    
    
    750,258
    
    
    
    735,793Stockholders equityPreferred stock, $.01 par value, 30,500 shares
authorized, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 100,000 shares
authorized, 33,976 shares issued and 30,176
shares outstanding as of March 22, 2009 and
33,808 shares issued and 30,008 shares
outstanding as of December 21, 2008
    
    
    340
    
    
    
    338Treasury stock, 3,800 shares at cost
    
    
    (78,538
    )
    
    
    (78,538
    )Additional paid in capital
    
    
    201,222
    
    
    
    199,644Retained earnings
    
    
    8,794
    
    
    
    22,094Accumulated other comprehensive loss
    
    
    (6,775
    )
    
    
    (6,702
    )Total stockholders equity
    
    
    125,043
    
    
    
    136,836Total liabilities and stockholders equity
    
    $
    875,301
    
    
    $
    872,629
   3




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Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Statements of Operations
 (in thousands, except per share amounts)
 Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008(As Adjusted)Operating revenue
    
    $
    272,351
    
    
    $
    305,947Operating expense:Cost of services (excluding depreciation expense)
    
    
    229,659
    
    
    
    252,970Depreciation and amortization
    
    
    10,975
    
    
    
    11,326Amortization of vessel dry-docking
    
    
    3,798
    
    
    
    4,374Selling, general and administrative
    
    
    27,768
    
    
    
    25,131Restructuring costs
    
    
    788
    
    
    
    Miscellaneous expense, net
    
    
    182
    
    
    
    545Total operating expense
    
    
    273,170
    
    
    
    294,346Operating (loss) income
    
    
    (819
    )
    
    
    11,601Other expense:Interest expense, net
    
    
    9,431
    
    
    
    11,159Other (income), net
    
    
    
    
    
    
    (3
    )(Loss) income before income tax benefit
    
    
    (10,250
    )
    
    
    445Income tax benefit
    
    
    (297
    )
    
    
    (281
    )Net (loss) income
    
    $
    (9,953
    )
    
    $
    726Net (loss) income per share:Basic
    
    $
    (0.33
    )
    
    $
    0.02Diluted
    
    $
    (0.33
    )
    
    $
    0.02Number of shares used in calculations:Basic
    
    
    30,424
    
    
    
    30,492Diluted
    
    
    30,424
    
    
    
    30,874Dividends declared per common share
    
    $
    0.11
    
    
    $
    0.11
   4




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##### Table of Contents



Horizon Lines, Inc.
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008(As Adjusted)Cash flows from operating activities:Net (loss) income
    
    $
    (9,953
    )
    
    $
    726Adjustments to reconcile net (loss) income to net cash
used in operating activities:Depreciation
    
    
    5,817
    
    
    
    5,984Amortization of other intangible assets
    
    
    5,158
    
    
    
    5,342Amortization of vessel dry-docking
    
    
    3,798
    
    
    
    4,374Amortization of deferred financing costs
    
    
    577
    
    
    
    673Restructuring costs
    
    
    788
    
    
    
    Deferred income taxes
    
    
    (199
    )
    
    
    (469
    )Gain on equipment disposals
    
    
    (15
    )
    
    
    (11
    )Stock-based compensation
    
    
    941
    
    
    
    1,186Accretion of interest on 4.25% convertible notes
    
    
    2,422
    
    
    
    2,150Changes in operating assets and liabilities:Accounts receivable
    
    
    1,525
    
    
    
    (12,947
    )Materials and supplies
    
    
    746
    
    
    
    1,145Other current assets
    
    
    529
    
    
    
    (760
    )Accounts payable
    
    
    (13,194
    )
    
    
    (14,485
    )Accrued liabilities
    
    
    1,261
    
    
    
    3,145Vessel rent
    
    
    (18,137
    )
    
    
    (17,446
    )Vessel dry-docking payments
    
    
    (3,147
    )
    
    
    (2,531
    )Other assets/liabilities
    
    
    (1,277
    )
    
    
    824Net cash used in operating activities
    
    
    (22,360
    )
    
    
    (23,100
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,315
    )
    
    
    (3,444
    )Purchase of business
    
    
    
    
    
    
    (198
    )Proceeds from the sale of property and equipment
    
    
    89
    
    
    
    112Net cash used in investing activities
    
    
    (3,226
    )
    
    
    (3,530
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (1,612
    )
    
    
    (1,632
    )Borrowing under revolving credit facility
    
    
    40,000
    
    
    
    67,000Payments on revolving credit facility
    
    
    (10,000
    )
    
    
    (9,000
    )Dividends to stockholders
    
    
    (3,348
    )
    
    
    (3,321
    )Common stock issued under employee stock purchase plan
    
    
    19
    
    
    
    10Purchase of treasury stock
    
    
    
    
    
    
    (29,342
    )Payments of financing costs
    
    
    
    
    
    
    (76
    )Payments on capital lease obligation
    
    
    
    
    
    
    (20
    )Net cash provided by financing activities
    
    
    25,059
    
    
    
    23,619Net decrease in cash
    
    
    (527
    )
    
    
    (3,011
    )Cash at beginning of period
    
    
    5,487
    
    
    
    6,276Cash at end of period
    
    $
    4,960
    
    
    $
    3,265
   5




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##### Table of Contents



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




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##### Table of Contents



Statement of Operations for Quarter Ended March 23, 2008
 As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    AdjustedInterest expense, net
    
    $
    9,009
    
    
    $
    2,150
    
    
    $
    11,159Income tax expense (benefit)
    
    
    504
    
    
    
    (785
    )
    
    
    (281
    )Net income
    
    
    2,091
    
    
    
    (1,365
    )
    
    
    726Net income per shareBasic
    
    
    0.07
    
    
    
    (0.05
    )
    
    
    0.02Diluted
    
    
    0.07
    
    
    
    (0.05
    )
    
    
    0.02
 Balance Sheet at December 21, 2008
 As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    AdjustedIntangible assets, net
    
    $
    126,697
    
    
    $
    (1,155
    )
    
    $
    125,542Deferred tax assets
    
    
    23,992
    
    
    
    (13,323
    )
    
    
    10,669Total assets
    
    
    887,107
    
    
    
    (14,478
    )
    
    
    872,629Long-term debt, net of current
    
    
    563,916
    
    
    
    (37,657
    )
    
    
    526,259Additional paid in capital
    
    
    168,779
    
    
    
    30,865
    
    
    
    199,644Retained earnings
    
    
    29,780
    
    
    
    (7,686
    )
    
    
    22,094Total liabilities and stockholders equity
    
    
    887,107
    
    
    
    (14,478
    )
    
    
    872,629
  As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    AdjustedDenominator for basic net income per share
    
    
    30,291
    
    
    
    201
    
    
    
    30,492Effect of dilutive securities
    
    
    502
    
    
    
    (120
    )
    
    
    382Denominator for diluted net income per
share
    
    
    30,793
    
    
    
    81
    
    
    
    30,874
 3. Restructuring
   7




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Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 21,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Charged to Other
    
    
    March 22,2008
    
    
    Provision
    
    
    Payments
    
    
    Adjustments
    
    
    Accounts(1)
    
    
    2009Personnel related costs
    
    $
    3,132
    
    
    $
    935
    
    
    $
    (1,477
    )
    
    $
    (172
    )
    
    $
    (485
    )
    
    $
    1,933Other associated costs
    
    
    65
    
    
    
    25
    
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    58Total
    
    $
    3,197
    
    
    $
    960
    
    
    $
    (1,509
    )
    
    $
    (172
    )
    
    $
    (485
    )
    
    $
    1,991
 (1)
    
    Includes $0.5 million of stock-based compensation recorded in additional paid in capital.  4. Long-Term Debt
  March 22,
    
    
    December 21,2009
    
    
    2008(As Adjusted)Senior credit facilityTerm loan
    
    $
    117,188
    
    
    $
    118,750Revolving credit facility
    
    
    150,000
    
    
    
    120,0004.25% convertible senior notes
    
    
    294,765
    
    
    
    292,343Other
    
    
    1,669
    
    
    
    1,718Total long-term debt
    
    
    563,622
    
    
    
    532,811Less current portion
    
    
    (9,677
    )
    
    
    (6,552
    )Long-term debt, net of current portion
    
    $
    553,945
    
    
    $
    526,259
 Senior Credit Facility
     8




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Derivative Instruments
   4.25% Convertible Senior Notes
   
    
    Prior to May 15, 2012, if during any calendar quarter, and only during
such calendar quarter, if the last reported sale price of the
Companys common stock for at least 20 trading days in a period of 30
consecutive trading days ending on the last trading day of the
preceding calendar quarter exceeds 120% of the applicable conversion
price in effect on the last trading day of the immediately preceding
calendar quarter;
    
    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.
   9




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Other Debt
  5. Income Taxes
  6. Stock-Based Compensation
  59 1/2
 Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008Stock options
    
    $
    381
    
    
    $
    483Restricted stock
    
    
    560
    
    
    
    623ESPP
    
    
    
    
    
    
    80Total
    
    $
    941
    
    
    $
    1,186
   10




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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 21, 2008
    
    
    1,633,942
    
    
    $
    15.77Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    (75,152
    )
    
    
    17.90Outstanding at March 22, 2009
    
    
    1,558,790
    
    
    $
    15.67
    
    
    
    7.37
    
    
    $
    Vested or expected to vest at March 22, 2009
    
    
    1,538,739
    
    
    $
    15.58
    
    
    
    7.36
    
    
    $
    Exercisable at March 22, 2009
    
    
    660,139
    
    
    $
    11.05
    
    
    
    6.89
    
    
    $
    
  Restricted Stock
  Weighted-AverageFair ValueNumber of
    
    
    at GrantRestricted Shares
    
    Shares
    
    
    DateNonvested at December 21, 2008
    
    
    428,812
    
    
    $
    21.39Granted
    
    
    444,500
    
    
    
    3.38Vested
    
    
    (79,004
    )
    
    
    12.66Forfeited
    
    
    (33,500
    )
    
    
    17.52Nonvested at March 22, 2009
    
    
    760,808
    
    
    $
    11.70
   11




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##### Table of Contents



7. Net (Loss) Income per Common Share
   Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008(As Adjusted)Numerator:Net (loss) income
    
    $
    (9,953
    )
    
    $
    726Denominator:Denominator for basic (loss) income per common share:Weighted average shares outstanding
    
    
    30,424
    
    
    
    30,492Effect of dilutive securities:Stock-based compensation
    
    
    
    
    
    
    382Denominator for diluted net (loss) income per common share
    
    
    30,424
    
    
    
    30,874Basic net (loss) income per common share
    
    $
    (0.33
    )
    
    $
    0.02Diluted net (loss) income per common share
    
    $
    (0.33
    )
    
    $
    0.02
  8. Comprehensive (Loss) Income
  Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008(As Adjusted)Net (loss) income
    
    $
    (9,953
    )
    
    $
    726Change in fair value of interest rate swap
    
    
    (175
    )
    
    
    Amortization of pension and
post-retirement benefit transition
obligation
    
    
    103
    
    
    
    5Comprehensive (loss) income
    
    $
    (10,025
    )
    
    $
    731
 9. Segment Reporting
   12




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Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008(As Adjusted)Operating revenue:Horizon Lines
    
    $
    265,047
    
    
    $
    297,917Horizon Logistics
    
    
    37,263
    
    
    
    51,246302,310
    
    
    
    349,163Inter-segment revenue
    
    
    (29,959
    )
    
    
    (43,216
    )Consolidated operating revenue
    
    $
    272,351
    
    
    $
    305,947Depreciation and amortization:Horizon Lines
    
    $
    14,676
    
    
    $
    15,458Horizon Logistics
    
    
    97
    
    
    
    27314,773
    
    
    
    15,731Eliminations
    
    
    
    
    
    
    (31
    )Consolidated depreciation and amortization
    
    $
    14,773
    
    
    $
    15,700Segment operating income (loss):Horizon Lines
    
    $
    1,048
    
    
    $
    12,706Horizon Logistics
    
    
    (1,867
    )
    
    
    (1,105
    )Consolidated operating (loss) income
    
    
    (819
    )
    
    
    11,601Unallocated interest expense, net
    
    
    9,431
    
    
    
    11,159Unallocated other income, net
    
    
    
    
    
    
    (3
    )Consolidated (loss) income before income
tax expense (benefit)
    
    $
    (10,250
    )
    
    $
    445Capital expenditures:Horizon Lines
    
    $
    3,291
    
    
    $
    2,978Horizon Logistics
    
    
    24
    
    
    
    466Consolidated capital expenditures
    
    $
    3,315
    
    
    $
    3,444
 March 22,2009Segment assets:Horizon Lines
    
    $
    865,719Horizon Logistics
    
    
    9,582Consolidated assets
    
    $
    875,301
  13




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##### Table of Contents



10. Property and Equipment
  March 22,
    
    
    December 21,2009
    
    
    2008Vessels and vessel improvements
    
    $
    149,696
    
    
    $
    149,557Containers
    
    
    24,568
    
    
    
    24,099Chassis
    
    
    14,626
    
    
    
    14,713Cranes
    
    
    26,937
    
    
    
    26,852Machinery and equipment
    
    
    28,128
    
    
    
    26,127Facilities and land improvements
    
    
    21,117
    
    
    
    20,718Software
    
    
    21,391
    
    
    
    20,875Construction in progress
    
    
    33,181
    
    
    
    34,382Total property and equipment
    
    
    319,644
    
    
    
    317,323Accumulated depreciation
    
    
    (114,529
    )
    
    
    (108,870
    )Property and equipment, net
    
    $
    205,115
    
    
    $
    208,453
 11. Intangible Assets
  March 22,
    
    
    December 21,2009
    
    
    2008(As Adjusted)Customer contracts/relationships
    
    $
    142,475
    
    
    $
    142,475Trademarks
    
    
    63,800
    
    
    
    63,800Deferred financing costs
    
    
    11,388
    
    
    
    11,388Non-compete agreements
    
    
    262
    
    
    
    262Total intangibles with definite lives
    
    
    217,925
    
    
    
    217,925Accumulated amortization
    
    
    (98,120
    )
    
    
    (92,383
    )Net intangibles with definite lives
    
    
    119,805
    
    
    
    125,542Goodwill
    
    
    317,068
    
    
    
    317,068Intangible assets, net
    
    $
    436,873
    
    
    $
    442,610
 12. Accrued Liabilities
  March 22,
    
    
    December 21,2009
    
    
    2008Vessel operations
    
    $
    24,183
    
    
    $
    18,681Payroll and employee benefits
    
    
    14,038
    
    
    
    13,943Marine operations
    
    
    12,084
    
    
    
    12,162Terminal operations
    
    
    12,009
    
    
    
    11,847Fuel
    
    
    8,430
    
    
    
    7,443Interest
    
    
    2,977
    
    
    
    6,437Restructuring costs
    
    
    1,991
    
    
    
    3,069Other liabilities
    
    
    26,384
    
    
    
    24,138Total other accrued liabilities
    
    $
    102,096
    
    
    $
    97,720
  14




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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
    15




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Other Plans
  15. Commitments and Contingencies
 Legal Proceedings
        16




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SFL Agreements
   Standby Letters of Credit
  16. Recent Accounting Pronouncements
    17




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18




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2.Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
    Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008($ in thousands)Operating revenue
    
    $
    272,351
    
    
    $
    305,947Operating expense
    
    
    273,170
    
    
    
    294,346Operating (loss) income
    
    $
    (819
    )
    
    $
    11,601Operating ratio
    
    
    100.3
    %
    
    
    96.2
    %Revenue containers
(units)
    
    
    61,477
    
    
    
    66,195
  19




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##### Table of Contents



Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008(As Adjusted)(in thousands)Net (loss) income
    
    $
    (9,953
    )
    
    $
    726Interest expense, net
    
    
    9,431
    
    
    
    11,159Income tax benefit
    
    
    (297
    )
    
    
    (281
    )Depreciation and amortization
    
    
    14,773
    
    
    
    15,700EBITDA
    
    $
    13,954
    
    
    $
    27,304
 General
  History
  Critical Accounting Policies
   20




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




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##### Table of Contents



Quarter Ended March 22, 2009 Compared with the Quarter Ended March 23, 2008
 Horizon Lines Segment
  Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008
    
    
    Change
    
    
    % Change($ in thousands)Operating revenue
    
    $
    264,306
    
    
    $
    298,567
    
    
    $
    (34,261
    )
    
    
    (11.5
    )%Operating expense:Vessel
    
    
    84,816
    
    
    
    103,433
    
    
    
    (18,617
    )
    
    
    (18.0
    )%Marine
    
    
    49,394
    
    
    
    49,205
    
    
    
    189
    
    
    
    0.4
    %Inland
    
    
    44,080
    
    
    
    47,126
    
    
    
    (3,046
    )
    
    
    (6.5
    )%Land
    
    
    35,013
    
    
    
    35,200
    
    
    
    (187
    )
    
    
    (0.5
    )%Rolling stock rent
    
    
    8,915
    
    
    
    12,007
    
    
    
    (3,092
    )
    
    
    (25.8
    )%Cost of services
    
    
    222,218
    
    
    
    246,971
    
    
    
    (24,753
    )
    
    
    (10.0
    )%Depreciation and amortization
    
    
    10,878
    
    
    
    11,053
    
    
    
    (175
    )
    
    
    (1.6
    )%Amortization of vessel dry-docking
    
    
    3,798
    
    
    
    4,374
    
    
    
    (576
    )
    
    
    (13.2
    )%Selling, general and administrative
    
    
    25,420
    
    
    
    23,029
    
    
    
    2,391
    
    
    
    10.4
    %Restructuring costs
    
    
    753
    
    
    
    
    
    
    
    753
    
    
    
    100.0
    %Miscellaneous expense, net
    
    
    191
    
    
    
    434
    
    
    
    (243
    )
    
    
    (56.0
    )%Total operating expense
    
    
    263,258
    
    
    
    285,861
    
    
    
    (22,603
    )
    
    
    (7.9
    )%Operating income
    
    $
    1,048
    
    
    $
    12,706
    
    
    $
    (11,658
    )
    
    
    (91.8
    )%Operating ratio
    
    
    99.6
    %
    
    
    95.7
    %
    
    
    
    
    
    
    3.9
    %Revenue containers (units)
    
    
    61,477
    
    
    
    66,195
    
    
    
    (4,718
    )
    
    
    (7.1
    )%
 Operating Revenue.
 Bunker and intermodal fuel surcharges included in rates
    
    $
    (20,138
    )Revenue container volume decrease
    
    
    (18,442
    )Decrease in non-transportation services
    
    
    (5,873
    )General rate increases
    
    
    10,192Total operating revenue decrease
    
    $
    (34,261
    )
  Cost of Services.
  22




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Vessel fuel costs decrease
    
    $
    (22,252
    )Labor and other vessel operating increase
    
    
    3,590Vessel lease expense increase
    
    
    45Total vessel expense decrease
    
    $
    (18,617
    )
     Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008
    
    
    % Change(in thousands)Land expense:Maintenance
    
    $
    12,254
    
    
    $
    12,562
    
    
    
    (2.5
    )%Terminal overhead
    
    
    13,439
    
    
    
    13,884
    
    
    
    (3.2
    )%Yard and gate
    
    
    7,580
    
    
    
    6,891
    
    
    
    10.0
    %Warehouse
    
    
    1,740
    
    
    
    1,863
    
    
    
    (6.6
    )%Total land expense
    
    $
    35,013
    
    
    $
    35,200
    
    
    
    (0.5
    )%
   23




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##### Table of Contents



Depreciation and Amortization.
 Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008
    
    
    % Change(in thousands)Depreciation and amortization:Depreciationowned vessels
    
    $
    2,205
    
    
    $
    2,496
    
    
    
    (11.7
    )%Depreciation and amortizationother
    
    
    3,595
    
    
    
    3,479
    
    
    
    3.3
    %Amortization of intangible assets
    
    
    5,078
    
    
    
    5,078
    
    
    
    0.0
    %Total depreciation and amortization
    
    $
    10,878
    
    
    $
    11,053
    
    
    
    (1.6
    )%Amortization of vessel dry-docking
    
    $
    3,798
    
    
    $
    4,374
    
    
    
    (13.2
    )%
 Amortization of Vessel Dry-docking.
 Selling, General and Administrative.
 Restructuring Costs.
 Miscellaneous Expense, Net
 Horizon Logistics Segment
  Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008
    
    
    Change
    
    
    % Change(in thousands)Operating revenue
    
    $
    8,046
    
    
    $
    7,380
    
    
    $
    666
    
    
    
    9.0
    %Operating expense:Inland
    
    
    5,630
    
    
    
    5,284
    
    
    
    346
    
    
    
    6.5
    %Land
    
    
    1,582
    
    
    
    605
    
    
    
    977
    
    
    
    161.5
    %Rolling stock rent
    
    
    231
    
    
    
    107
    
    
    
    124
    
    
    
    115.9
    %Cost of services
    
    
    7,443
    
    
    
    5,996
    
    
    
    1,447
    
    
    
    24.1
    %Depreciation and amortization
    
    
    97
    
    
    
    273
    
    
    
    (176
    )
    
    
    (64.5
    )%Selling, general and administrative
    
    
    2,347
    
    
    
    2,103
    
    
    
    244
    
    
    
    11.6
    %Restructuring costs
    
    
    35
    
    
    
    
    
    
    
    35
    
    
    
    100.0
    %Miscellaneous (income) expense, net
    
    
    (9
    )
    
    
    113
    
    
    
    (122
    )
    
    
    (108.0
    )%Total operating expense
    
    
    9,913
    
    
    
    8,485
    
    
    
    1,428
    
    
    
    16.8
    %Operating loss
    
    $
    (1,867
    )
    
    $
    (1,105
    )
    
    $
    (762
    )
    
    
    (69.0
    )%
  24




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##### Table of Contents



Operating Revenue.
 Cost of Services.
 Depreciation and Amortization.
 Quarters EndedMarch 22,
    
    
    March 23,2009
    
    
    2008
    
    
    % Change(in thousands)Depreciation and amortization:Depreciation and amortizationother
    
    $
    17
    
    
    $
    9
    
    
    
    88.9
    %Amortization of intangible assets
    
    
    80
    
    
    
    264
    
    
    
    (69.7
    )%Total depreciation and amortization
    
    $
    97
    
    
    $
    273
    
    
    
    (64.5
    )%
 Selling, General and Administrative.
 Unallocated Expenses
 Interest Expense, Net.
 Income Tax Benefit.
 Liquidity and Capital Resources
   25




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##### Table of Contents



Operating Activities
  Earnings adjusted for non-cash charges
    
    $
    (10,617
    )Other increases in working capital, net
    
    
    (2,424
    )Increase in vessel payments in excess of accrual
    
    
    (691
    )Decrease in accounts receivable
    
    
    14,472$
    740
 Investing Activities
  Financing Activities
   Capital Requirements
   Long-Term Debt
 Senior Credit Facility
   26




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##### 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, if 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.
  27




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Interest Rate Risk
     28




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Ratio of Earnings to Fixed Charges
  Quarter EndedMarch 22,2009Pretax loss
    
    $
    (10,250
    )Interest expense
    
    
    9,455Rentals
    
    
    8,642Total fixed charges
    
    $
    18,097Pretax earnings plus fixed charges
    
    $
    7,847Ratio of earnings to fixed charges
    
    
    
  Recent Accounting Pronouncements
  Statement of Operations for Quarter Ended March 23, 2008
 As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    AdjustedInterest expense, net
    
    $
    9,009
    
    
    $
    2,150
    
    
    $
    11,159Income tax expense (benefit)
    
    
    504
    
    
    
    (785
    )
    
    
    (281
    )Net income
    
    
    2,091
    
    
    
    (1,365
    )
    
    
    726Net income per shareBasic
    
    
    0.07
    
    
    
    (0.05
    )
    
    
    0.02Diluted
    
    
    0.07
    
    
    
    (0.05
    )
    
    
    0.02
 Balance Sheet at December 21, 2008
 As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    AdjustedIntangible assets, net
    
    $
    126,697
    
    
    $
    (1,155
    )
    
    $
    125,542Deferred tax assets
    
    
    23,992
    
    
    
    (13,323
    )
    
    
    10,669Total assets
    
    
    887,107
    
    
    
    (14,478
    )
    
    
    872,629Long-term debt, net of current
    
    
    563,916
    
    
    
    (37,657
    )
    
    
    526,259Additional paid in capital
    
    
    168,779
    
    
    
    30,865
    
    
    
    199,644Retained earnings
    
    
    29,780
    
    
    
    (7,686
    )
    
    
    22,094Total liabilities and stockholders equity
    
    
    887,107
    
    
    
    (14,478
    )
    
    
    872,629
  29




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##### Table of Contents



As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    AdjustedDenominator for basic net income per share
    
    
    30,291
    
    
    
    201
    
    
    
    30,492Effect of dilutive securities
    
    
    502
    
    
    
    (120
    )
    
    
    382Denominator for diluted net income per
share
    
    
    30,793
    
    
    
    81
    
    
    
    30,874
        30




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Forward Looking Statements
      
 3. Quantitative and Qualitative Disclosures About Market Risk
    31




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##### Table of Contents



4. Controls and Procedures
 Disclosure Controls and Procedures
  Internal Control over Financial Reporting
  Changes in Internal Control
   32




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PART II. OTHER INFORMATION
 
 1. Legal Proceedings
          33




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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. Submission of Matters to a Vote of Security-Holders
  
 5. Other Information
  
 6. Exhibits
 10.1
    
    
    Letter Agreement dated January 21, 2009, between Horizon Lines, Inc. and John W. Handy (filed as
Exhibit 10.1 to the Companys report on Form 8-K filed
January 21, 2009)10.2
    
    
    Consulting Agreement dated January 21, 2009, between Horizon Lines, Inc. and John W. Handy (filed
as Exhibit 10.2 to the Companys report on Form 8-K
filed January 21, 2009)10.3
    
    
    Form of Service Based Award (filed as Exhibit 10.1 to the Companys report on Form 8-K filed March
19, 2009)10.4
    
    
    Form of Performance Based Award (filed as Exhibit 10.2 to the Companys report on Form 8-K filed
March 19, 2009)31.1
    *
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    *
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    *
    
    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 200232.2
    *
    
    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




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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.
    
    Description10.1
    
    
    Letter Agreement dated January 21, 2009, between Horizon Lines, Inc. and John W. Handy (filed as
Exhibit 10.1 to the Companys report on Form 8-K filed January 21, 2009)10.2
    
    
    Consulting Agreement dated January 21, 2009, between Horizon Lines, Inc. and John W. Handy (filed
as Exhibit 10.2 to the Companys report on Form 8-K filed January 21, 2009)10.3
    
    
    Form of Service Based Award (filed as Exhibit 10.1 to the Companys report on Form 8-K filed March
19, 2009)10.4
    
    
    Form of Performance Based Award (filed as Exhibit 10.2 to the Companys report on Form 8-K filed
March 19, 2009)31.1
    *
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    *
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    *
    
    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 200232.2
    *
    
    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.  36