10-Q

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

At April 21, 2010, 30,445,781 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		1
1. Financial Statements		1
Unaudited Condensed Consolidated Balance Sheets		1
Unaudited Condensed Consolidated Statements of Operations		2
Unaudited Condensed Consolidated Statements of Cash Flows		3
Notes to Unaudited Condensed Consolidated Financial Statements		4
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
3. Quantitative and Qualitative Disclosures About Market Risk		27
4. Controls and Procedures		27
Part II. Other Information		28
1. Legal Proceedings		28
1A. Risk Factors		30
2. Unregistered Sales of Equity Securities and Use of Proceeds		30
3. Defaults Upon Senior Securities		30
4. Reserved		30
5. Other Information		30
6. Exhibits		30
Signature		31
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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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			2009
Assets
Current assets
Cash	$	4,672		$	6,419
Accounts receivable, net of allowance of $7,780 and $7,578 at March 21, 2010 and December 20, 2009, respectively		135,856			123,536
Prepaid vessel rent		18,211			4,580
Materials and supplies		27,177			30,254
Deferred tax asset		2,929			2,929
Other current assets		9,680			9,027
Total current assets		198,525			176,745
Property and equipment, net		188,943			193,438
Goodwill		317,068			317,068
Intangible assets, net		99,390			105,405
Other long-term assets		32,010			25,854
Total assets	$	835,936		$	818,510
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	50,475		$	43,257
Current portion of long-term debt		18,750			18,750
Accrued vessel rent		—			4,339
Other accrued liabilities		102,068			110,473
Total current liabilities		171,293			176,819
Long-term debt, net of current portion		534,040			496,105
Deferred rent		21,467			22,585
Deferred tax liability		4,248			4,248
Other long-term liabilities		17,131			17,475
Total liabilities		748,179			717,232
Stockholders’ equity
Preferred 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			341
Treasury stock, 3,800 shares at cost		(78,538	)		(78,538	)
Additional paid in capital		196,181			196,900
Accumulated deficit		(29,118	)		(15,874	)
Accumulated other comprehensive loss		(1,109	)		(1,551	)
Total stockholders’ equity		87,757			101,278
Total liabilities and stockholders’ equity	$	835,936		$	818,510

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

Horizon Lines, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)

	Quarters Ended
	March 21,			March 22,
	2010			2009
Operating revenue	$	286,132		$	272,351
Operating expense:
Cost of services (excluding depreciation expense)		252,787			229,659
Depreciation and amortization		11,015			10,975
Amortization of vessel dry-docking		3,053			3,798
Selling, general and administrative		21,701			27,768
Restructuring charge		—			788
Miscellaneous expense, net		560			182
Total operating expense		289,116			273,170
Operating loss		(2,984	)		(819	)
Other expense:
Interest expense, net		10,283			9,431
Other 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			30,424
Diluted		30,521			30,424
Dividends declared per common share	$	0.05		$	0.11

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

Horizon Lines, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

	Quarters Ended
	March 21,			March 22,
	2010			2009
Cash 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			5,817
Amortization of other intangible assets		5,160			5,158
Amortization of vessel dry-docking		3,053			3,798
Amortization of deferred financing costs		855			577
Restructuring charge		—			788
Deferred income taxes		—			(199	)
Loss (gain) on equipment disposals		53			(15	)
Stock-based compensation		600			941
Accretion of interest on 4.25% convertible notes		2,623			2,422
Changes in operating assets and liabilities:
Accounts receivable		(12,320	)		1,525
Materials and supplies		3,077			746
Other current assets		(652	)		529
Accounts payable		7,218			(13,194	)
Accrued liabilities		(7,812	)		1,261
Vessel 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			89
Net 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			40,000
Payments on revolving credit facility		(15,000	)		(10,000	)
Dividends to stockholders		(1,526	)		(3,348	)
Common stock issued under employee stock purchase plan		34			19
Net cash provided by financing activities		33,820			25,059
Net decrease in cash		(1,747	)		(527	)
Cash at beginning of period		6,419			5,487
Cash at end of period	$	4,672		$	4,960

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

HORIZON LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization

Horizon Lines, Inc. (the “Company”) operates as a holding company for Horizon Lines, LLC (“Horizon Lines”), a Delaware limited liability company and wholly-owned subsidiary, Horizon Logistics Holdings, LLC (“Horizon Logistics”), a Delaware limited liability company and wholly-owned subsidiary, Horizon Lines of Puerto Rico, Inc. (“HLPR”), a Delaware corporation and wholly-owned subsidiary, and Hawaii Stevedores, Inc. (“HSI”), a Hawaii corporation. Horizon Lines operates as a Jones Act container shipping business with primary service to ports within the continental United States, Puerto Rico, Alaska, Hawaii, and Guam. Under the Jones Act, all vessels transporting cargo between covered locations must, subject to limited exceptions, be built in the U.S., registered under the U.S. flag, manned by predominantly U.S. crews, and owned and operated by U.S.-organized companies that are controlled and 75% owned by U.S. citizens. Horizon Lines also offers terminal services. Horizon Logistics provides integrated logistics service offerings, including rail, trucking, warehousing, distribution, and non-vessel operating common carrier (“NVOCC”) services. HLPR operates as an agent for Horizon Lines in Puerto Rico and also provides terminal services in Puerto Rico.

2. Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany items have been eliminated in consolidation. Certain prior period balances have been reclassified to conform to current period presentation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly, certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 20, 2009. The Company uses a 52 or 53 week (every sixth or seventh year) fiscal year that ends on the Sunday before the last Friday in December.

The financial statements as of March 21, 2010 and the financial statements for the quarters ended March 21, 2010 and March 22, 2009 are unaudited; however, in the opinion of management, such statements include all adjustments necessary for the fair presentation of the financial information included herein, which are of a normal recurring nature. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions and to use judgment that affects the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year.

During the first quarter of 2010, the Company implemented a new organizational structure. The 2010 reorganization included (1) the re-assignment of the Company’s inland logistics activities related to the container shipping operations, as these operations are no longer tightly integrated with our third-party logistics service offerings and (2) the re-alignment of responsibilities of certain members of the Company’s management team.

The Company evaluated the impact of these and other changes on its segment reporting and determined that the Company now has one reportable segment. As a result, the financial statement information provided in this 10-Q for the first quarters of fiscal 2010 and 2009 have been presented to reflect one reportable segment, reflecting the Company’s consolidated results of operations.

3. Restructuring

The Company completed a non-union workforce reduction initiative during the first quarter of 2009. The reduction in workforce impacted approximately 80 non-union employees and resulted in a $4.0 million restructuring charge. Of the $4.0 million, $3.2 million, or $0.11 per fully diluted share, was recorded during the fourth quarter of 2008 and the remaining $0.8 million was recorded during the first quarter of 2009. In addition, during the quarter ended June 21, 2009, the Company recorded an additional $0.2 million of severance costs related to the elimination of certain positions in connection with the loss of a major customer and a reorganization within the Company.

The following table presents the restructuring reserves at March 21, 2010, as well as activity during the quarter (in thousands):

	Balance at					Balance at
	December 20,					March 21,
	2009		Payments			2010
Personnel related costs	$	150	$	(150	)	$	—

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4. Long-Term Debt

Long-term debt consists of the following (in thousands):

	March 21,			December 20,
	2010			2009
Senior credit facility
Term loan	$	107,812		$	112,500
Revolving credit facility		140,000			100,000
4.25% convertible senior notes		304,978			302,355
Total long-term debt		552,790			514,855
Less current portion		(18,750	)		(18,750	)
Long-term debt, net of current portion	$	534,040		$	496,105

Senior Credit Facility

On August 8, 2007, the Company entered into a credit agreement (the “Senior Credit Facility”) secured by substantially all of the owned assets of the Company. On June 11, 2009, the Senior Credit Facility was amended resulting in a reduction in the size of the revolving credit facility from $250.0 million to $225.0 million. The terms of the Senior Credit Facility also provide for a $20.0 million swingline subfacility and a $50.0 million letter of credit subfacility.

The amendment to the Senior Credit Facility was intended to provide the Company the flexibility necessary to effect the settlement of the Puerto Rico class action litigation and to incur other antitrust related litigation expenses. The amendment revises the definition of Consolidated EBITDA by allowing for certain charges, including (i) the Puerto Rico settlement and (ii) litigation expenses related to antitrust litigation matters in an amount not to exceed $25 million in the aggregate and $15 million over a 12-month period, to be added back to the calculation of Consolidated EBITDA. In addition, the Senior Credit Facility was amended to (i) increase the spread over LIBOR and Prime based rates by 150 bps, (ii) increase the range of fees on the unused portion of the commitment, (iii) eliminate the $150 million incremental facility, (iv) modify the definition of Consolidated EBITDA to clarify the term “non-recurring charges”, and (v) incorporate other structural enhancements, including a step-down in the secured leverage ratio and further limitations on the ability to make certain restricted payments. As a result of the amendment to the Senior Credit Facility, the Company paid $3.5 million in financing costs and recorded a loss on modification of debt of $0.1 million during the second quarter of 2009.

The Company made quarterly principal payments on the term loan of approximately $1.6 million from December 31, 2007 through September 30, 2009. Effective December 31, 2009, quarterly payments increased to $4.7 million through September 30, 2011, at which point quarterly payments will increase to $18.8 million until final maturity on August 8, 2012. The interest rate payable under the Senior Credit Facility varies depending on the types of advances or loans the Company selects. Borrowings under the Senior Credit Facility bear interest primarily at LIBOR-based rates plus a spread which ranges from 2.75% to 3.5% (LIBOR plus 3.0% as of March 21, 2010) depending on the Company’s ratio of total secured debt to EBITDA (as defined in the Senior Credit Facility). The Company also has the option to borrow at Prime plus a spread which ranges from 1.75% to 2.5% (Prime plus 2.0% as of March 21, 2010). The weighted average interest rate at March 21, 2010 was approximately 4.5%, which includes the impact of the interest rate swap (as defined below). The Company also pays a variable commitment fee on the unused portion of the commitment, ranging from 0.375% to 0.50% (0.50% as of March 21, 2010).

The Senior Credit Facility contains customary covenants, including two financial covenants with respect to the Company’s leverage and interest coverage ratio and covenants that limit distribution of dividends and stock repurchases. It also contains customary events of default, subject to grace periods. The Company was in compliance with all such covenants as of March 21, 2010. As of March 21, 2010, total unused borrowing capacity under the revolving credit facility was $73.9 million, after taking into account $140.0 million outstanding under the revolver and $11.1 million utilized for outstanding letters of credit. Based on the Company’s leverage ratio, borrowing availability under the revolving credit facility was $45.3 million as of March 21, 2010.

Derivative Instruments

On March 31, 2008, the Company entered into an Interest Rate Swap Agreement (the “swap”) with Wachovia Bank, National Association, a current subsidiary of Wells Fargo & Co., (“Wachovia”) in the notional amount of $121.9 million. The swap expires on August 8, 2012. Under the swap, the Company and Wachovia have agreed to exchange interest payments on the notional amount on the last business day of each calendar quarter. The Company has agreed to pay a 3.02% fixed interest rate, and Wachovia has agreed to pay a floating interest rate equal to the three-month LIBOR rate. The critical terms of the swap agreement and the term loan are the same, including the notional amounts, interest rate reset dates, maturity dates and underlying market indices. The purpose of entering into this swap is to protect the Company against the risk of rising interest rates by effectively fixing the base interest rate payable related to its term loan. Interest rate differentials paid or received under the swap are recognized as adjustments to interest expense. The Company does not hold or issue interest rate swap agreements for trading purposes. In the event that the counter-party fails to meet the terms of the interest rate swap agreement, the Company’s exposure is limited to the interest rate differential.

5

The swap has been designated as a cash flow hedge of the variability of the cash flows due to changes in LIBOR and has been deemed to be highly effective. Accordingly, the Company records the fair value of the swap as an asset or liability on its consolidated balance sheet, and any unrealized gain or loss is included in accumulated other comprehensive income (loss). As of March 21, 2010, the Company recorded a liability of $4.1 million, of which $0.6 million is included in other accrued liabilities and $3.5 million is included in other long-term liabilities in the accompanying condensed consolidated balance sheet. The Company also recorded $0.3 million in other comprehensive loss for the quarter ended March 21, 2010. No hedge ineffectiveness was recorded during the quarter ended March 21, 2010. If the hedge was deemed ineffective, or extinguished by either counterparty, any accumulated gains or losses remaining in other comprehensive income would be fully recorded in interest expense during the period.

4.25% Convertible Senior Notes

On August 8, 2007, the Company issued $330.0 million aggregate principal amount of 4.25% Convertible Senior Notes due 2012 (the “Notes”). The Notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future obligations that are unsecured and unsubordinated. The Notes bear interest at the rate of 4.25% per annum, which is payable in cash semi-annually on February 15 and August 15 of each year. The Notes mature on August 15, 2012, unless earlier converted, redeemed or repurchased in accordance with their terms prior to August 15, 2012. Holders of the Notes may require the Company to repurchase the Notes for cash at any time before August 15, 2012 if certain fundamental changes occur.

Each $1,000 of principal of the Notes will initially be convertible into 26.9339 shares of the Company’s common stock, which is the equivalent of $37.13 per share, subject to adjustment upon the occurrence of specified events set forth under the terms of the Notes. Upon conversion, the Company would pay the holder the cash value of the applicable number of shares of its common stock, up to the principal amount of the note. Amounts in excess of the principal amount, if any, may be paid in cash or in stock, at the Company’s option. Holders may convert their Notes into the Company’s common stock as follows:

• 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.

Holders who convert their Notes in connection with a change in control may be entitled to a make-whole premium in the form of an increase in the conversion rate. In addition, upon a change in control, liquidation, dissolution or de-listing, the holders of the Notes may require the Company to repurchase for cash all or any portion of their Notes for 100% of the principal amount plus accrued and unpaid interest. As of March 21, 2010, none of the conditions allowing holders of the Notes to convert or requiring the Company to repurchase the Notes had been met. The Company may not redeem the Notes prior to maturity.

Concurrent with the issuance of the Notes, the Company entered into note hedge transactions with certain financial institutions whereby if the Company is required to issue shares of its common stock upon conversion of the Notes, the Company has the option to receive up to 8.9 million shares of its common stock when the price of the Company’s common stock is between $37.13 and $51.41 per share upon conversion, and the Company sold warrants to the same financial institutions whereby the financial institutions have the option to receive up to 17.8 million shares of the Company’s common stock when the price of the Company’s common stock exceeds $51.41 per share upon conversion. The separate note hedge and warrant transactions were structured to reduce the potential future share dilution associated with the conversion of Notes. The cost of the note hedge transactions to the Company was approximately $52.5 million, $33.4 million net of tax, and has been accounted for as an equity transaction. The Company received proceeds of $11.9 million related to the sale of the warrants, which has also been classified as equity.

6

The Notes and the warrants sold in connection with the hedge transactions will have no impact on diluted earnings per share until the price of the Company’s common stock exceeds the conversion price (initially $37.13 per share) because the principal amount of the Notes will be settled in cash upon conversion. Prior to conversion of the Notes or exercise of the warrants, the Company will include the effect of the additional shares that may be issued if its common stock price exceeds the conversion price, using the treasury stock method. The call options purchased as part of the note hedge transactions are anti-dilutive and therefore will have no impact on earnings per share.

Fair Value of Financial Instruments

The estimated fair values of the Company’s debt as of March 21, 2010 and December 20, 2009 were $534.9 million and $478.0 million, respectively. The fair values of the Notes are based on quoted market prices. The fair value of the other long-term debt approximates carrying value.

5. Income Taxes

During the second quarter of 2009, the Company determined that it was unclear as to the timing of when it will generate sufficient taxable income to realize its deferred tax assets. Accordingly, the Company recorded a valuation allowance against its deferred tax assets. The valuation allowance is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance. In addition, until such time that the Company determines it is more likely than not that it will generate sufficient taxable income to realize its deferred tax assets, income tax benefits associated with future period losses will be fully reserved. As such, the Company’s federal and state tax rates are expected to effectively be 0% and 1%-2%, respectively, during those periods.

6. Stock-Based Compensation

Stock-based compensation costs are measured at the grant date, based on the estimated fair value of the award, and are recognized as an expense in the income statement over the requisite service period. Compensation costs related to stock options and restricted shares granted under the Amended and Restated Equity Incentive Plan (the “Plan”), the 2009 Incentive Compensation Plan (the “2009 Plan”), and purchases under the Employee Stock Purchase Plan, as amended (“ESPP”) are recognized using the straight-line method, net of estimated forfeitures. Stock options and restricted shares granted to employees under the Plan and the 2009 Plan typically cliff vest and become fully exercisable on the third anniversary of the grant date, provided the employee who was granted such options/restricted shares is continuously employed by the Company or its subsidiaries through such date, and provided any performance based criteria, if any, are met. In addition, recipients who retire from the Company and meet certain age and length of service criteria are typically entitled to proportionate vesting.

The following compensation costs are included within selling, general, and administrative expenses on the condensed consolidated statements of operations (in thousands):

	Quarters Ended
	March 21,		March 22,
	2010		2009
Stock options	$	276	$	381
Restricted stock		283		560
ESPP		41		—
Total	$	600	$	941

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Stock Options

The Company’s stock option plan provides for grants of stock options to key employees at prices not less than the fair market value of the Company’s common stock on the grant date. A summary of stock option activity is presented below:

						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
Options	Options			Price		Term (years)		(000’s)
Outstanding at December 20, 2009		1,515,190		$	15.77
Granted		—
Exercised		—
Forfeited		(4,500	)		33.51
Expired		(11,800	)		10.91
Outstanding 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	$	—

As of March 21, 2010, there was $0.2 million in unrecognized compensation costs related to stock options granted, which is expected to be recognized over a weighted average period of 1.1 years.

Restricted Stock

A summary of the status of the Company’s restricted stock awards as of March 21, 2010 is presented below:

				Weighted-
				Average
				Fair Value
	Number of			at Grant
Restricted Shares	Shares			Date
Nonvested at December 20, 2009		607,221		$	10.21
Granted		343,200			4.92
Vested		(84,093	)		32.58
Forfeited		(12,300	)		11.37
Nonvested at March 21, 2010		854,028		$	5.86

As of March 21, 2010, there was $2.6 million of unrecognized compensation expense related to all restricted stock awards, which is expected to be recognized over a weighted-average period of 2.1 years.

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7. Net Income (Loss) per Common Share

Basic net income (loss) per share is computed by dividing net loss by the weighted daily average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is based upon the weighted daily average number of shares of common stock outstanding for the period plus dilutive potential shares of common stock, including stock options, using the treasury-stock method.

Net loss per share is as follows (in thousands, except per share amounts):

	Quarters Ended
	March 21,			March 22,
	2010			2009
Numerator:
Net loss	$	(13,244	)	$	(9,953	)
Denominator:
Denominator for basic loss per common share:
Weighted average shares outstanding		30,521			30,424
Effect of dilutive securities:
Stock-based compensation		—			—
Denominator for diluted net loss per common share		30,521			30,424
Basic net loss per common share	$	(0.43	)	$	(0.33	)
Diluted net loss per common share	$	(0.43	)	$	(0.33	)

Certain of the Company’s unvested stock-based awards contain non-forfeitable rights to dividends. As a result, a total of 111,411 and 268,308 shares have been included in the denominator for basic loss per share for these participating securities during the quarters ended March 21, 2010 and March 22, 2009, respectively. In addition, a total of 71,384 and 2,424 shares have been excluded from the denominator for diluted net loss per common share during the quarters ended March 21, 2010 and March 22, 2009, respectively, as the impact would be anti-dilutive.

8. Comprehensive Loss

Comprehensive loss is as follows (in thousands):

	Quarters Ended
	March 21,			March 22,
	2010			2009
Net 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			103
Comprehensive loss	$	(12,803	)	$	(10,025	)

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9. Property and Equipment

Property and equipment consists of the following (in thousands):

	March 21,			December 20,
	2010			2009
Vessels and vessel improvements	$	149,057		$	147,823
Containers		23,885			24,035
Chassis		14,492			14,599
Cranes		37,195			36,965
Machinery and equipment		28,804			28,637
Facilities and land improvements		24,967			24,006
Software		24,108			24,072
Construction in progress		21,351			22,541
Total property and equipment		323,859			322,678
Accumulated depreciation		(134,916	)		(129,240	)
Property and equipment, net	$	188,943		$	193,438

10. Intangible Assets

Intangible assets consist of the following (in thousands):

	March 21,			December 20,
	2010			2009
Customer contracts/relationships	$	142,475		$	142,475
Trademarks		63,800			63,800
Deferred financing costs		14,831			14,831
Non-compete agreements		262			262
Total intangibles with definite lives		221,368			221,368
Accumulated amortization		(121,978	)		(115,963	)
Net intangibles with definite lives		99,390			105,405
Goodwill		317,068			317,068
Intangible assets, net	$	416,458		$	422,473

11. Other Accrued Liabilities

Other accrued liabilities consist of the following (in thousands):

	March 21,		December 20,
	2010		2009
Vessel operations	$	20,533	$	17,922
Payroll and employee benefits		12,004		17,035
Marine operations		10,778		10,668
Terminal operations		9,580		10,481
Fuel		6,010		9,418
Interest		3,857		7,298
Settlement of class action lawsuit		15,000		15,000
Other liabilities		24,306		22,651
Total other accrued liabilities	$	102,068	$	110,473

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12. Fair Value Measurement

U.S. accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of inputs used to measure fair value are as follows:

Level 1:	observable inputs such as quoted prices in active markets
Level 2:	inputs other than the quoted prices in active markets that are observable either directly or indirectly
Level 3:	unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions

On a recurring basis, the Company measures the market value of its pension plan assets at the estimated market value. The fair value of the pension plan assets is determined by using quoted market prices in active markets.

On a recurring basis, the Company measures the interest rate swap at its estimated fair value. The fair value of the swap is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The unrealized loss on the interest rate swap of $4.1 million is classified within level 2 of the fair value hierarchy.

No other assets or liabilities are measured at fair value under the hierarchy as of March 21, 2010.

13. Pension and Post-retirement Benefit Plans

The Company provides pension and post-retirement benefit plans for certain of its union workers. Each of the plans is described in more detail below. A decline in the value of assets held by these plans, caused by negative performance of the investments in the financial markets, and lower discount rates due to falling interest rates have resulted in higher contributions to these plans.

Pension Plans

The Company sponsors a defined benefit plan covering approximately 30 union employees as of March 21, 2010. The plan provides for retirement benefits based only upon years of service. Employees whose terms and conditions of employment are subject to or covered by the collective bargaining agreement between Horizon Lines and the International Longshore & Warehouse Union Local 142 are eligible to participate once they have completed one year of service. Contributions to the plan are based on the projected unit credit actuarial method and are limited to the amounts that are currently deductible for income tax purposes. The Company recorded net periodic benefit costs of $0.2 million during each of the quarters ended March 21, 2010 and March 22, 2009.

The HSI pension plan covering approximately 50 salaried employees was frozen to new entrants as of December 31, 2005. Contributions to the plan are based on the projected unit credit actuarial method and are limited to the amounts that are currently deductible for income tax purposes. The Company recorded net periodic benefit costs of $0.1 million during each of the quarters ended March 21, 2010 and March 22, 2009.

The Company expects to make contributions to the above mentioned pension plans totaling $0.3 million during 2010.

Post-retirement Benefit Plans

In addition to providing pension benefits, the Company provides certain healthcare (both medical and dental) and life insurance benefits for eligible retired members (“post-retirement benefits”). For eligible employees hired on or before July 1, 1996, the healthcare plan provides for post-retirement health coverage for an employee who, immediately preceding his/her retirement date, was an active participant in the retirement plan and has attained age 55 as of his/her retirement date. For eligible employees hired after July 1, 1996, the plan provides post-retirement health coverage for an employee who, immediately preceding his/her retirement date, was an active participant in the retirement plan and has attained a combination of age and service totaling 75 years or more as of his/her retirement date. The Company recorded net periodic benefit costs related to the post-retirement benefits of $0.1 million and $0.2 million during the quarters ended March 21, 2010 and March 22, 2009, respectively.

Effective June 25, 2007, the HSI plan provides for post-retirement medical, dental and life insurance benefits for salaried employees who had attained age 55 and completed 20 years of service as of December 31, 2005. Any salaried employee already receiving post-retirement medical coverage as of June 25, 2007 will continue to be covered by the plan. For eligible union employees hired on or before July 1, 1996, the healthcare plan provides for post-retirement medical coverage for an employee who, immediately preceding his/her retirement date, was an active participant in the retirement plan and has attained age 55 as of his/her retirement date. For eligible union employees hired after July 1, 1996, the plan provides post-retirement health coverage for an employee who, immediately preceding his/her retirement date, was an active participant in the retirement plan and has attained age 55 and has a combination of age and service totaling 75 years or more as of his/her retirement date. The Company recorded net periodic benefit costs of $0.1 million during each of the quarters ended March 21, 2010 and March 22, 2009.

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Other Plans

Under collective bargaining agreements, the Company participates in a number of union-sponsored, multi-employer benefit plans. Payments to these plans are made as part of aggregate assessments generally based on hours worked, tonnage of cargo moved, or a combination thereof. Expense for these plans is recognized as contributions are funded. The Company made contributions of $2.9 million and $2.3 million during the quarters ended March 21, 2010 and March 22, 2009, respectively. In addition to the higher contributions the Company has made as a result of negative investment performance and lower discount rates due to falling interest rates, the Company has made payments related to assessments as a result of lower container volumes and increased benefit costs. If the Company exits these markets, it may be required to pay a potential withdrawal liability if the plans are underfunded at the time of the withdrawal. Any adjustments would be recorded when it is probable that a liability exists and it is determined that markets will be exited.

14. Commitments and Contingencies

Legal Proceedings

On April 17, 2008, the Company received a grand jury subpoena and search warrant from the U.S. District Court for the Middle District of Florida seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the “DOJ”) into possible antitrust violations in the domestic ocean shipping business. Subsequently, the DOJ expanded the timeframe covered by the subpoena. The Company is currently providing documents to the DOJ in response to the subpoena. The Company is cooperating fully with the DOJ in its investigation.

The Company has entered into a conditional amnesty agreement with the DOJ under its Corporate Leniency Policy. The amnesty agreement pertains to a single contract relating to ocean shipping services provided to the United States Department of Defense. The DOJ has agreed to not bring any criminal prosecution with respect to that government contract as long as the Company, among other things, continues its full cooperation in the investigation. The amnesty does not bar a claim for damages that may be sought by the DOJ under any applicable federal law or regulation.

On October 9, 2009, the Company received a Request for Information and Production of Documents from the Puerto Rico Office of Monopolistic Affairs. The request relates to an investigation into possible price fixing and unfair competition in the Puerto Rico domestic ocean shipping business. The Company is currently providing documents in response to this request, and intends is cooperating fully in this investigation.

Subsequent to the commencement of the DOJ investigation, fifty-eight purported class action lawsuits were filed against the Company and other domestic shipping carriers (the “Class Action Lawsuits”). Each of the Class Action Lawsuits purports to be on behalf of a class of individuals and entities who purchased domestic ocean shipping services from the various domestic ocean carriers. These complaints allege price-fixing in violation of the Sherman Act and seek treble monetary damages, costs, attorneys’ fees, and an injunction against the allegedly unlawful conduct. The Class Action Lawsuits were filed in the following federal district courts: eight in the Southern District of Florida, five in the Middle District of Florida, nineteen in the District of Puerto Rico, twelve in the Northern District of California, three in the Central District of California, one in the District of Oregon, eight in the Western District of Washington, one in the District of Hawaii, and one in the District of Alaska.

Thirty-two of the Class Action Lawsuits relate to ocean shipping services in the Puerto Rico tradelane and were consolidated into a single multidistrict litigation (“MDL”) proceeding in the District of Puerto Rico. Twenty-five of the Class Action Lawsuits relate to ocean shipping services in the Hawaii and Guam tradelanes and were consolidated into a MDL proceeding in the Western District of Washington. One district court case remains in the District of Alaska, relating to the Alaska tradelane.

On about October 19, 2009, a purported class action lawsuit was filed against the Company, other domestic shipping carriers and certain individuals in the United States District Court for the District of Puerto Rico. The complaint purports to be on behalf of a class of individuals who allege to have paid inflated prices for retail goods imported to Puerto Rico as a result of alleged price-fixing of the defendants in violation of the Sherman Act. The purported plaintiffs are seeking treble monetary damages, costs and attorneys’ fees. The Company intends to vigorously defend itself against this lawsuit.

On June 11, 2009, the Company entered into a settlement agreement with the named plaintiff class representatives in the Puerto Rico MDL litigation. Under the settlement agreement, which is subject to Court approval, the Company has agreed to pay $20.0 million and to certain base-rate freezes to resolve claims for alleged antitrust violations in the Puerto Rico tradelane. The Company paid $5.0 million into an escrow account pursuant to the terms of the settlement agreement and will be required to pay $5.0 million within 90 days after preliminary approval of the settlement agreement by the district court and $10.0 million within five business days after final approval of the settlement agreement by the district court.

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The base-rate freeze component of the settlement agreement provides that class members who have contracts in the Puerto Rico trade with the Company as of the effective date of the final settlement agreement would have the option, in lieu of receiving cash, to have their “base rates” frozen for a period of two years. The base-rate freeze would run for two years from the expiration of the contract in effect on the effective date of the final settlement agreement. All class members would be eligible to share in the $20.0 million cash component, but only contract customers of the Company would be eligible to elect the base-rate freeze in lieu of receiving cash. The Company has the right to terminate the settlement agreement under certain circumstances. On July 8, 2009, the plaintiffs filed a motion for preliminary approval of the settlement agreement in the Puerto Rico MDL litigation. Several hearings on the motion for preliminary approval of the settlement agreement have been held where the Court has heard the objections of certain non-settling defendants. The Company is awaiting the Court’s decision.

On March 20, 2009, the Company filed a motion to dismiss the claims in the Hawaii and Guam MDL litigation. The plaintiffs filed a response to the Company’s motion to dismiss on April 20, 2009, and the Company filed a reply on May 8, 2009. On August 18, 2009, the District Court for the Western District of Washington entered an order dismissing, without prejudice, the Hawaii and Guam MDL litigation. In dismissing the complaint, however, the plaintiffs were granted thirty days to amend their complaint, and the Company and the plaintiffs agreed to extend the time to file an amended complaint to November 16, 2009. Subsequently, the Court granted the plaintiffs until May 10, 2010 to file an amended complaint, and the plaintiffs have filed a motion seeking discovery. The motion has been fully briefed and is awaiting a decision by the court. The Company intends to vigorously defend itself against these purported class action lawsuits.

The Company and the plaintiffs have agreed to stay discovery in the Alaska litigation, and the Company intends to vigorously defend itself against the purported class action lawsuit in Alaska.

In addition, on July 9, 2008, a complaint was filed by Caribbean Shipping Services, Inc. in the Circuit Court, 4th Judicial Circuit in and for Duval County, Florida, against the Company and other domestic shipping carriers alleging price-fixing in violation of the Florida Antitrust Act and the Florida Deceptive and Unlawful Trade Practices Act. The complaint seeks treble damages, injunctive relief, costs and attorneys’ fees. The case is not brought as a class action. This case is pending discovery.

Through March 21, 2010, the Company has incurred approximately $23.9 million in legal and professional fees associated with the DOJ investigation and the antitrust related litigation. In addition, the Company has paid $5.0 million into an escrow account pursuant to the terms of the Puerto Rico MDL settlement agreement. Further, a reserve of $15.0 million related to the expected future payments pursuant to the terms of the settlement of the Puerto Rico MDL litigation has been included in other accrued liabilities on the Company’s consolidated balance sheet. The Company is unable to predict the outcome of the Hawaii and Guam MDL litigation, the Alaska class-action litigation, the indirect purchaser litigation in the District of Puerto Rico, and the Florida Circuit Court litigation. The Company has not made any provision for any of these claims in the accompanying financial statements. It is possible that the outcome of these proceedings could have a material adverse effect on the Company’s financial condition, cash flows and results of operations.

In addition, in connection with the DOJ investigation, it is possible that the Company could suffer criminal prosecution and be required to pay a substantial fine. The Company is unable to predict the outcome of the DOJ investigation. The Company has not made a provision for any possible fines or penalties in the accompanying financial statements, and the Company can give no assurance that the final resolution of the DOJ investigation will not result in significant liability and will not have a material adverse effect on the Company’s financial condition, cash flows and results of operations.

On December 31, 2008, a securities class action lawsuit was filed by the City of Roseville Employees’ Retirement System in the United States District Court for the District of Delaware, naming the Company and six current and former employees, including the Company’s Chief Executive Officer, as defendants. The Company filed a motion to dismiss and the Court granted the motion to dismiss on November 13, 2009; however, the plaintiffs were granted eleven days to file an amended complaint. The Company and the plaintiffs agreed to extend the time to file the amended complaint, and the plaintiffs filed their amended complaint on December 23, 2009. The amended complaint added two of our current and former employees as defendants.

The amended complaint purports to be on behalf of purchasers of our common stock. The complaint alleges, among other things, that the Company made material misstatements and omissions in connection with alleged price-fixing in the Company’s shipping business in Puerto Rico in violation of antitrust laws. The Company filed a motion to dismiss the amended complaint on February 12, 2010. The Company is unable to predict the outcome of this lawsuit; however, we believe that we have appropriate disclosure practices and intend to vigorously defend against the lawsuit.

On March 9, 2010, the Company’s Board of Directors and certain current and former officers of the Company were named as defendants in a shareholder derivative lawsuit filed in the Superior Court of Mecklenburg County, North Carolina. The derivative suit was filed by a shareholder named Patrick Smith purportedly on behalf of Horizon Lines, Inc. claiming that the Directors and current and former officers named in the complaint breached their fiduciary duties and damaged the Company by allegedly causing the Company to engage in an antitrust conspiracy in the ocean shipping trade routes between the continental United States and Alaska, Hawaii, Guam and Puerto Rico.

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The relief being sought by the plaintiff includes monetary damages, fees and expenses associated with the action, including attorneys’ fees, and appropriate equitable relief. The defendants are preparing a response to the complaint. The Company is unable to predict the outcome of this lawsuit.

In the ordinary course of business, from time to time, the Company and its subsidiaries become involved in various legal proceedings. These relate primarily to claims for loss or damage to cargo, employees’ personal injury claims, and claims for loss or damage to the person or property of third parties. The Company and its subsidiaries generally maintain insurance, subject to customary deductibles or self-retention amounts, and/or reserves to cover these types of claims. The Company and its subsidiaries also, from time to time, become involved in routine employment-related disputes and disputes with parties with which they have contractual relations.

SFL Agreements

In April 2006, the Company completed a series of agreements with Ship Finance International Limited and certain of its subsidiaries (“SFL”) to charter five non-Jones Act qualified container vessels. The bareboat charter for each vessel is a “hell or high water” charter, and the obligation of the Company to pay charter hire thereunder for the vessel is absolute and unconditional. The aggregate annual charter hire for the five vessels is approximately $32.0 million. Under the charters, the Company is responsible for crewing, insuring, maintaining, and repairing each vessel and for all other operating costs with respect to each vessel. The term of each of the bareboat charters is twelve years from the date of delivery of the related vessel, with a three year renewal option exercisable by the Company. In addition, the Company has the option to purchase all of the vessels following the five, eight, twelve, and, if applicable, fifteen year anniversaries of the date of delivery at pre-agreed purchase prices. If the Company elects to purchase all of the vessels after the five or eight year anniversary date, it will have the right to assume the outstanding debt related to each purchased vessel, and the amount of the debt so assumed will be credited against the purchase price paid for the vessels. If the Company elects not to purchase the vessels at the end of the initial twelve-year period and SFL sells the vessels for less than a specified amount, the Company is responsible for paying the amount of such shortfall, which shall not exceed $3.8 million per vessel. If the vessels are to be sold by SFL to an affiliated party for less than a different specified amount, the Company has the right to purchase the new vessels for that different specified amount.

The Company has an interest in the variable interest entities (“VIE”) created in conjunction with the SFL transactions. However, based on a qualitative assessment as of March 21, 2010, the Company has determined it is not the primary beneficiary of the VIEs. The Company’s power to direct activities that most significantly impact the VIEs’ economic performance is limited to the maintenance and repair of the vessels. The Company’s maintenance and repair activities are performed primarily to conform to the requirements of the U.S. Coast Guard and to maintain the vessels on-time departure and arrival schedules. The Company’s obligation to absorb losses related to the residual guarantee or receive benefits related to the pre-agreed purchase price at the end of the twelve-year period are not considered to be significant to the cash flows of the VIE.

Certain contractual obligations and off-balance sheet obligations arising from this transaction include the annual operating lease obligations and the residual guarantee. The Company is accounting for the leases as operating leases. The residual guarantee is recorded at its fair value of approximately $0.2 million as a liability on the Company’s balance sheet.

Standby Letters of Credit

The Company has standby letters of credit primarily related to its property and casualty insurance programs. On both March 21, 2010 and December 20, 2009, amounts outstanding on these letters of credit totaled $11.1 million.

15. Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting for fair value measurements and disclosures. This amendment details additional disclosures on fair value measurements, requires a gross presentation of activities within a Level 3 rollforward, and adds a new requirement to disclose transfers in and out of Level 1 and Level 2 measurements. The new disclosures are required of all entities that are required to provide disclosures about recurring and nonrecurring fair value measurements. This amendment is effective in the first interim or reporting period beginning after December 15, 2009, with an exception for the gross presentation of Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The adoption of the provisions of this amendment required in the first interim period after December 15, 2009 did not have a material impact on the Company’s financial statements disclosures. In addition, the adoption of the provisions of this amendment required for periods beginning after December 15, 2010 is not expected to have a material impact on the Company’s financial statement disclosures.

14

In June 2009, the FASB issued authoritative guidance that amends the evaluation criteria to identify the primary beneficiary of a variable interest entity and requires ongoing assessment of whether an enterprise is the primary beneficiary of the variable interest entity. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities that most significantly impact the other entity’s economic performance. The Company adopted the provisions of the authoritative guidance during the quarter ended March 21, 2010. There was no impact on the Company’s consolidated results of operations and financial position, other than the modification of certain disclosures related to the Company’s involvement in variable interest entities.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets. The amendment modifies the derecognition guidance and eliminates the exemption from consolidation for qualifying special-purpose entities. The Company adopted the provisions of the authoritative guidance during the quarter ended March 21, 2010 and there was no impact on the Company’s consolidated results of operations and financial position.

In May 2009, and subsequently amended in February 2010, the FASB issued authoritative guidance for subsequent events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. The Company adopted the authoritative guidance during the quarter ended September 20, 2009, and there was no impact on the Company’s consolidated results of operations and financial position.

16. Subsequent Events

On April 12, 2010, the Company completed the sale of its interest in a joint venture with Chenega Federal Systems. As a result, the Company expects to record a gain of $0.8 million during the second quarter ended June 20, 2010.

The Company has evaluated subsequent events and transactions for potential recognition or disclosure through such time these statements were filed with the Securities and Exchange Commission (“SEC”), and has determined there were no other items deemed to be reportable.

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2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the financial statements of the Company and notes thereto included elsewhere in this quarterly report. In this quarterly report, unless the context otherwise requires, references to “we,” “us,” and “our” mean the Company, together with its subsidiaries, on a consolidated basis.

Executive Overview

The still difficult conditions affecting the overall macroeconomic environment continue to negatively impact our results of operations. Although the trends are improving and some reports indicate that the economy is stabilizing and beginning to rebound, we are still operating in a challenging environment. Our markets continue to experience weak business conditions due to ongoing softness in consumer spending, tourism, and commercial construction. In light of the risks posed by the current macroeconomic environment, we have continued a series of successful cost management efforts.

Container volumes during the quarter ended March 21, 2010 continued to be adversely impacted by the difficult overall market conditions. Operating revenue increased as a result of higher fuel surcharges and the expansion of our logistics service offerings, which was partially offset by a reduction in revenue related to the expiration of certain government contracts and lower container volumes.

The increase in operating expense during the quarter ended March 21, 2010 is primarily due to higher fuel prices and additional expenses due to three vessel incidents as a result of unusually harsh winter weather conditions and mechanical issues. The increase was partially offset by a decrease in selling, general and administrative expenses largely due to the decline in legal and professional expenses related to the Department of Justice antitrust investigation and related legal proceedings, a decline in the performance incentive plan expense, our cost control efforts, and lower stock-based compensation expense.

	Quarters Ended
	March 21,			March 22,
	2010			2009
	($ in thousands)
Operating revenue	$	286,132		$	272,351
Operating expense		289,116			273,170
Operating loss	$	(2,984	)	$	(819	)
Operating ratio		101.0	%		100.3	%
Revenue containers (units)		60,288			61,477
Average unit revenue	$	3,955		$	3,741

We believe that in addition to GAAP based financial information, EBITDA and Adjusted EBITDA are meaningful disclosures for the following reasons: (i) EBITDA and Adjusted EBITDA are components of the measure used by our board of directors and management team to evaluate our operating performance, (ii) the senior credit facility contains covenants that require us to maintain certain interest expense coverage and leverage ratios, which contain EBITDA and Adjusted EBITDA as components, and restrict certain cash payments if certain ratios are not met, subject to certain exclusions, and our management team uses EBITDA and Adjusted EBITDA to monitor compliance with such covenants, (iii) EBITDA and Adjusted EBITDA are components of the measure used by our management team to make day-to-day operating decisions, (iv) EBITDA and Adjusted EBITDA are components of the measure used by our management to facilitate internal comparisons to competitors’ results and the marine container shipping and logistics industry in general and (v) the payment of discretionary bonuses to certain members of our management is contingent upon, among other things, the satisfaction by us of certain targets, which contain EBITDA and Adjusted EBITDA as components. We acknowledge that there are limitations when using EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA and Adjusted EBITDA are not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as debt service requirements, capital expenditures, and dry-docking payments. Because all companies do not use identical calculations, this presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The EBITDA amounts presented below contain certain charges that our management team excludes when evaluating our operating performance, for making day-to-day operating decisions and that have historically been excluded from EBITDA to arrive at Adjusted EBITDA when determining the payment of discretionary bonuses.

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A reconciliation of net loss to EBITDA and Adjusted EBITDA is included below (in thousands):

	Quarters Ended
	March 21,			March 22,
	2010			2009
	(in thousands)
Net loss	$	(13,244	)	$	(9,953	)
Interest expense, net		10,283			9,431
Income tax benefit		(25	)		(297	)
Depreciation and amortization		14,068			14,773
EBITDA		11,082			13,954
Department of Justice antitrust investigation costs		958			4,424
Union severance charge		263			—
Restructuring charge		—			788
Adjusted EBITDA	$	12,303		$	19,166

In addition to EBITDA and Adjusted EBITDA, we use various other non-GAAP measures such as adjusted net income (loss) and adjusted net income (loss) per share. As with EBITDA and Adjusted EBITDA, the measures below are not recognized terms under GAAP and do not purport to be an alternative to net income (loss) as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Similar to the amounts presented for EBITDA and Adjusted EBITDA, because all companies do not use identical calculations, the amounts below may not be comparable to other similarly titled measures of other companies.

The tables below present a reconciliation of net loss to adjusted net loss and net loss per share to adjusted net loss per share (in thousands, except per share amounts):

	Quarters Ended
	March 21,			March 22,
	2010			2009
Net loss	$	(13,244	)	$	(9,953	)
Adjustments:
Department of Justice antitrust investigation costs		958			4,424
Union severance charge		263			—
Restructuring charge		—			788
Total adjustments		1,221			5,212
Adjusted net loss	$	(12,023	)	$	(4,741	)

	Quarters Ended
	March 21,			March 22,
	2010			2009
Net loss per share	$	(0.43	)	$	(0.33	)
Adjustments:
Department of Justice antitrust investigation costs		0.03			0.15
Union severance charge		0.01			—
Restructuring charge		—			0.03
Total adjustments		0.04			0.18
Adjusted net loss per share	$	(0.39	)	$	(0.15	)

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General

We believe that we are the nation’s leading Jones Act container shipping and integrated logistics company, accounting for approximately 38% of total U.S. marine container shipments from the continental U.S. to Alaska, Puerto Rico and Hawaii, constituting the three non-contiguous Jones Act markets, and to Guam and Micronesia. Under the Jones Act, all vessels transporting cargo between covered locations must, subject to limited exceptions, be built in the U.S., registered under the U.S. flag, manned by predominantly U.S. crews, and owned and operated by U.S.-organized companies that are controlled and 75% owned by U.S. citizens. We own or lease 20 vessels, 15 of which are fully qualified Jones Act vessels, and approximately 18,600 cargo containers. We also provide comprehensive shipping and logistics offerings in our markets, including rail, trucking, warehousing, distribution, and non-vessel operating common carrier (“NVOCC”) operations. We have long-term access to terminal facilities in each of our ports, operating our terminals in Alaska, Hawaii, and Puerto Rico and contracting for terminal services in the seven ports in the continental U.S. and in the ports in Guam, Yantian and Xiamen, China and Kaohsiung, Taiwan.

Recent Developments

On February 26, 2010, we announced plans to commence in December 2010 our own weekly trans-Pacific liner service between Asia and the U.S. West Coast. The new service will utilize our five 2,824 twenty-foot-equivalent-unit (TEU) capacity, 23-knot, U.S. flag Hunter-class containerships that currently call on Guam and continue on to China as part of a space charter agreement with Maersk Line. We are currently evaluating specific port options and schedules. In preparation for these plans, we and Maersk Line have mutually agreed not to renew the current Asia space charter agreement when it expires on December 10, 2010.

Also, on February 26, 2010, we announced we have reached a binding Memorandum of Understanding with APM Terminals North America (“APMT”) for a new six-year U.S. terminal services agreement. The prior terminal services agreement with APMT was scheduled to expire on December 10, 2010.

During the first quarter of 2010, the Company implemented a new organizational structure. The 2010 reorganization included (1) the re-assignment of the Company’s inland logistics activities related to the container shipping operations, as these operations are no longer tightly integrated with our third-party logistics service offerings and (2) the re-alignment of the responsibilities of certain members of the Company’s management team.

We evaluated the impact of these and other changes on our segment reporting and determined that we now have one reportable segment. As a result, the financial statement information provided in this 10-Q for the first quarters of fiscal 2010 and 2009 have been presented to reflect one reportable segment, reflecting our consolidated results of operations.

History

Our long operating history dates back to 1956, when Sea-Land pioneered the marine container shipping industry and established our business. In 1958, we introduced container shipping to the Puerto Rico market, and in 1964 we pioneered container shipping in Alaska with the first year-round scheduled vessel service. In 1987, we began providing container shipping services between the U.S. west coast and Hawaii and Guam through our acquisition from an existing carrier of all of its vessels and certain other assets that were already serving that market. Today, as the only Jones Act vessel operator with one integrated organization serving Alaska, Hawaii, and Puerto Rico, we are uniquely positioned to serve customers requiring shipping and logistics services in more than one of these markets. In addition to these domestic markets, we have been serving the international market with vessels operating between the U.S. west coast and Asia since the inception of our space charter agreements with Maersk Line in 1999.

Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make estimates and assumptions in the reported amounts of revenues and expenses during the reporting period and in reporting the amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of our financial statements. Since many of these estimates and assumptions are based upon future events which cannot be determined with certainty, the actual results could differ from these estimates.

We believe that the application of our critical accounting policies, and the estimates and assumptions inherent in those policies, are reasonable. These accounting policies and estimates are periodically reevaluated and adjustments are made when facts or circumstances dictate a change. Historically, we have found the application of accounting policies to be appropriate and actual results have not differed materially from those determined using necessary estimates. There have been no material changes to the Company’s critical accounting policies during the quarter ended March 21, 2010. The critical accounting policies can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 20, 2009 as filed with the Securities and Exchange Commission (“SEC”).

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Seasonality

Our container volumes are subject to seasonal trends common in the transportation industry. Financial results in the first quarter are normally lower due to reduced loads during the winter months. Volumes typically build to a peak in the third quarter and early fourth quarter, which generally results in higher revenues and improved margins.

Results of Operations

Operating Revenue Overview

We derive our revenue primarily from providing comprehensive shipping and logistics services to and from the continental U.S. and Alaska, Puerto Rico, Hawaii and Guam. We charge our customers on a per load basis and price our services based primarily on the length of inland and ocean cargo transportation hauls, type of cargo, and other requirements such as shipment timing and type of container. In addition, we assess fuel surcharges on a basis consistent with industry practice and at times may incorporate these surcharges into our basic transportation rates. There is occasionally a timing disparity between volatility in our fuel costs and related adjustments to our fuel surcharges (or the incorporation of adjusted fuel surcharges into our base transportation rates) that may result in variances in our fuel recovery.

Over 85% of our revenue is generated from our shipping and logistics services in markets where the marine trade is subject to the Jones Act or other U.S. maritime laws. The balance of our revenue is derived from (i) vessel loading and unloading services that we provide for vessel operators at our terminals, (ii) agency services that we provide for third-party shippers lacking administrative presences in our markets, (iii) vessel space charter income from third-parties in trade lanes not subject to the Jones Act, (iv) warehousing services for third-parties, and (v) other non-transportation services.

As used in this Form 10-Q, the term “revenue containers” refers to containers that are transported for a charge, as opposed to empty containers.

Cost of Services Overview

Our cost of services consist primarily of vessel operating costs, marine operating costs, inland transportation costs, land costs and rolling stock rent. Our vessel operating costs consist primarily of vessel fuel costs, crew payroll costs and benefits, vessel maintenance costs, space charter costs, vessel insurance costs and vessel rent. We view our vessel fuel costs as subject to potential fluctuation as a result of changes in unit prices in the fuel market. Our marine operating costs consist of stevedoring, port charges, wharfage and various other costs to secure vessels at the port and to load and unload containers to and from vessels. Our inland transportation costs consist primarily of the costs to move containers to and from the port via rail, truck or barge and other transportation costs. Our land costs consist primarily of maintenance, yard and gate operations, warehousing operations and terminal overhead in the terminals in which we operate. Rolling stock rent consists primarily of rent for street tractors, yard equipment, chassis, gensets and various dry and refrigerated containers.

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Quarter Ended March 21, 2010 Compared with the Quarter Ended March 22, 2009

	Quarters Ended
	March 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. Our operating revenue increased $13.8 million, or 5.1% during the quarter ended March 21, 2010 as compared to the quarter ended March 22, 2009. This revenue increase can be attributed to the following factors (in thousands):

Bunker and intermodal fuel surcharges increase	$	14,810
Other increase		3,866
Revenue container volume decrease		(3,961	)
General rate decrease		(934	)
Total operating revenue increase	$	13,781

The revenue container volume declines are primarily due to ongoing challenges in all of our tradelanes. Bunker and intermodal fuel surcharges, which are included in our transportation revenue, accounted for approximately 14.0% of total revenue in the quarter ended March 21, 2010 and approximately 9.2% of total revenue in the quarter ended March 22, 2009. We adjust our bunker and intermodal fuel surcharges as a result of fluctuations in the cost of bunker fuel for our vessels, in addition to diesel fuel fluctuations passed on to us by our truck, rail, and barge service providers. Fuel surcharges are evaluated regularly as the price of fuel fluctuates, and we may at times incorporate these surcharges into our base transportation rates that we charge. The increase in other revenue is primarily due to the expansion of our logistics service offerings and higher space charter revenue resulting from an increase in fuel surcharges, partially offset by the expiration of certain vessel management government contracts.

Cost of Services. The $23.1 million increase in cost of services is primarily due to higher fuel costs as a result of an increase in fuel prices and an increase in inland transportation costs as a result of the increase in other revenue, partially offset by a decrease in variable costs as a result of the expiration of certain vessel management government contracts and lower container volumes.

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Vessel expense, which is not primarily driven by revenue container volume, increased $17.6 million for the quarter ended March 21, 2010 compared to the quarter ended March 22, 2009. This increase can be attributed to the following factors (in thousands):

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

The $22.4 million increase in fuel costs is comprised of a $21.5 million increase due to fuel prices and a $0.9 million increase in consumption due to additional vessel operating days. The increase in space charter expense is due to unusually harsh winter weather conditions and mechanical issues that resulted in vessel downtime, during which we purchased more space from a competitor. The decrease in labor and other vessel operating expense is due to the expiration of certain government contracts.

Marine expense is comprised of the costs incurred to bring vessels into and out of port, and to load and unload containers. The types of costs included in marine expense are stevedoring and associated benefits, pilotage fees, tug fees, government fees, wharfage fees, dockage fees, and line handler fees. The $2.8 million increase in marine expense during quarter ended March 21, 2010 was primarily due to multi-employer plan benefit assessments for our west coast union employees, an increase in cargo claims due to weather related vessel incidents, and contractual rate increases, partially offset by lower container volumes.

The $1.7 million increase in inland expense is primarily due to the increase in our inland service offerings.

Land expense is comprised of the costs included within the terminal for the handling, maintenance, and storage of containers, including yard operations, gate operations, maintenance, warehouse, and terminal overhead.

	Quarters Ended
	March 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	%

Non-vessel related maintenance expenses increased primarily due to higher fuel costs. Terminal overhead decreased primarily due to lower compensation costs as a result of the reduction in workforce and reduced professional fees incurred during the first quarter of 2009 related to the relocation of our Long Beach, California offices. Yard and gate expense is comprised of the costs associated with moving cargo into and out of the terminal facility and the costs associated with the storage of equipment and revenue loads in the terminal facility. Yard and gate expenses were flat as rate increases in the monitoring of refrigerated containers was offset by a decrease in expenses related to a one-time stevedoring revenue opportunity incurred during the first quarter of 2009.

Rolling stock expense increased $0.7 million or 8.0% during the quarter ended March 21, 2010 as compared to the quarter ended March 22, 2009. This increase is due to higher costs related to our existing equipment sharing arrangements.

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Depreciation and Amortization. Depreciation and amortization of $11.0 million during the quarter ended March 21, 2010 was flat as compared to the quarter ended March 22, 2009.

	Quarters Ended
	March 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. Amortization of vessel dry-docking was $3.1 million during the quarter ended March 21, 2010 compared to $3.8 million for the quarter ended March 22, 2009. Amortization of vessel dry-docking fluctuates based on the timing of dry-dockings, the number of dry-dockings that occur during a given period, and the amount of expenditures incurred during the dry-dockings. Dry-dockings generally occur every two and a half years and historically we have dry-docked approximately six vessels per year.

Selling, General and Administrative. Selling, general and administrative costs decreased to $21.7 million for the quarter ended March 21, 2010 compared to $27.8 million for the quarter ended March 22, 2009, a decrease of $6.1 million or 21.8%. This decrease is primarily comprised of a $3.5 million decline in legal and professional fees expenses related to the Department of Justice antitrust investigation and related legal proceedings, $1.0 million decrease in the accrual related to our performance incentive plan, $0.4 million decrease in stock-based compensation expense, and $0.6 million in savings related to our cost control efforts, including travel and entertainment, meetings and seminars, charitable contributions and advertising.

Miscellaneous Expense, Net. Miscellaneous expense, net increased $0.4 million during the quarter ended March 21, 2010 compared to the quarter ended March 22, 2009 primarily as a result of an increase in bad debt expense.

Interest Expense, Net. Interest expense, net increased to $10.3 million for the quarter ended March 21, 2010 compared to $9.4 million for the quarter ended March 22, 2009, an increase of $0.9 million or 9.6%. This increase is a result of a higher interest rates payable on the outstanding debt as a result of the June 2009 amendment to our Senior Credit Facility.

Income Tax Expense. The effective tax rate for the quarters ended March 21, 2010 and March 22, 2009 was (0.2)% and (2.9)%, respectively. During the second quarter of 2009, we determined that it was unclear as to the timing of when we will generate sufficient taxable income to realize our deferred tax assets. Accordingly, we recorded a valuation allowance against our deferred tax assets. Although we have recorded a valuation allowance against our deferred tax assets, it does not affect our ability to utilize our deferred tax assets to offset future taxable income. Until such time that we determine it is more likely than not that we will generate sufficient taxable income to realize our deferred tax assets, income tax benefits associated with future period losses will be fully reserved. As such, the Company’s federal and state tax rates are expected to effectively be 0% and 1%-2%, respectively, during those periods.

Liquidity and Capital Resources

Principal sources of funds have been (i) earnings before non-cash charges and (ii) borrowings under debt arrangements. Principal uses of funds have been (i) capital expenditures on our container fleet, terminal operating equipment, owned and leased vessel fleet, and information technology systems, (ii) vessel dry-docking expenditures, (iii) working capital consumption, (iv) principal and interest payments on indebtedness, and (v) dividend payments. Cash totaled $4.7 million at March 21, 2010.

The Senior Credit Facility contains customary covenants, including two financial covenants with respect to our leverage and interest coverage ratio and covenants that limit our distribution of dividends and stock repurchases. It also contains customary events of default, subject to grace periods. We were in compliance with all such covenants as of March 21, 2010. As of March 21, 2010, total unused borrowing capacity under the revolving credit facility was $73.9 million, after taking into account $140.0 million outstanding under the revolver and $11.1 million utilized for outstanding letters of credit. Based on our leverage ratio, borrowing availability under the revolving credit facility was $45.3 million as of March 21, 2010.

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Operating Activities

Net cash used in operating activities was $34.1 million for the quarter ended March 21, 2010 compared to $22.3 million for the quarter ended March 22, 2009, an increase of $11.8 million. The increase in cash used in operating activities is primarily due to the following (in thousands):

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		2,365
Decrease in payments related to Department of Justice antitrust investigation and related legal proceedings		2,264
	$	(11,785	)

Investing Activities

Net cash used in investing activities was $1.4 million for the quarter ended March 21, 2010 compared to $3.2 million for the quarter ended March 22, 2009. The reduction is related to a decrease in capital spending.

Financing Activities

Net cash provided by financing activities during the quarter ended March 21, 2010 was $33.8 million compared to $25.1 million for the quarter ended March 22, 2009. The net cash used in financing activities during the quarter ended March 21, 2010 included $35.3 million, net of repayments, borrowed under the Senior Credit Facility as compared to $28.4 million during quarter ended March 22, 2009. Dividend payments to stockholders during the quarter ended March 21, 2010 were $1.5 million compared to $3.3 million during the quarter ended March 22, 2009.

Capital Requirements and Commitments

Our current and future capital needs relate primarily to debt service, our vessel fleet, and other necessary equipment acquisitions, including the equipment needed for the launch of our international service at the end of 2010. Cash to be used for investing activities, including purchases of property and equipment for the next twelve months is expected to total approximately $18.0-$21.0 million. Such capital expenditures will include terminal infrastructure and equipment, continued redevelopment of our San Juan, Puerto Rico terminal, and vessel regulatory and maintenance initiatives. In addition, expenditures for vessel dry-docking payments are estimated to be $17.0-$19.0 million for the next twelve months.

On June 11, 2009, we entered into a settlement agreement with the plaintiffs in the Puerto Rico MDL litigation. Under the settlement agreement, which is subject to Court approval, we have agreed to pay $20.0 million and to certain base-rate freezes, to resolve claims for alleged antitrust violations in the Puerto Rico tradelane. We have paid $5.0 million into an escrow account pursuant to the terms of the settlement agreement and will be required to pay $5.0 million within 90 days after preliminary approval of the settlement agreement by the district court and $10.0 million within five business days after final approval of the settlement agreement by the district court.

The base-rate freeze component of the settlement agreement provides that class members who have contracts in the Puerto Rico trade with us as of the effective date of the final settlement agreement would have the option, in lieu of receiving cash, to have their “base rates” frozen for a period of two years. The base-rate freeze would run for two years from the expiration of the contract in effect on the effective date of the final settlement agreement. All class members would be eligible to share in the $20.0 million cash component, but only our contract customers would be eligible to elect the base-rate freeze in lieu of receiving cash. We have the right to terminate the settlement agreement under certain circumstances.

Eight of our vessels, the Horizon Anchorage, Horizon Tacoma, Horizon Kodiak, Horizon Hunter, Horizon Hawk, Horizon Eagle, Horizon Falcon and Horizon Tiger are leased, or chartered, under charters that are due to expire in January 2015 for the Horizon Anchorage, Horizon Tacoma and Horizon Kodiak, in 2018 for the Horizon Hunter and in 2019 for the Horizon Hawk, Horizon Eagle, Horizon Falcon and Horizon Tiger. The charters for these vessels permit us to purchase the applicable vessel at the expiration of the charter period for a fair market value specified in the relevant charter that is determined through a pre-agreed appraisal procedure. The fair market values of these vessels at the expiration of their charters cannot be predicted with any certainty.

Long-Term Debt

Senior Credit Facility

On August 8, 2007, we entered into a credit agreement (the “Senior Credit Facility”) secured by substantially all our owned assets. On June 11, 2009, the Senior Credit Facility was amended resulting in a reduction in the size of the revolving credit facility from $250.0 million to $225.0 million. The terms of the Senior Credit Facility also provide for a $20.0 million swingline subfacility and a $50.0 million letter of credit subfacility.

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The amendment to the Senior Credit Facility was intended to provide us the flexibility necessary to effect the settlement of the Puerto Rico class action litigation and to incur other antitrust related litigation expenses. The amendment revises the definition of Consolidated EBITDA by allowing for certain charges, including (i) the Puerto Rico settlement and (ii) litigation expenses related to antitrust litigation matters in an amount not to exceed $25 million in the aggregate and $15 million over a 12-month period, to be added back to the calculation of Consolidated EBITDA. In addition, the Senior Credit Facility was amended to (i) increase the spread over LIBOR and Prime based rates by 150 bps, (ii) increase the range of fees on the unused portion of the commitment, (iii) eliminate the $150 million incremental facility, (iv) modify the definition of Consolidated EBITDA to clarify the term “non-recurring charges”, and (v) incorporate other structural enhancements, including a step-down in the secured leverage ratio and further limitations on the ability to make certain restricted payments. As a result of the amendment to the Senior Credit Facility, we paid $3.5 million in financing costs and recorded a loss on modification of debt of $0.1 million during the second quarter of 2009.

We have made quarterly principal payments on the term loan of approximately $1.6 million from December 31, 2007 through September 30, 2009. Effective December 31, 2009, quarterly payments increased to $4.7 million through September 30, 2011, at which point quarterly payments will increase to $18.8 million until final maturity on August 8, 2012. The interest rate payable under the Senior Credit Facility varies depending on the types of advances or loans the Company selects. Borrowings under the Senior Credit Facility bear interest primarily at LIBOR-based rates plus a spread which ranges from 2.75% to 3.5% (LIBOR plus 3.0% as of March 21, 2010) depending on our ratio of total secured debt to EBITDA (as defined in the Senior Credit Facility). We also have the option to borrow at Prime plus a spread which ranges from 1.75% to 2.5% (Prime plus 2.0% as of March 21, 2010). The weighted average interest rate at March 21, 2010 was approximately 4.5%, which includes the impact of the interest rate swap (as defined below). We also pay a variable commitment fee on the unused portion of the commitment, ranging from 0.375% to 0.50% (0.50% as of March 21, 2010).

The Senior Credit Facility contains customary covenants, including two financial covenants with respect to our leverage and interest coverage ratio and covenants that limit distribution of dividends and stock repurchases. It also contains customary events of default, subject to grace periods. We were in compliance with all such covenants as of March 21, 2010. As of March 21, 2010, total unused borrowing capacity under the revolving credit facility was $73.9 million, after taking into account $140.0 million outstanding under the revolver and $11.1 million utilized for outstanding letters of credit. Based on our leverage ratio, borrowing availability under the revolving credit facility was $45.3 million as of March 21, 2010.

Derivative Instruments

On March 31, 2008, we entered into an Interest Rate Swap Agreement (the “swap”) with Wachovia Bank, National Association, a current subsidiary of Wells Fargo & Co., (“Wachovia”) in the notional amount of $121.9 million. The swap expires on August 8, 2012. Under the swap, the Company and Wachovia have agreed to exchange interest payments on the notional amount on the last business day of each calendar quarter. We have agreed to pay a 3.02% fixed interest rate, and Wachovia has agreed to pay a floating interest rate equal to the three-month LIBOR rate. The critical terms of the swap agreement and the term loan are the same, including the notional amounts, interest rate reset dates, maturity dates and underlying market indices. The purpose of entering into this swap is to protect us against the risk of rising interest rates by effectively fixing the base interest rate payable related to our term loan.

The swap has been designated as a cash flow hedge of the variability of the cash flows due to changes in LIBOR and has been deemed to be highly effective. Accordingly, we record the fair value of the swap as an asset or liability on our consolidated balance sheet, and any unrealized gain or loss is included in accumulated other comprehensive (loss) income. As of March 21, 2010, we recorded a liability of $4.1 million, of which $0.6 million is included in other accrued liabilities and $3.5 million is included in other long-term liabilities, in the accompanying consolidated balance sheet. We also recorded $0.3 million in other comprehensive loss for the quarter ended March 21, 2010. No hedge ineffectiveness was recorded during the quarter ended March 21, 2010. If the hedge was deemed ineffective, or extinguished by either counterparty, any accumulated gains or losses remaining in other comprehensive income would be fully recorded in interest expense during the period.

4.25% Convertible Senior Notes

On August 8, 2007, we issued $330.0 million aggregate principal amount of 4.25% Convertible Senior Notes due 2012 (the “Notes”). The Notes are general unsecured obligations of the Company and rank equally in right of payment with all of our other existing and future obligations that are unsecured and unsubordinated. The Notes bear interest at the rate of 4.25% per annum, which is payable in cash semi-annually on February 15 and August 15 of each year. The Notes mature on August 15, 2012, unless earlier converted, redeemed or repurchased in accordance with their terms prior to August 15, 2012. Holders of the Notes may require us to repurchase the Notes for cash at any time before August 15, 2012 if certain fundamental changes occur.

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Each $1,000 of principal of the Notes will initially be convertible into 26.9339 shares of our common stock, which is the equivalent of $37.13 per share, subject to adjustment upon the occurrence of specified events set forth under the terms of the Notes. Upon conversion, we would pay the holder the cash value of the applicable number of shares of our common stock, up to the principal amount of the note. Amounts in excess of the principal amount, if any, may be paid in cash or in stock, at our option. Holders may convert their Notes into our common stock as follows:

• 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.

Holders who convert their Notes in connection with a change in control may be entitled to a make-whole premium in the form of an increase in the conversion rate. In addition, upon a change in control, liquidation, dissolution or de-listing, the holders of the Notes may require us to repurchase for cash all or any portion of their Notes for 100% of the principal amount plus accrued and unpaid interest. As of March 21, 2010, none of the conditions allowing holders of the Notes to convert or requiring us to repurchase the Notes had been met. We may not redeem the Notes prior to maturity.

Concurrent with the issuance of the Notes, we entered into note hedge transactions with certain financial institutions whereby if we are required to issue shares of our common stock upon conversion of the Notes, we have the option to receive up to 8.9 million shares of our common stock when the price of our common stock is between $37.13 and $51.41 per share upon conversion, and we sold warrants to the same financial institutions whereby the financial institutions have the option to receive up to 17.8 million shares of our common stock when the price of our common stock exceeds $51.41 per share upon conversion. The separate note hedge and warrant transactions were structured to reduce the potential future share dilution associated with the conversion of Notes. The cost of the note hedge transactions to the Company was approximately $52.5 million, $33.4 million net of tax, and has been accounted for as an equity transaction. We received proceeds of $11.9 million related to the sale of the warrants, which has also been classified as equity.

The Notes and the warrants sold in connection with the hedge transactions will have no impact on diluted earnings per share until the price of the Company’s common stock exceeds the conversion price (initially $37.13 per share) because the principal amount of the Notes will be settled in cash upon conversion. Prior to conversion of the Notes or exercise of the warrants, we will include the effect of the additional shares that may be issued if our common stock price exceeds the conversion price, using the treasury stock method. The call options purchased as part of the note hedge transactions are anti-dilutive and therefore will have no impact on earnings per share.

Goodwill

We review our goodwill, intangible assets and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable, and also review goodwill annually. As of March 21, 2010, the carrying value of our goodwill was $317.1 million. Earnings estimated to be generated are expected to support the carrying value of goodwill.

Outlook

Although we are beginning to see signs of economic stabilization and modest improvement in two of our three domestic tradelanes, we remain cautiously optimistic about the remainder of 2010. If the economic firming trends continue, we see the potential for modest volume improvement as the year progresses. However, we expect rate pressures to persist throughout 2010 and we will continue to aggressively manage costs in an effort to mitigate rate compression. We have renewed our long-term terminal services agreement with APM Terminals North America and have a solid team and strong plan in place to launch our own Asia Liner service from the U.S. West Coast in December. Based on these factors, we expect our second quarter adjusted EBITDA performance will slightly outperform last year’s second quarter, and full year adjusted EBITDA will be in the same range as last year’s adjusted EBITDA performance. We will closely monitor cash flows and expect to maintain adequate liquidity to remain in compliance with all financial covenants.

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Interest Rate Risk

Our primary interest rate exposure relates to the Senior Credit Facility. As of March 21, 2010, we had outstanding a $107.8 million term loan and $140.0 million under the revolving credit facility, which bear interest at variable rates.

On March 31, 2008, we entered into an Interest Rate Swap Agreement (the “swap”) on our term loan with Wachovia in the notional amount of $121.9 million. The swap expires on August 8, 2012. Under the swap, the Company and Wachovia have agreed to exchange interest payments on the notional amount on the last business day of each calendar quarter. We have agreed to pay a 3.02% fixed interest rate, and Wachovia has agreed to pay a floating interest rate equal to the three-month LIBOR rate. The critical terms of the swap agreement and the term loan are the same, including the notional amounts, interest rate reset dates, maturity dates and underlying market indices. The purpose of entering into this swap is to protect the Company against the risk of rising interest rates by effectively fixing the base interest rate payable related to our term loan. Interest rate differentials paid or received under the swap are recognized as adjustments to interest expense. We do not hold or issue interest rate swap agreements for trading purposes. In the event that the counter-party fails to meet the terms of the interest rate swap agreement, our exposure is limited to the interest rate differential.

Each quarter point change in interest rates would result in a $0.4 million change in annual interest expense on the revolving credit facility.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting for fair value measurements and disclosures. This amendment details additional disclosures on fair value measurements, requires a gross presentation of activities within a Level 3 rollforward, and adds a new requirement to disclose transfers in and out of Level 1 and Level 2 measurements. The new disclosures are required of all entities that are required to provide disclosures about recurring and nonrecurring fair value measurements. This amendment is effective in the first interim or reporting period beginning after December 15, 2009, with an exception for the gross presentation of Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The adoption of the provisions of this amendment required in the first interim period after December 15, 2009 did not have a material impact on our financial statements disclosures. In addition, the adoption of the provisions of this amendment required for periods beginning after December 15, 2010 is not expected to have a material impact on our financial statement disclosures.

In June 2009, the FASB issued authoritative guidance that amends the evaluation criteria to identify the primary beneficiary of a variable interest entity and requires ongoing assessment of whether an enterprise is the primary beneficiary of the variable interest entity. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities that most significantly impact the other entity’s economic performance. We adopted the provisions of the authoritative guidance during the quarter ended March 21, 2010. There was no impact on our consolidated results of operations and financial position, other than the modification of certain disclosures related to our involvement in variable interest entities.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets. The amendment modifies the derecognition guidance and eliminates the exemption from consolidation for qualifying special-purpose entities. We adopted the provisions of the authoritative guidance during the quarter ended March 21, 2010 and there was no impact on our consolidated results of operations and financial position.

In May 2009, and subsequently amended in February 2010, the FASB issued authoritative guidance for subsequent events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. We adopted the authoritative guidance during the quarter ended September 20, 2009, and there was no impact on our consolidated results of operations and financial position.

Forward Looking Statements

This Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “projects,” “likely,” “will,” “would,” “could” and similar expressions or phrases identify forward-looking statements.

All forward-looking statements involve risks and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results.

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Factors that may cause actual results to differ from expected results include: decreases in shipping volumes; legal or other proceedings to which we are or may become subject, including the Department of Justice antitrust investigation and related legal proceedings; volatility in fuel prices; our substantial debt; restrictive covenants under our debt agreements; our failure to renew certain of our commercial agreements with Maersk; potential alternative arrangements as a result of the non-renewal of the Asia space charter agreement with Maersk; labor interruptions or strikes; job related claims, liability under multi-employer pension plans; compliance with safety and environmental protection and other governmental requirements; new statutory and regulatory directives in the United States addressing homeland security concerns; the successful start-up of any Jones Act competitor; increased inspection procedures and tighter import and export controls; restrictions on foreign ownership of our vessels; repeal or substantial amendment of the coastwise laws of the United States, also known as the Jones Act; escalation of insurance costs, catastrophic losses and other liabilities; the arrest of our vessels by maritime claimants; severe weather and natural disasters; our inability to exercise our purchase options for our chartered vessels; the aging of our vessels; unexpected substantial dry-docking costs for our vessels; the loss of our key management personnel; actions by our stockholders; changes in tax laws or in their interpretation or application (including the repeal of the application of the tonnage tax to our trade in any one of our applicable shipping routes); and adverse tax audits and other tax matters.

In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in this Form 10-Q (including the exhibits hereto) might not occur. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

See the section entitled “Risk Factors” in our Form 10-K for the fiscal year ended December 20, 2009 as filed with the SEC for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.

3. Quantitative and Qualitative Disclosures About Market Risk

We maintain a policy for managing risk related to exposure to variability in interest rates, fuel prices, and other relevant market rates and prices. Our policy includes entering into derivative instruments in order to mitigate our risks.

Exposure relating to our Senior Credit Facility and our exposure to bunker fuel price increases are discussed in our Form 10-K for the year ended December 20, 2009. There have been no material changes to these market risks since December 20, 2009.

There have been no material changes in the quantitative and qualitative disclosures about market risk since December 20, 2009. Information concerning market risk is incorporated by reference to Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” of our Form 10-K for the fiscal year ended December 20, 2009.

4. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting as of March 21, 2010 based on the control criteria established in a report entitled Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such evaluation management has concluded that the Company’s internal control over financial reporting is effective as of March 21, 2010.

Changes in Internal Control

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ending March 21, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

1. Legal Proceedings

On April 17, 2008, we received a grand jury subpoena and search warrant from the U.S. District Court for the Middle District of Florida seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the “DOJ”) into possible antitrust violations in the domestic ocean shipping business. Subsequently, the DOJ expanded the timeframe covered by the subpoena. We are currently providing documents to the DOJ in response to the subpoena. We are cooperating fully with the DOJ in its investigation.

We have entered into a conditional amnesty agreement with the DOJ under its Corporate Leniency Policy. The amnesty agreement pertains to a single contract relating to ocean shipping services provided to the United States Department of Defense. The DOJ has agreed to not bring any criminal prosecution with respect to that government contract as long as we, among other things, continue our full cooperation in the investigation. The amnesty does not bar a claim for damages that may be sought by the DOJ under any applicable federal law or regulation.

On October 9, 2009, we received a Request for Information and Production of Documents from the Puerto Rico Office of Monopolistic Affairs. The request relates to an investigation into possible price fixing and unfair competition in the Puerto Rico domestic ocean shipping business. We are currently providing documents in response to this request, and are cooperating fully in this investigation.

Subsequent to the commencement of the DOJ investigation, fifty-eight purported class action lawsuits were filed against us and other domestic shipping carriers (the “Class Action Lawsuits”). Each of the Class Action Lawsuits purports to be on behalf of a class of individuals and entities who purchased domestic ocean shipping services from the various domestic ocean carriers. These complaints allege price-fixing in violation of the Sherman Act and seek treble monetary damages, costs, attorneys’ fees, and an injunction against the allegedly unlawful conduct. The Class Action Lawsuits were filed in the following federal district courts: eight in the Southern District of Florida, five in the Middle District of Florida, nineteen in the District of Puerto Rico, twelve in the Northern District of California, three in the Central District of California, one in the District of Oregon, eight in the Western District of Washington, one in the District of Hawaii, and one in the District of Alaska.

Thirty-two of the Class Action Lawsuits relate to ocean shipping services in the Puerto Rico tradelane and were consolidated into a single multidistrict litigation (“MDL”) proceeding in the District of Puerto Rico. Twenty-five of the Class Action Lawsuits relate to ocean shipping services in the Hawaii and Guam tradelanes and were consolidated into a MDL proceeding in the Western District of Washington. One district court case remains in the District of Alaska, relating to the Alaska tradelane.

On about October 19, 2009, a purported class action lawsuit was filed against us, other domestic shipping carriers and certain individuals in the United States District Court for the District of Puerto Rico. The complaint purports to be on behalf of a class of individuals who allege to have paid inflated prices for retail goods imported to Puerto Rico as a result of alleged price-fixing of the defendants in violation of the Sherman Act. The purported plaintiffs are seeking treble monetary damages, costs and attorneys’ fees. We intend to vigorously defend against this lawsuit.

On June 11, 2009, we entered into a settlement agreement with the named plaintiff class representatives in the Puerto Rico MDL litigation. Under the settlement agreement, which is subject to Court approval, we have agreed to pay $20.0 million and to certain base-rate freezes to resolve claims for alleged antitrust violations in the Puerto Rico tradelane. We paid $5.0 million into an escrow account pursuant to the terms of the settlement agreement and will be required to pay $5.0 million within 90 days after preliminary approval of the settlement agreement by the district court and $10.0 million within five business days after final approval of the settlement agreement by the district court.

The base-rate freeze component of the settlement agreement provides that class members who have contracts in the Puerto Rico trade with us as of the effective date of the final settlement agreement would have the option, in lieu of receiving cash, to have their “base rates” frozen for a period of two years. The base-rate freeze would run for two years from the expiration of the contract in effect on the effective date of the final settlement agreement. All class members would be eligible to share in the $20.0 million cash component, but only our contract customers would be eligible to elect the base-rate freeze in lieu of receiving cash. We have the right to terminate the settlement agreement under certain circumstances. On July 8, 2009, the plaintiffs filed a motion for preliminary approval of the settlement agreement in the Puerto Rico MDL litigation. Several hearings on the motion for preliminary approval of the settlement agreement have been held where the Court has heard the objections of certain non-settling defendants. We are awaiting the Court’s decision.

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On March 20, 2009, we filed a motion to dismiss the claims in the Hawaii and Guam MDL litigation. The plaintiffs filed a response to our motion to dismiss on April 20, 2009, and we filed a reply on May 8, 2009. On August 18, 2009, the District Court for the Western District of Washington entered an order dismissing, without prejudice, the Hawaii and Guam MDL litigation. In dismissing the complaint, however, the plaintiffs were granted thirty days to amend their complaint, and we and the plaintiffs agreed to extend the time to file an amended complaint to November 16, 2009. Subsequently, the Court granted the plaintiffs until May 10, 2010 to file an amended complaint, and the plaintiffs have filed a motion seeking discovery. The motion has been briefed and is awaiting a decision by the court.

We and the plaintiffs have agreed to stay discovery in the Alaska litigation, and we intend to vigorously defend against the purported class action lawsuit in Alaska.

In addition, on July 9, 2008, a complaint was filed by Caribbean Shipping Services, Inc. in the Circuit Court, 4th Judicial Circuit in and for Duval County, Florida, against us and other domestic shipping carriers alleging price-fixing in violation of the Florida Antitrust Act and the Florida Deceptive and Unlawful Trade Practices Act. The complaint seeks treble damages, injunctive relief, costs and attorneys’ fees. The case is not brought as a class action. This case is pending discovery.

Through March 21, 2010, we have incurred approximately $23.9 million in legal and professional fees associated with the DOJ investigation and the antitrust related litigation. In addition, we have paid $5.0 million into an escrow account pursuant to the terms of the Puerto Rico MDL settlement agreement. Further, a reserve of $15.0 million related to the expected future payments pursuant to the terms of the settlement of the Puerto Rico MDL litigation has been included in other accrued liabilities on our consolidated balance sheet. We are unable to predict the outcome of the Hawaii and Guam MDL litigation, the Alaska class-action litigation, the indirect purchaser litigation in the District of Puerto Rico, and the Florida Circuit Court litigation. We have not made any provision for any of these claims in the accompanying financial statements. It is possible that the outcome of these proceedings could have a material adverse effect on our financial condition, cash flows and results of operations.

In addition, in connection with the DOJ investigation, it is possible that we could suffer criminal prosecution and be required to pay a substantial fine. We are unable to predict the outcome of the DOJ investigation. We have not made a provision for any possible fines or penalties in the accompanying financial statements, and we can give no assurance that the final resolution of the DOJ investigation will not result in significant liability and will not have a material adverse effect on our financial condition, cash flows and results of operations.

On December 31, 2008, a securities class action lawsuit was filed by the City of Roseville Employees’ Retirement System in the United States District Court for the District of Delaware, naming the Company and six current and former employees, including our Chief Executive Officer, as defendants. We filed a motion to dismiss and the Court granted the motion to dismiss on November 13, 2009; however, the plaintiffs were granted eleven days to file an amended complaint. We and the plaintiffs agreed to extend the time to file the amended complaint, and the plaintiffs filed their amended complaint on December 23, 2009. The amended complaint added two of our current and former employees as defendants.

The amended complaint purports to be on behalf of purchasers of our common stock. The complaint alleges, among other things, that we made material misstatements and omissions in connection with alleged price-fixing in our shipping business in Puerto Rico in violation of antitrust laws. We filed a motion to dismiss the amended complaint on February 12, 2010. We are unable to predict the outcome of this lawsuit; however, we believe that we have appropriate disclosure practices and intend to vigorously defend against the lawsuit.

On March 9, 2010, our Board of Directors and certain of our current and former officers were named as defendants in a shareholder derivative lawsuit filed in the Superior Court of Mecklenburg County, North Carolina. The derivative suit was filed by a shareholder named Patrick Smith purportedly on behalf of Horizon Lines, Inc. claiming that the Directors and current and former officers named in the complaint breached their fiduciary duties and damaged the Company by allegedly causing us to engage in an antitrust conspiracy in the ocean shipping trade routes between the continental United States and Alaska, Hawaii, Guam and Puerto Rico.

The relief being sought by the plaintiff includes monetary damages, fees and expenses associated with the action, including attorneys’ fees, and appropriate equitable relief. We are preparing a response to the complaint and are unable to predict the outcome of this lawsuit.

In the ordinary course of business, from time to time, we and our subsidiaries become involved in various legal proceedings. These relate primarily to claims for loss or damage to cargo, employees’ personal injury claims, and claims for loss or damage to the person or property of third parties. We and our subsidiaries generally maintain insurance, subject to customary deductibles or self-retention amounts, and/or reserves to cover these types of claims. We and our subsidiaries also, from time to time, become involved in routine employment-related disputes and disputes with parties with which they have contractual relations.

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1A. Risk Factors

There have been no material changes from our risk factors as previously reported in our Annual Report to the SEC on Form 10-K for the fiscal year ended December 20, 2009.

2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

3. Defaults Upon Senior Securities

None.

4. Reserved

5. Other Information

None.

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.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 23, 2010

HORIZON LINES, INC.
By:	/s/ MICHAEL T. AVARA
	Michael T. Avara
	Senior Vice President & Chief Financial Officer (Principal Financial Officer & Authorized Signatory)

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EXHIBIT INDEX

Exhibit No.	Description
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.

EX-10.1

Exhibit 10.1

MEMORANDUM OF UNDERSTANDING

Among

Horizon Lines, LLC, Horizon Lines of Alaska, LLC and

APM Terminals North America Inc.

Horizon Lines, LLC (“HL”), Horizon Lines of Alaska, LLC (“HLA”) and APM Terminals North America Inc. (“APMT” or “Contractor”) hereby enter into this Memorandum of Understanding (“MOU”) as of January 27, 2010. HL and HLA may be referred to hereinafter collectively as “Carrier”. Carrier and Contractor may be referred to hereinafter individually as “Party” and collectively as “Parties”.

HL, HLA and APMT are parties to the Stevedoring and Terminal Services Agreement dated as of May 9, 2004, as amended by Amendment No. 1 dated as of December 12, 2004, and Amendment No. 2 dated as of November 30, 2006 (which may be referred to hereinafter as the “Agreement”).

The Parties hereby mutually agree:

This MOU is binding and enforceable between and among HL, HLA and Contractor, subject to any final agreement or Agreement amendment entered into between or among HL, HLA and Contractor. The terms and conditions of this MOU supersede and replace any prior or contemporaneous, oral or written, memorandum of understanding concerning the same subject matter as addressed herein. The terms and conditions of any final agreement or Agreement amendment will supersede the terms and conditions of this MOU in its entirety. The Parties intend to amend the Agreement according to the terms and conditions of this MOU, including the Term Sheet, TP1 agreement and rate schedules attached hereto, which are made a part of this MOU.

The effective date of this MOU will be January 1, 2010 (“Effective Date”). The Agreement as amended by this MOU shall remain in effect for a period of six consecutive years, that is, from the Effective Date through December 31, 2015. Carrier will have the option to extend the term beyond 2015 for an additional two years beginning January 1, 2016 at a Base Lift Rate and other financial consideration, if any, as reflected on the Term Sheet attached. Any additional options to extend the term are to be mutually agreed between the Parties.

The Agreement as amended by this MOU will apply to Jacksonville FL, Houston, TX, Los Angeles, CA, Tacoma, WA and Elizabeth, NJ. However, the Carrier may remove Elizabeth, NJ from the scope of the Agreement as amended by this MOU only if the Carrier relocates to a terminal location identified as outside the State of New York or New Jersey Terminal Territory as defined in the Agreement’s Exhibit A, Exclusive Terminals. With respect to the APMT Elizabeth terminal, APMT agrees:

• To provide discounted proposed rates as per attached rate schedule to Carrier retroactively to January 1, 2010 if Carrier advises by April 1, 2010 that it will continue to call Elizabeth weekly for the remainder of the term of the Agreement in 2010 and if an extension is reached on the other four ports.

• If Carrier advises after April 1, 2010 to continue to call Elizabeth through the term of the Agreement in 2010, then the new rates will be effective on the first of the month following notification by Carrier.

• Should Carrier leaves and re-enters this Exclusive Terminal Territory (State of New York or New Jersey) at any time during the term of this Agreement or any extension to said Agreement, the Carrier will be obliged to call its vessels at APMT’s facility in Elizabeth, NJ at the proposed discounted rates as per the attached rate schedule and the agreed to performance standards.

Each of HL, HLA, and Contractor has executed this MOU below by its duly authorized representative.

CARRIER

Horizon Lines, LLC

By:  /s/ John V. Keenan

Name: John V. Keenan

Title: President

Date: February 24, 2010

Horizon Lines of Alaska, LLC

By:  /s/ John V. Keenan

Name: John V. Keenan

Title: President

Date: February 24, 2010

CONTRACTOR

APM Terminals North America Inc.

By: /s/ John E. Crowley

Name: John E. Crowley

Title: Senior Vice President

Date: February 23, 2010

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TP1 Agreement

TP1 Service Exclusivity Termination Options. Horizon Lines (“Line”) currently operates its TP1 Service pursuant to an agreement with Maersk Line, which agreement is due to expire on or about December 10, 2010. As a result of these arrangements, the Line requires flexibility with respect to APMT’s (“Contractor”) exclusivity of this Agreement in Los Angeles and Tacoma (“Terminal”), and the Contractor and the Line have agreed to the following options with respect to the Contractor’s exclusivity under this Agreement:

1.1 First, between December 10, 2010 and December 31, 2010 (the “First Option Date”) the Line may move the TP1 service to a different container terminal facility without terminating this Agreement (the “First Option”), provided that (i) the Line has FMC filed and executed vessel sharing, space charter or similar agreement for its TP1 Service with an ocean common carrier who has a financial stake or existing, binding contractual commitment in a container facility in the port where the TP1 calls, and the Contractor and such carrier are unable to reach mutual agreement upon the terms and conditions pursuant to which the Contractor is willing to provide marine terminal and stevedoring services to such carrier, and (ii) the Line has delivered written notice of its election to exercise the First Option to the Contractor at least ninety (90) days prior to the First Option Date to the Contractor and (iii) the VSA or space charter carrier uses   *   .

1.2 Second, in the event that the Line has not otherwise exercised the First Option such that the Line continues operations at the Terminal after the First Option Date, the Line may on December 31, 2012 (the “Second Option Date”) move the TP1 Service to a different container terminal facility without terminating this Agreement (the “Second Option”), provided that in any such event, (i) the Line has FMC files and executed a vessel sharing, space charter or similar agreement for its TP1 Service with an ocean common carrier who has a financial stake or existing, binding contractual commitment in a container facility in the port where the TP1 calls, and the Contractor and such carrier are unable to reach mutual agreement upon the terms and conditions pursuant to which the Contractor is willing to provide marine terminal and stevedoring services to such carrier, and (ii) the Line has delivered written notice of its election to exercise the Second Option to the Contractor at least one hundred and eighty (180) days prior to the Second Option Date and (iii) the VSA or space charter carrier uses   *   .

1.3 Third, the Line may elect to postpone the exercise of the Second Option from December 31, 2012 to either December 31, 2013, or December 31, 2014, in its discretion, provided that it gives written notice of such election to the Contractor no later than the First Option Date.

In the event that the Line exercises any of the options set forth herein, the parties will agree upon a reasonable transition period for the orderly, efficient and smooth transfer of the Line’s operations to another container terminal and terminal services provider.

1.4 Should the Line exercise any of these options, the annual bonus payments as defined in this agreement, shall be   *   for each year that the TP1 does not call the Contractor’s facility through December 31, 2015 unless the Line has similar regular liner service as it does today at APMT Elizabeth facility.

1.5 Should the Line meet the obligations under 1.1 to 1.3, due to the ocean common carrier having a contractual obligation in a container facility in the port where the TP1 calls, the period of exclusivity will be reinstated upon the date of expiry of the space charter agreement with the Ocean Common Carrier.

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HORIZON LINES — APM TERMINALS
TERM SHEET

General:

1. Effective Date, Term and Extension

1.1. Effective date to be January 1, 2010 through December 31, 2015 for a period of 6 consecutive years.

1.2. This agreement covers Jacksonville, Florida, Houston, Texas, Los Angeles, California and Tacoma, Washington. If Horizon continues to call Elizabeth New Jersey then Elizabeth New Jersey will be covered under this agreement per attached rate agreements.

1.3. This agreement will be an amendment and extension to the current contract.

1.4. Horizon may elect to extend the agreement beyond the initial term for 1 option of 2 years each beginning January 1, 2016. Additional options to be mutually agreed.

1.5. If the extension is exercised, all Base Lift Rates will   *   beginning on January 1, 2016. All other rates   *   allowed by contract. Bonuses will terminate on January 1, 2016.

1.6. The term sheet is subject to the respective Board approvals and final agreements.

2.	Risk managers from both parties have concluded discussions and the agreed to revisions to the liability clause which are attached to this term sheet. The language will be included in the new Amendment.
3.	APMT will allocate shared costs on TP1 string between VSA partners provided that all carriers sign off on the agreed split of charges.
4.	Horizon’s exclusivity to use APMT facilities will to be limited to the regularly scheduled Jones Act services’ volume only and to exclude:

4.1. One-time international moves for dry-dock positioning voyages or one time positioning voyages

4.2. The TP1 vessel string as per separate attachment.

4.3. New inter-coastal services provided that Horizon will use best efforts to use APMT facilities/services in ports where service calls. Also Horizon will only use another facility if required to obtain cargo from or deliver cargo to a specific carrier.

5.	APMT has the first right of refusal for stevedoring Horizon Line Vessels in North America at Common User facilities.
6.	Reefer Services:

6.1.	Once Horizon has a separate and distinct genset fleet, APMT will invoice Horizon for the exact fuel placed into gensets. Fuel price will be based on the average weekly rate posted on the following government web site (or similar website if this one no longer available).
	Horizon will provide proper notice of change and allow sufficient time for APMT to put the procedural changes in place. APMT expects a 30 to 60 day advance notice with any change starting on the first of a calendar month.
	http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp

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6.2. Reefer operational practices:

6.2.1.	Issue: The practice of mount and dismounting of all gensets.
•	In Jacksonville APMT provides this service today to the extent possible. Horizon is responsible for advising APMT of which chassis not to have gensets mounted or dismounted. APMT Jacksonville follows Horizon’s instruction to the extent feasible. There is no penalty if not matched.
•	Los Angeles will be able to start performing this service once Horizon has its own separate and distinct genset and chassis fleet.
•	Stringing charge of   *   man hours at the current M&R rate would apply where APMT keeps gensets mounted. (   *   man hours in Jacksonville)
•	In order to match empty reefers coming off vessel to an under-slung genset chassis, the mechanics plug the reefer into the genset. If Horizon advises APMT which genset to string and subsequently requests unit to be unstring, then APMT will bill Horizon to perform action. APMT provides back up for the activity by supplying the genset number and container number.
•	In Jacksonville and Los Angeles, if a genset needs to be dismounted or serviced after receipt, then the drays, genset mount/dismount and grounding/mounting activities would be for Horizon’s account.
•	In Houston and Tacoma, this service is unavailable.
6.2.2.	Issue: Pairing reefers to chassis with gensets (as currently performed in JAX) from the ship or from the ground.
•	Jacksonville is the only location where this is feasible. This will be done to the extent possible, based on Horizon’s instructions and no penalty if not matched.
•	In Houston and Los Angeles, provided there is dedicated Horizon chassis and genset fleet, then to the best possible extent, APMT will arrange that reefer street turns (empty reefers entering the facility from the street) will be received (gated in) without dismounting gensets. These units would then be provided for customer export bookings. If a genset needs to be dismounted or genset, chassis or container serviced after received, then the drays, genset mount/dismount and grounding/mounting activities would be for Horizon’s account. Horizon will provide instructions to APMT as to which units not to dismount.
•	Horizon asked for further clarification and to form a working team to review process in Los Angeles.
•	There are options that may be available in other ports that will require further discussions.

7.	Both parties agree that APMT will not invoice Horizon for any service that is older than six months and has not been billed, and Horizon Lines will not request a refund or dispute an invoice that has been paid that is older than six months. Retroactive ILA or ILWU agreements and assessments are not included.
8.	Issue: Chassis flip charges in grounded locations.

• Los Angeles today is mainly a wheeled operation for Horizon and Jacksonville is a wheeled operation so therefore flip charges will apply.

• In Tacoma, the flip line is at Horizon Lines CFS and not done by APMT for trucker owned chassis.

• APMT agrees at Houston facility, flips for hazardous containers staying on wheels are not billable.

• Flip charges otherwise apply.

5

9. APMT will work with Horizon Lines in providing asset management in 2011 as per 9.1 to 9.5 below if Horizon changes to a dedicated fleet of chassis and gensets. Provided Horizon has a dedicated fleet of chassis and/or gensets, Horizon would then need to have visibility to any/all gate transactions involving chassis and genset equipment to include bare chassis gate movements. Horizon will be required to provide APMT with a fleet file inclusive of all Horizon Line Chassis, Containers and Gensets.

9.1. On terminal asset inventories.

	System inventories for Horizon chassis designated as the owner chassis/gensets will be available through on line reports.
9.2.	As requested by Horizon genset inventories and reconciliation.
	APMT can provide this on a man hour basis or at a mutually agreed to flat rate.
9.3.	As requested by Horizon chassis inventories and reconciliation.
	APMT can provide this on a man hour basis or at a mutually agreed to flat rate.
9.4.	Defined deadline chassis process to ensure loaded and empty containers are mounted on road-worthy chassis.
	This will be covered under the updated working procedures manuals.
9.5.	Defined process to identify and segregate deadlined chassis on the terminal.
	If Chassis on receipt at terminal is determined to require service, the chassis will be put out of service. This will be covered under the updated working procedures manuals.

10. Minimum contractual wheeled empty allocations for Los Angeles and Tacoma

10.1. In Los Angeles, APMT will provide   *   empties on wheels (   *   empty reefers and   *   empty 45’s)

10.2. In Tacoma, in 2010, APMT agrees to provide   *   empties on wheels with breakdown   *   empties in good order,   *   empties in M&R and, if available,   *   Maersk Line empties provided containers required by Horizon customers and no additional mounting team is required. In 2011, the obligation will be reduced to   *   wheeled empties.

11. APMT will address the IT process for responding to Horizon IT enhancements. APMT will provide meaningful answers including estimated costs and time frames for enhancements for items that Horizon has presented to APMT. This includes the list of items Horizon has recently provided to APMT.

12.	When Horizon enters the international trade, APMT will carry out on-boarding process with Horizon Lines which will go through step by step, item by item terminal and customer information flows. IT access as required for international trade and training will be provided during the on-boarding process.
13.	Resolution and Correction of Performance Standard Shortfalls

13.1. If APMT is unable to reach or regularly maintain gate turn times/berth/crane and productivity performance standards thereby adversely affecting Horizon Lines, then both parties shall promptly meet to identify and resolve any issues. Horizon Lines shall advise in writing to APMT of the failure of performance if meeting(s) at a local level did not result in resolution of the issue(s).

13.2. Despite the implementation of resolution procedures, if APMT is unable to maintain the performance standards as stated in 13.1 on a regular basis, through no fault of Horizon, then APMT, at its cost, will employ commercially reasonable measures to correct such performance shortfalls.

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13.3. If conditions are the fault of APMT and can’t be resolved by APMT and become permanent then Horizon will have the ability to terminate the contract for the terminal(s) impacted by these performance standard shortfalls. Horizon must provide 90 days written notice after the resolution steps above have been exhausted prior to terminating the contract.

14. If Horizon makes major changes to their staff at the Elizabeth terminal in 2010, APMT in 2010 will reduce the square footage charge to reflect the new staff levels. This may mean Horizon having to move into a different office location on terminal.

15. Bonuses — APMT will provide Horizon Lines bonuses totaling   *   for the contract period commencing January 1, 2010 through December 31, 2015. The cash payments will be as follows:

2010	*
2011	*
2012	*
2013	*
2014	*
2015	*

A credit in the amount of   *   of the annual bonus amount will be paid   *   . The first payment will be made on January 10, 2011. The bonus is based on Horizon services calling APMT’s exclusive terminals as defined in the Agreement and amended in this MOU.

16. Rate Schedules and escalation — Rate Schedules Attached

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1. Berth/Crane Guarantees

Houston —	Berth:	Thursday 0700 to Friday 0600
	Cranes:	Crane Density   *   cranes Thursday 0700 to 1800,   *   cranes Thursday 1900 to Friday 0600
		Crane density provided crane split/moves allows for   *   or   *   cranes and cutoff procedures adhered to.
	Productivity:	*   moves per hour, average moves per hour per crane per vessel operation
Jacksonville —	Berth:	Tuesday and Friday 0700 to 1800
	Cranes:	*   cranes provided crane split and move count allows for   *   cranes.
	Productivity:	*   moves per hour, average moves per hour per crane per vessel operation.
Los Angeles —	Berth:	Thursday 0800 to Saturday 0500 and Sunday 0800 to Monday 0500
	Cranes	*   cranes provided crane split and move count allows for   *   cranes Friday 0800 to Saturday 0500 and   *   crane Thursday 0800 to 1800.
		From 2011, APMT will provide   *   cranes on Thursday day or   *   crane Thursday second shift if change in inbound volumes requires the additional crane.
	Productivity:	APMT commits to completing the vessels by Saturday 0500 and Monday 0500 respectfully provided that split/moves allows, cargo cut offs are defined and agreed to in updated working procedures manual and there were not any circumstances beyond the control of APMT which affected completion of vessel within the above proforma window.
		It is not the intent to work vessel on 2nd or 3rd shift Thursday.
		Both teams to work together making shift ganging decisions that will not compromise Horizon’s vessel stow and customer service requirements nor will they impact the ability to stevedore an efficient and cost effective operation.
		This section based on current vessel capacities.
Tacoma —	Berth:	ALA 1 — Wednesday 0700 to Wednesday 2400
		ALA 2 — Friday 0700 to Friday 2400
		PEX — Sunday 0700 to Sunday 1800
	Cranes:	Sufficient cranes to complete vessel within pro-forma window.
	Productivity:	APMT commits to completing the vessels by Wednesday 2400 (2200 in winter months), and Friday 2400 (2200 in winter months) respectfully provided that split/moves allows for at least four crane split for 8 hours, cargo cut offs are defined and agreed to in updated working procedures manual and there were not any circumstances beyond the control of APMT which affected completion of vessel within the above proforma window.

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APMT commits to completion of PEX vessels by Sunday 1800.

Both teams to work together making shift ganging decisions that will not compromise Horizon’s vessel stow and customer service requirements nor will they impact the ability to stevedore an efficient and cost effective operation.

This section based on the current vessel capacities.

Additional Agreement:

Tuesday 1800 to Wednesday 0700 — Berth/Crane(s) will be made available if operationally feasible.

Thursday 1800 to Friday 0700 — Berth/Crane(s) will be made available if operationally feasible.

APMT acknowledges that Horizon may have a summer service that may require a berth/crane(s) on Monday. APMT will review request for summer service annually on 60 day notice from Horizon and use best efforts to provide cranes and berth required.

For Jacksonville and Houston Production is measured as follows:

Productivity is based on from start of work to finish of work and APMT shall only be required to meet this guarantee based on actual hours of work that excludes heavy lifts, meal (and other planned) breaks and detentions beyond the control of APMT. Further vessel productivity targets bar any extra ordinary operating conditions such as extreme weather, strike or slow down beyond the control of the APMT.

2. Gate Turn Times

Houston:	APMT to achieve an average gate turn time of   *   minutes for a single transaction and   *   minutes for a double transaction. APMT will also strive to achieve lower gate turn times of   *   minutes for a single transaction and   *   minutes for a double transaction.
Jacksonville:	APMT to achieve an average gate turn time of   *   minutes for a single transaction and   *   minutes for a double transaction. APMT will also strive to achieve lower gate turn times of   *   minutes for a single transaction and   *   minutes for a double transaction.
Los Angeles:	APMT to achieve an average gate turn time of   *   minutes for a single transaction and   *   minutes for a double transaction for both domestic and international cargo. APMT will also strive to achieve lower gate turn times of   *   minutes for a single transaction and   *   minutes for a double transaction.
	APMT agrees to provide flex gates on Friday 1st and 2nd shifts.
	APMT agrees that when Horizon is no longer sharing another carrier’s equipment which is a customer of APMT that Horizon will have separate empty pile. To clarify, this is based on Horizon having its own separate and distinct equipment pool.
	APMT commits to work with Horizon Lines to take actionable steps to reduce gate turn times for Horizon which includes the International requirements.

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Tacoma: Until such time as APMT has another carrier on terminal, APMT to achieve an average gate turn time of   *   minutes for a single transaction and   *   minutes for a double transaction. When/if APMT has another carrier on terminal, APMT to achieve an average gate turn time of   *   minutes for a single transaction and   *   minutes for a double transaction. APMT will also strive to achieve lower gate turn times of   *   minutes for a single transaction and   *   minutes for a double transaction.

In all cases, turn time is measured from gate pedestal to out gate and does not include trouble transactions or Horizon not having sufficient good order equipment available.

3.	Gate Trouble Transactions — Both parties will cooperate to reduce the number and length of gate trouble transactions and to minimize any resultant cargo delays.
4.	Terminal Specific

Houston

1. APMT agrees to establish gang hour rates based on 3 gangs provided Horizon agrees to pay for the clerk guarantees when three gangs are utilized less than 8 hours (i.e. one shift)

2. APMT will assist Horizon Lines with any claims to the Port Authority for Port Authority crane breakdowns. If the Port Authority reimburses or provides a payment to APMT for Port crane downtime then APMT agrees to remit these funds to Horizon Lines.

3. APMT agrees to increase freetime on rail containers that are under Horizon control provided that a list of containers is received one business day (24 hours) prior to container being received on terminal. Freetime on these containers will be provided up to a max of   *   calendar days.

Jacksonville

1. APMT will assist Horizon Lines with any claims to the Port Authority for Port Authority crane breakdowns. If the Port Authority reimburses or provides a payment to APMT for Port crane downtime then APMT agrees to remit these funds to Horizon Lines.

Tacoma

1.	Horizon to utilize the pool of funds made available by the Port of Tacoma but will work with APMT to prioritize the funds to consider investments in the Terminal.
2.	Storm water management — APMT and Horizon will require further legal review.

3.	APMT would prefer to stop handling third party empty containers at our facility for carriers that do not have a terminal agreement with APMT. This way the empties would not be on terminal and Horizon would not receive any invoicing.
	Or
	If Horizon has written agreement from ML to change the container operator to Horizon then terminal system can be updated to reflect Horizon as operator and then empties will be included under Horizon’s agreement.

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Los Angeles

1. APMT agrees to pre-mount   *   empty reefers and shift them to the pre-trip pad by the close of business of the shift following vessel discharge. This provided Horizon Lines advises correct reefer types. If Horizon does not advise correct reefer types and additional pre-mounts are required, any additional costs will be for Horizon’s account. Note that this is in addition to the requirement to have   *   empty reefers positioned to the reefer pads daily.

2. APMT agrees, if Horizon commences international trade, to have a separate area in yard for Horizon loads. APMT agrees to discharge   *   Horizon International containers to wheels.

Parties agree to discuss and implement the appropriate services required to support Horizon customer service level for TP1.

Other

1. APMT and Horizon will work together to improve processes. Working procedures to be updated in each terminal within 60 days of signing of the Amendment.

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Changes agreed to by Parties risk management groups (item 2 in term sheet)

CLAUSE 10. Replace (b), (g), and (h); Add (o), (p) and (q)

(b) Contractor shall be liable for damage to or loss of cargo attributed to Contractor’s proportionate share of negligence that is proven; however, Contractor’s liability to Carrier or any cargo interests (i.e. third party or parties) shall be limited to the limitation in the Vessel’s Bill of Lading (as defined in Section I hereof) and in any event shall not exceed the cost of such amount(s) paid by Carrier. The Carrier agrees that it shall insert a Clause into the Vessel’s Bill of Lading by which all defenses, exceptions, limitations of liability and other rights of Carrier, shall be extended to Contractor subject to applicable laws failing which Carrier shall indemnify Contractor for any and all amounts or liabilities imposed upon Contractor in excess of what Contractor would have been responsible for if said clause had not been inserted.

(g) Limitation of Liability: Carrier agrees to include Contractor as an express beneficiary of the limitation of liability provisions of all contracts of carriage (i.e. Vessel’s Bills of Lading) or contracts of affreightment, as evidenced by the Vessel’s Bill of Lading and/or passenger tickets, entered into by Carrier during the effective period of this Agreement and to extend to Contractor the coverage of the Carriage of Goods by Sea Act of the United States (“COGSA”) to the period of time prior to loading and subsequent to discharging while the cargo is in the custody of Carrier or its agents or other contractors, including Contractor. Regardless of any limitation of liability, even if no such limitation is specified in Carrier’s contracts of carriage (i.e. Vessel’s Bills of Lading), contracts of affreightment or otherwise, the maximum limitation amount for which Contractor shall be liable to Carrier or any third party shall not exceed the highest amount as calculated between (i) and (ii) below:

The Highest Of:

(i)	$1,000/package ( a “package” being defined as including a unitized load, group or assemblage and shall include a, skid, pallet, cradle or the like)
(ii)	The limitation under the Hague-Visby Rules as amended at Brussels December 21, 1979 (S.D.R. Protocol).

(o) Notwithstanding section (g) or any other language herein, Contractor reserves the right to reject any payment by Carrier to a third party (due to settlement, adjudication or otherwise) unless Carrier provides Contractor with prior notice of intent to make payment and receives pre-approval and consent from Contractor in writing. Contractor will use best efforts to respond to Carrier’s intent to make payment within 30days of receiving all relevant supporting claim documentation.

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(p) In the event that the shipper shall declare the value of the goods in a particular instance, and such value shall be noted on the face of the bill of lading issued by Carrier to cover such goods, and shipper shall pay or promise to pay extra freight charges to induce Carrier to increase the limit of its liability to the declared amount, then, and in each such event, prior to the limit of Contractor’s liability being similarly increased, Carrier shall:...

(i)	Notify Contractor, in advance and in writing of Carrier’s intention to reimburse Contractor for the cost of obtaining increased insurance to cover the additional risk imposed upon Contractor in such case; or
(ii)	Indemnify Contractor against any liability in excess of Contractor’s maximum limitation amount as described in (g) above.

(q) Claims of less than $300 in the aggregate arising from any one incident shall be resolved, in the event brought by a third party, by the party against whom such claim is asserted. Carrier and Contractor agree that they shall not assert claims against one another for amounts less than $300 in the aggregate arising from any one incident.

(h) Contractor is relieved of all liability to Carrier for all claims for cargo loss, delay, damage or shortage of any nature or description unless a claim in writing has been made to Contractor, or suit is brought or an arbitration proceeding is initiated against Contractor, within one year after delivery of the goods or the date when the goods should have been delivered; or , if a claim has been timely made, but declined, suit or an arbitration proceeding is not brought within two years from the date of declination of the claim in whole or in part against Contractor. These time periods also include suits for indemnity by Carrier against Contractor for payments paid or faced, including subrogation claims, and no extension of time for suit by Carrier, its agents or assigns to any third party shall extend the time limitations set forth herein unless expressly agreed in writing by Contractor.

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EX-10.2

Exhibit 10.2

FORM OF 2010 PERFORMANCE-BASED
RESTRICTED STOCK AWARD

March ___, 2010

Employee
Street
City, State ZIP

Dear                     :

Horizon Lines, Inc. (the “Company”) has designated you to be a recipient of shares of common stock of the Company, par value $.01 per share (the “Company Stock”), subject to the performance restrictions and other terms set forth in this letter agreement (the “Agreement”) and in the Horizon Lines, Inc. 2009 Incentive Compensation Plan (the “Plan”).

The grant of these shares (the “Grant”) is made pursuant to the Plan. The Plan is administered by the Compensation Committee (the “Committee”) appointed by the Board of Directors of the Company. The terms of the Plan are incorporated into this Agreement and in the case of any conflict between the Plan and this letter, the terms of the Plan shall control. The Grant is intended to qualify as “performance-based compensation” for purposes of Code Section 162(m) and will be governed by the terms of the Plan specifically applicable to such Grants. A copy of the Plan is attached to this letter.

1. Grant. In consideration of your agreements contained in this letter, the Company hereby grants you                      shares of Company Stock (the “Restricted Shares”). The Restricted Shares were granted on March 15, 2010 (the “Grant Date”),and are subject to the performance conditions and vesting restrictions set forth in Sections 2 and 3 below. The actual number Restricted Shares that you earn under this Grant will be determined based on the extent to which the performance conditions described in Section 2 are met. Until the vesting restrictions set forth in Section 3 lapse, the number of Restricted Shares that you earn under Section 2 will remain forfeitable and nontransferable.

2. Performance Conditions. The number of shares of Restricted Stock that you may earn under this Grant (the “Earned Restricted Shares”) shall be determined as follows:

(a) You will not have any Earned Restricted Shares if the Company’s adjusted earnings before interest and taxes (“Adjusted EBIT”) for the fiscal year ending December 26, 2010 is less than * . Adjusted EBIT shall be determined by excluding the costs associated with the following extraordinary charges: (1) legal and professional fees, defense costs, and proposed or potential settlement charges associated with securities and antitrust claims (both civil and criminal) that have arisen out of or are related to allegations of price fixing being investigated by the United States Department of Justice at the time this Grant is made, and (2) restructuring and impairment charges.

(b) If the Company’s Adjusted EBIT for the fiscal year ending December 26, 2010 equals * (the “Minimum Adjusted EBIT”), your Earned Restricted Shares will be a number of shares equal to 25% of the Restricted Shares.

(c) If the Company’s Adjusted EBIT for the fiscal year ending December 26, 2010 equals * (the “Target Adjusted EBIT”), your Earned Restricted Shares will be a number of shares equal to 50% of the Restricted Shares.

(d) If the Company’s Adjusted EBIT for the fiscal year ending December 26, 2010 equals or exceeds * (the “Maximum Adjusted EBIT”), your Earned Restricted Shares will be a number of shares equal to 100% of the Restricted Shares.

(e) If the Company’s Adjusted EBIT for the fiscal year ending December 26, 2010 is greater than the Minimum Adjusted EBIT but less than the Maximum Adjusted EBIT, your Earned Restricted Shares will be a percentage of the Restricted Shares, determined based on a linear interpolation between percentages assigned to the Minimum Adjusted EBIT and the Maximum Adjusted EBIT. This percentage shall be rounding to the nearest whole percentage, and the number of Earned Restricted Shares resulting from that percentage shall be determined by rounding to the nearest whole share.

3. Vesting Restrictions. The Earned Restricted Shares shall vest, and become freely transferable, as follows:

(a) 100% of the Earned Restricted Shares will vest and become freely transferable as of March 15, 2013 (the “Vesting Date”) if you remain in continuous employment with the Employer to that date. Earned Restricted Shares (and any dividends accumulated thereon pursuant to Section 4) that do not vest as of the Vesting Date shall be forfeited. If your employment with the Employer terminates prior to the Vesting Date for any reason, any rights you may have with regard to unvested Earned Restricted Shares (and any dividends accumulated thereon pursuant to Section 4) shall be forfeited at that time, notwithstanding your return to active employment prior to the Vesting Date.

(b) Notwithstanding anything in this Section 3 to the contrary, if, after December 26, 2010 and prior to the Vesting Date, (i) your employment with the Employer terminates due to your voluntary retirement, and (ii) your age plus your number of years of service with the Employer equals or exceeds 75, a portion of the Earned Restricted Shares will vest and become freely transferable as of the Vesting Date. The vested portion shall be determined by multiplying the total number of Earned Restricted Shares by a fraction, the numerator of which is the number of days from the Grant Date through the date of your retirement and the denominator of which is the number of days from the Grant Date through the Vesting Date.

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4. Dividends.

(a) During the period beginning with the Grant Date and ending with the Vesting Date (or the earlier forfeiture of your Restricted Shares), you will have the right to receive dividends on the Earned Restricted Shares to the extent dividends are paid by the Company on its authorized and issued shares of Company Stock to its stockholders of record. These dividends, if any, will be paid at the same rate and at the same time as such dividends are paid by the Company on its authorized and issued shares. However, these dividends, if any, will be paid into a non-interest bearing account to be held until you shall have met the requirements for the vesting of the Earned Restricted Shares as provided in Section 3 above, at which time the accumulated dividends attributable to the Earned Restricted Shares that have vested and become transferable on the Vesting Date shall be paid to you in a single lump sum distribution within 90 days following the Vesting Date. Any dividends attributable to Earned Restricted Shares that do not vest as of the Vesting Date shall be forfeited.

(b) The Company’s obligation under this Section 4 shall be an unfunded and unsecured promise to pay. The Company shall not be obligated under any circumstances to fund its financial obligations under this Section 4 prior to the date any dividends become payable pursuant to the terms of this Agreement. All dividends held in the non-interest bearing account described in subsection (a) above will remain general assets of the Company subject to the claims of its general creditors. This Agreement does not give to you any ownership interest in any assets of the Company, and all rights of ownership in the accumulated dividends are and remain in the Company. Your right to receive payment of accumulated dividends attributable to vested Earned Restricted Shares shall be solely those of an unsecured general creditor of the Company.

5. Forfeiture of Earned Restricted Shares. To facilitate the cancellation of any Earned Restricted Shares pursuant to Section 2 or Section 3 above, you hereby appoint the Corporate Secretary of the Company as your attorney in fact, with full power of substitution, and authorize him or her, upon the occurrence of a forfeiture pursuant to Section 2 or Section 3 above, to notify the Company’s registrar and transfer agent of the forfeiture of such shares and to deliver to the registrar and transfer agent the certificate representing such shares together with instructions to cancel the shares forfeited. The registrar and transfer agent shall be entitled to rely upon any notices and instructions delivered by your attorney in fact concerning a forfeiture under the terms of this letter.

6. Custody of Certificates. At the option of the Company, custody of stock certificates evidencing Earned Restricted Shares shall be retained by the Company or held in uncertificated form. The Company shall deliver to you one or more stock certificates free of all restrictions evidencing your Earned Restricted Shares if and when they become fully vested as of the Vesting Date.

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7. Rights as a Stockholder. Subject to the provisions of this letter, you generally will have all of the rights of a holder of Company Stock with respect to all of the Restricted Shares awarded to you under this letter from and after the Grant Date until the shares either vest or are forfeited, including the right to vote such shares and to receive dividends or other distributions paid thereon, subject to the provisions of Section 4.

8. Transfer Restrictions. You may not sell, assign, transfer, pledge, hypothecate or encumber your right to receive Restricted Shares under this letter prior to the time such Earned Restricted Shares become fully vested in accordance with this letter.

9. Fractional Shares. A fractional share of Company Stock will not be issued and any fractional shares will be disregarded.

10. Adjustments. If the number of outstanding shares of Company Stock is increased or decreased as a result of a stock dividend, stock split or combination of shares, recapitalization, merger in which the Company is the surviving corporation, or other change in the Company’s capitalization without the receipt of consideration by the Company, the Performance Target and the number and kind of your unvested Restricted Shares shall be proportionately adjusted by the Committee, whose determination shall be binding.

11. Notices. Any notice to be given under the terms of this letter shall be addressed to the Corporate Secretary at Horizon Lines, Inc., Attn. Corporate Secretary, 4064 Colony Road, Suite 200, Charlotte, NC 28211. Any notice to be given to you shall be given to you and shall be addressed to you at your last known address at the time notice is sent. Notices shall be deemed to have been duly given if mailed first class, postage prepaid, addressed as above.

12. Applicable Withholding Taxes.

(a) No stock certificates evidencing Earned Restricted Shares free from a restrictive legend shall be delivered to you until you have paid to the Company the amount that must be withheld with respect to those Earned Restricted Shares under federal, state and local income and employment tax laws (the “Applicable Withholding Taxes”) or you and the Company have made satisfactory arrangements for the payment of such taxes. As an alternative to making a cash payment to satisfy the Applicable Withholding Taxes, you may elect to (i) deliver shares of Company Stock which you already own (valued at their Fair Market Value as of the delivery date) in whole or partial satisfaction of such taxes or (ii) have the Company retain that number of Earned Restricted Shares (valued at their Fair Market Value as of the delivery date) that would satisfy the Applicable Withholding Taxes. Applicable Withholding Taxes with respect to any dividends payable pursuant to Section 4 shall be withheld by the Company directly from such dividends.

(b) The Company shall withhold Applicable Withholding Taxes with respect to accumulated dividends directly from the amount of such accumulated dividends payable to you pursuant to Section 4.

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13. Applicable Securities Laws. The Company may delay delivery of the stock certificates evidencing Earned Restricted Shares until (i) the admission of such shares to listing on any stock exchange on which the Company Stock may then be listed, (ii) receipt of any required representation by you or completion of any registration or other qualification of such shares under any state or federal law or regulation that the Company’s counsel shall determine as necessary or advisable, and (iii) receipt by the Company of advice by counsel that all applicable legal requirements have been complied with. Additionally, you may be required to execute a customary written indication of your investment intent and such other agreements the Company deems necessary or appropriate to comply with applicable securities laws.

14. Acceptance of Restricted Shares. By signing below, you indicate your acceptance of these Restricted Shares and your agreement to the terms and conditions set forth in Agreement, which, together with the terms of the Plan, shall become the Company’s Restricted Stock Award Agreement with you. You also hereby acknowledge receipt of a copy of the Plan and agree to all of the terms and conditions of the Plan, as it may be amended from time to time. Unless the Company otherwise agrees in writing, this letter will not be effective as a Restricted Stock Award Agreement if you do not sign and return a copy.

15. Power of Attorney. You hereby appoint the Corporate Secretary of the Company as your attorney in fact, with full power of substitution, and authorize him or her to provide instructions to the Company’s registrar and transfer agent for Company Stock as the Company may deem necessary or proper to comply with the intent and purposes of this letter and the Plan, including, upon the occurrence of a forfeiture pursuant to Section 2 above, to notify the registrar and transfer agent of the forfeiture of such shares, together with instructions to cancel the shares forfeited. The registrar and transfer agent shall be entitled to rely upon any notices and instructions delivered by your attorney in fact under the terms of the Plan and this letter.

16. Compliance with Section 409A of the Code. It is intended that this Agreement comply with Section 409A of the Code and Treasury Regulations thereunder to the extent it is subject to Section 409A, and other guidance and transition rules issued thereunder (“Section 409A”), and this Agreement will be interpreted and operated consistently with that intent. If the Company determines that any provisions of this Agreement do not comply with the requirements of Section 409A, the Company has the authority to amend this Agreement to the extent necessary (including retroactively) in order to preserve compliance with said Section 409A. The Company also has express discretionary authority to take such other actions as may be permissible to correct any failures to comply in operation with the requirements of Section 409A. Neither the Company nor you have any discretion to accelerate the timing or schedule of any benefit payment under this Agreement that is subject to Section 409A, except as specifically provided herein or as may be permitted pursuant to Section 409A.

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IN WITNESS WHEREOF, the Company has caused this Restricted Stock Award Agreement to be signed, as of this                      date of March, 2010.

	HORIZON LINES, INC.
	By:
	Its:
Agreed and Accepted:
[Name of Grant Recipient]
[Date]

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EX-10.3

Exhibit 10.3

FORM OF 2010 TIME-VESTED
RESTRICTED STOCK AWARD

March ____, 2010

[Name]
[Street]
[City, State ZIP]

Dear                     :

Horizon Lines, Inc. (the “Company”) has designated you to be a recipient of shares of common stock of the Company, par value $.01 per share (the “Company Stock”), subject to the restrictions and other terms set forth in this letter agreement (the “Agreement”) and in the Horizon Lines, Inc. 2009 Incentive Compensation Plan (the “Plan”).

The grant of these shares is made pursuant to the Plan. The Plan is administered by the Compensation Committee (the “Committee”) appointed by the Board of Directors of the Company. The terms of the Plan are incorporated into this letter and in the case of any conflict between the Plan and this letter, the terms of the Plan shall control. A copy of the Plan is attached to this letter.

1. Grant. In consideration of your agreements contained in this letter, the Company hereby grants you                      shares of Company Stock (the “Restricted Shares”). The Restricted Shares were granted on March 15, 2010 (the “Grant Date”). The Restricted Shares are subject to vesting restrictions as set forth below. Until these restrictions lapse, the Restricted Shares are forfeitable and nontransferable.

2. Vesting Restrictions. The Restricted Shares shall vest, and become freely transferable, as follows:

(a) 100% of the Restricted Shares will vest and become freely transferable on March 15, 2013 (the “Vesting Date”).

(b) You must be continuously employed by the Employer from the Grant Date until the Vesting Date for any Restricted Shares to vest. If your employment with the Employer terminates prior to the Vesting Date for any reason, any rights you may have with regard to unvested Restricted Shares shall be forfeited at that time, notwithstanding your return to active employment with the Employer prior to the Vesting Date.

(c) Notwithstanding anything in this Section 2 to the contrary, if, prior to the Vesting Date, (i) your employment with the Employer terminates due to your voluntary retirement, and (ii) your age plus your number of years of service with the Employer equals or exceeds 75, a portion of the Restricted Shares will vest and become freely transferable as of the Vesting Date. The vested portion shall be determined by multiplying the total number of Restricted Shares by a fraction, the numerator of which is the number of days from the Grant Date through the date of your retirement and the denominator of which is the number of days from the Grant Date through the Vesting Date.

3. Dividends.

(a) During the period beginning with the Grant Date and ending with the Vesting Date (or the earlier forfeiture of your Restricted Shares), you will have the right to receive dividends on the Restricted Shares to the extent dividends are paid by the Company on its authorized and issued shares of Company Stock to its stockholders of record. These dividends, if any, will be paid at the same rate and at the same time as such dividends are paid by the Company on its authorized and issued shares. However, these dividends, if any, will be paid into a non-interest bearing account to be held until you shall have met the requirements for the vesting of the Restricted Shares as provided in Section 2 above, at which time the accumulated dividends attributable to the Restricted Shares that have vested and become transferable on the Vesting Date shall be paid to you in a single lump sum distribution within 90 days following the Vesting Date. Any dividends attributable to Restricted Shares that do not vest as of the Vesting Date shall be forfeited.

(b) The Company’s obligation under this Section 3 shall be an unfunded and unsecured promise to pay. The Company shall not be obligated under any circumstances to fund its financial obligations under this Section 3 prior to the date any dividends become payable pursuant to the terms of this Agreement. All dividends held in the non-interest bearing account described in subsection (a) above will remain general assets of the Company subject to the claims of its general creditors. This Agreement does not give to you any ownership interest in any assets of the Company, and all rights of ownership in the accumulated dividends are and remain in the Company. Your right to receive payment of accumulated dividends attributable to vested Restricted Shares shall be solely those of an unsecured general creditor of the Company.

4. Power of Attorney. You hereby appoint the Corporate Secretary of the Company as your attorney in fact, with full power of substitution, and authorize him or her to provide instructions to the Company’s registrar and transfer agent for Company Stock as the Company may deem necessary or proper to comply with the intent and purposes of this letter and the Plan, including, upon the occurrence of a forfeiture pursuant to Section 2 above, to notify the registrar and transfer agent of the forfeiture of such shares, together with instructions to cancel the shares forfeited. The registrar and transfer agent shall be entitled to rely upon any notices and instructions delivered by your attorney in fact under the terms of the Plan and this letter.

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5. Book Entry Form; Delivery of Shares. The Company shall, as soon as administratively feasible after your execution of this letter, direct the Company’s transfer agent for Company Stock to make a book entry record showing ownership for the Restricted Shares in your name, subject to the terms and conditions of the Plan and this letter. As soon as practicable following the date on which the Restricted Shares become nonforfeitable and fully transferable pursuant to Section 2 above, the Company will issue appropriate instructions to that effect to the transfer agent for Company Stock.

6. Rights as a Stockholder. Subject to the provisions of this letter, you generally will have all of the rights of a holder of Company Stock with respect to all of the Restricted Shares awarded to you under this letter from and after the Grant Date until the shares either vest or are forfeited, including the right to vote such shares and to receive dividends or other distributions paid thereon, as provided in Section 3.

7. Transfer Restrictions. You may not sell, assign, transfer, pledge, hypothecate or encumber your right to receive Restricted Shares under this letter prior to the time such Restricted Shares become fully vested in accordance with this letter.

8. Fractional Shares. A fractional share of Company Stock will not be issued and any fractional shares will be disregarded.

9. Adjustments. If the number of outstanding shares of Company Stock is increased or decreased as a result of a stock dividend, stock split or combination of shares, recapitalization, merger in which the Company is the surviving corporation, or other change in the Company’s capitalization without the receipt of consideration by the Company, the number and kind of your unvested Restricted Shares shall be proportionately adjusted by the Committee, whose determination shall be binding.

10. Notices. Any notice to be given under the terms of this letter shall be addressed to the Corporate Secretary at Horizon Lines, Inc., Attn. Corporate Secretary, 4064 Colony Road, Suite 200, Charlotte, NC 28211. Any notice to be given to you shall be given to you and shall be addressed to you at your last known address at the time notice is sent. Notices shall be deemed to have been duly given if mailed first class, postage prepaid, addressed as above.

11. Applicable Withholding Taxes.

(a) No Restricted Shares that have become vested and fully transferable pursuant to Section 2 above shall be delivered to you until you have paid to the Company the amount that must be withheld with respect to those Restricted Shares under federal, state and local income and employment tax laws (the “Applicable Withholding Taxes”) or you and the Company have made satisfactory arrangements for the payment of such taxes. As an alternative to making a cash payment to satisfy the Applicable Withholding Taxes, the Committee may in its discretion (i) permit you to deliver shares of Company Stock which you already own (valued at their Fair Market Value as of the delivery date) in whole or partial satisfaction of such taxes or (ii) have the Company retain that number of Restricted Shares (valued at their Fair Market Value as of the delivery date) that would satisfy the Applicable Withholding Taxes.

(b) The Company shall withhold Applicable Withholding Taxes with respect to accumulated dividends directly from the amount of such accumulated dividends payable to you pursuant to Section 3.

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12. Applicable Securities Laws. The Company may delay delivery of Restricted Shares that have become vested and fully transferable pursuant to Section 2 above until (i) the admission of such shares to listing on any stock exchange on which the Company Stock may then be listed, (ii) receipt of any required representation by you or completion of any registration or other qualification of such shares under any state or federal law or regulation that the Company’s counsel shall determine as necessary or advisable, and (iii) receipt by the Company of advice by counsel that all applicable legal requirements have been complied with. Additionally, you may be required to execute a customary written indication of your investment intent and such other agreements the Company deems necessary or appropriate to comply with applicable securities laws.

13. Acceptance of Restricted Shares. By signing below, you indicate your acceptance of these Restricted Shares and your agreement to the terms and conditions set forth in this Agreement, which, together with the terms of the Plan, shall become the Company’s Restricted Stock Award Agreement with you. You also hereby acknowledge receipt of a copy of the Plan and agree to all of the terms and conditions of the Plan, as it may be amended from time to time. Unless the Company otherwise agrees in writing, this letter will not be effective as a Restricted Stock Award Agreement if you do not sign and return a copy.

14. Compliance with Section 409A of the Code. It is intended that this Agreement comply with Section 409A of the Code and Treasury Regulations thereunder to the extent it is subject to Section 409A, and other guidance and transition rules issued thereunder (“Section 409A”), and this Agreement will be interpreted and operated consistently with that intent. If the Company determines that any provisions of this Agreement do not comply with the requirements of Section 409A, the Company has the authority to amend this Agreement to the extent necessary (including retroactively) in order to preserve compliance with said Section 409A. The Company also has express discretionary authority to take such other actions as may be permissible to correct any failures to comply in operation with the requirements of Section 409A. Neither the Company nor you have any discretion to accelerate the timing or schedule of any benefit payment under this Agreement that is subject to Section 409A, except as specifically provided herein or as may be permitted pursuant to Section 409A.

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IN WITNESS WHEREOF, the Company has caused this Restricted Stock Award Agreement to be signed, as of this                      date of March, 2010.

	HORIZON LINES, INC.
	By:
	Its:
Agreed and Accepted:
[Name of Grant Recipient]
[Date]

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EX-31.1

Exhibit 31.1

HORIZON LINES, INC.
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEYACT OF 2002

I, Charles G. Raymond, President and Chief Executive Officer, certify that:

1.	I have reviewed this report on Form 10-Q of Horizon Lines, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 23, 2010

/s/ CHARLES G. RAYMOND

Charles G. Raymond

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

HORIZON LINES, INC.
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEYACT OF 2002

I, Michael T. Avara, Senior Vice President and Chief Financial Officer, certify that:

1.	I have reviewed this report on Form 10-Q of Horizon Lines, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 23, 2010

/s/ MICHAEL T. AVARA

Michael T. Avara

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

HORIZON LINES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Horizon Lines, Inc. (the “Company”) on Form 10-Q for the period ending March 21, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles G. Raymond, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ CHARLES G. RAYMOND

Charles G. Raymond

President and Chief Executive Officer

(Principal Executive Officer)

April 23, 2010

EX-32.2

Exhibit 32.2

HORIZON LINES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Horizon Lines, Inc. (the “Company”) on Form 10-Q for the period ending March 21, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael T. Avara, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MICHAEL T. AVARA

Michael T. Avara

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

April 23, 2010