Filed by Bowne Pure Compliance

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q/A

Amendment No. 1

(Mark one)


þ		Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 22, 2008


o		Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-32627

HORIZON LINES, INC.

(Exact name of registrant as specified in its charter)


Delaware		74-3123672
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4064 Colony Road, Suite 200, Charlotte, North Carolina		28211
(Address of principal executive offices)		(Zip Code)

(704) 973-7000
(Registrant’s telephone number, including area code)

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

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 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 þ	Accelerated filer o	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 July 23, 2008, 29,972,376 shares of the Registrant’s common stock, par value $.01 per share, were outstanding.

EXPLANATORY NOTE

Horizon Lines, Inc. is filing this amendment (the “Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the quarter ended June 22, 2008 (the “Form 10-Q), filed with the U.S. Securities and Exchange Commission (“SEC”) on July 25, 2008, solely to correct typographical errors in the Outlook on page 28 of that Form 10-Q in “Part 1 – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Form 10-Q erroneously stated that we expect 2008 earnings per share of $1.16 — $1.43, excluding any costs related to the Department of Justice antitrust investigation and related legal proceedings and a $0.8 million severance charge for several union employees who elected early retirement. The expected 2008 earnings per share range should be from $1.03 — $1.43.

The Form 10-Q also erroneously stated that including estimated legal expenses and severance costs, we expect earnings per share of $0.97 — $1.24. The expected earnings per share range, including those expenses and costs, should be from $0.84 — $1.24.

This Form 10-Q/A should be read in conjunction with the original Form 10-Q, continues to speak as of the date of the Form 10-Q, and does not modify or update disclosures in the original Form 10-Q except as noted above. Accordingly, this Form 10-Q/A does not reflect events occurring after the filing of the Form 10-Q or modify or update any related disclosures. In particular, any forward-looking statements included in this Form 10-Q/A represent management’s view as of the filing date of the Form 10-Q.

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 quarter and six months ended June 22, 2008 were impacted by continued soft market conditions in Puerto Rico, moderate growth in Hawaii and rising fuel prices. In addition, lower volumes and a reduction in seafood quotas affected terminal services revenue. Despite these challenges, operating revenue increased as a result of increased fuel surcharges to help offset increases in fuel costs, unit revenue improvements resulting from general rate increases, increased space charter revenue, and revenue related to acquisitions. The increase in operating expense is primarily attributable to higher vessel operating costs due to the deployment of five new vessels during 2007, an increase in the cost of fuel, and an increase in selling, general and administrative expenses due to the Department of Justice antitrust investigation and related legal proceedings and higher compensation costs.


	Quarters Ended						Six Months Ended
	June 22,			June 24,			June 22,			June 24,
	2008			2007			2008			2007
	($ in thousands)
Operating revenue	$	330,958		$	295,701		$	636,905		$	569,365
Operating expense		314,274			272,796			608,620			529,981

Operating income	$	16,684		$	22,905		$	28,285		$	39,384


Operating ratio		95.0	%		92.3	%		95.6	%		93.1	%
Revenue containers (units)		71,169			72,894			137,399			139,815

We believe that in addition to GAAP based financial information, earnings before net interest expense, income taxes, depreciation, and amortization (“EBITDA”) is a meaningful disclosure for the following reasons: (i) EBITDA is a component 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 the Company to maintain certain interest expense coverage and leverage ratios, which contain EBITDA as a component, and our management team uses EBITDA to monitor compliance with such covenants, (iii) EBITDA is a component of the measure used by our management team to make day-to-day operating decisions, (iv) EBITDA is a component 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 the Company of certain targets, which contain EBITDA as a component. We acknowledge that there are limitations when using EBITDA. EBITDA is not a recognized term under GAAP and does 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 is 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 tax payments and debt service requirements. Because all companies do not use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies. A reconciliation of net income to EBITDA is included below:


	Quarters Ended				Six Months Ended
	June 22,		June 24,		June 22,		June 24,
	2008		2007		2008		2007
	(in thousands)
Net income	$	7,235	$	9,560	$	9,326	$	16,612
Interest expense, net		8,147		11,663		17,156		22,876
Income tax expense (benefit)		1,298		1,093		1,802		(691	)
Depreciation and amortization		15,950		17,142		31,650		34,369

EBITDA	$	32,630	$	39,458	$	59,934	$	73,166

Recent Developments

The contract covering the Company’s union employees represented by the International Longshore & Warehouse Union expired on July 1, 2008. Negotiations on a new labor contract are ongoing and the employees who are covered under the agreement are continuing to work while a new agreement is negotiated. The Company does not expect that the expiration of the contract will lead to any labor interruptions.

General

The Company’s has two principal businesses referred to as Horizon Lines, LLC (“Horizon Lines”) and Horizon Logistics Holdings, LLC (“Horizon Logistics”). Through Horizon Lines, 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 U.S. ports 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 21 vessels, 16 of which are fully qualified Jones Act vessels, and approximately 23,000 cargo containers. 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 five ports in the continental U.S. and in the ports in Guam, Hong Kong, Yantian and Taiwan.

The Company, through its wholly owned subsidiary, Horizon Logistics, also offers inland transportation for its customers through its own trucking operations on the U.S. west coast and Alaska, and its integrated logistics services including relationships with third-party truckers, railroads and barge operators in its markets. In addition, Horizon Services Group offers transportation management systems and customized software solutions to shippers, carriers and other supply chain participants.

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.

Critical Accounting Policies

The preparation of our financial statements in conformity with GAAP 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 constantly 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 six months ended June 22, 2008. The critical accounting policies can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 23, 2007 as filed with the SEC.

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. At times, there is 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 lower recovery of our fuel costs during sharp hikes in the price of fuel and improvements in recovery of our fuel costs when fuel prices level off or decline.

Over 85% of our revenues are 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) management of vessels owned by third-parties, (v) warehousing services for third-parties, and (vi) 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 marine operating costs, inland transportation costs, vessel operating costs, land costs and rolling stock rent. 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. 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 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.

Quarter Ended June 22, 2008 Compared with the Quarter Ended June 24, 2007

Horizon Lines Segment

Horizon Lines provides container shipping services and terminal services primarily in the U.S. domestic Jones Act trades, operating a fleet of 21 U.S.-flag containerships and six port terminals linking the continental U.S. with Alaska, Hawaii, Guam, Micronesia, Asia and Puerto Rico. The amounts presented below exclude all intercompany transactions.


	Quarters Ended
	June 22,			June 24,
	2008			2007			Change			% Change
				($ in thousands)
Operating revenue	$	322,170		$	294,229		$	27,941			9.5	%
Operating expense:
Vessel		109,943			93,158			16,785			18.0	%
Marine		50,969			48,226			2,743			5.7	%
Inland		53,086			49,569			3,517			7.1	%
Land		37,119			31,569			5,550			17.6	%
Rolling stock rent		10,830			10,988			(158	)		(1.4	)%

Cost of services		261,947			233,510			28,437			12.2	%
Depreciation and amortization		10,817			10,150			667			6.6	%
Amortization of vessel dry-docking		4,400			4,559			(159	)		(3.5	)%
Selling, general and administrative		26,262			20,569			5,693			27.7	%
Miscellaneous expense (income), net		716			(350	)		1,066			304.6	%

Total operating expense		304,142			268,438			35,704			13.3	%

Operating income	$	18,028		$	25,791		$	(7,763	)		(30.1	)%


Operating ratio		94.4	%		91.2	%					3.2	%
Revenue containers (units)		71,169			72,894			(1,725	)		(2.4	)%

Operating Revenue. Horizon Lines operating revenue increased $27.9 million, or 9.5%, and accounted for approximately 97.3% of consolidated operating revenue. This revenue increase can be attributed to the following factors (in thousands):


Bunker and intermodal fuel surcharges included in rates	$	18,352
General rate increases		6,754
Increase in non-transportation services		4,614
Revenue related to acquisition of HSI		4,449
Revenue container volume decrease		(6,228	)

Total operating revenue increase	$	27,941

The revenue container volume declines are primarily due to overall soft market conditions in Puerto Rico, partially offset by general rate increases. Bunker and intermodal fuel surcharges, which are included in our transportation revenue, accounted for approximately 16.5% of total revenue in the quarter ended June 22, 2008 and approximately 11.8% of total revenue in the quarter ended June 24, 2007. We increased our bunker and intermodal fuel surcharges several times throughout 2007 and in the first six months of 2008 as a result of fluctuations in the cost of fuel for our vessels, in addition to 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 non-transportation revenue is primarily due to higher space charter revenue resulting from an increase in fuel surcharges and the extension of the scope of services provided in connection with our expanded service between the U.S. west coast and Guam and Asia.

Cost of Services. The $28.4 million increase in cost of services is primarily due to an increase in fuel costs due to an increase in fuel prices and the deployment of the new vessels and expanded services between the U.S. west coast and Hawaii during 2007, which is partially offset by reduced expenses associated with lower container volumes and reduced expenses associated with our cost control efforts.

Vessel expense, which is not primarily driven by revenue container volume, increased $16.8 million for the quarter ended June 22, 2008 compared to the quarter ended June 24, 2007. This increase can be attributed to the following factors (in thousands):


Vessel fuel costs increase	$	16,303
Vessel lease expense increase		2,061
Labor and other vessel operating decrease		(1,579	)

Total vessel expense increase	$	16,785

The $16.3 million increase in fuel costs is comprised of $20.0 million increase due to fuel prices offset by $3.7 million decrease due to lower fuel consumption and fewer vessel operating days. The decrease in vessel operating days is due to not utilizing our seasonal vessel in Alaska during the quarter ended June 22, 2008, a modification to our Puerto Rico and Houston service and one additional dry-docking during the quarter ended June 24, 2007. The decrease in labor and other vessel operating expense is primarily due to $2.1 million of certain one time expenses associated with the activation of the new vessels during the quarter ended June 24, 2007, offset by higher vessel lay up costs during the quarter ended June 22, 2008.

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. Marine expense increased to $51.0 million for the quarter ended June 22, 2008 from $48.2 million during the quarter ended June 24, 2007 due to increased stevedoring costs related to services provided to third parties as a result of the acquisition of HSI, partially offset by lower container volumes.

Inland expense increased to $53.1 million for the quarter ended June 22, 2008 compared to $49.6 million during the quarter ended June 24, 2007. The increase in inland expense is due to $3.9 million in higher fuel costs, offset slightly by lower container volumes.

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
	June 22,		June 24,
	2008		2007		% Change
	(in thousands)
Land expense:
Maintenance	$	13,549	$	12,340		9.8	%
Terminal overhead		14,793		12,095		22.3	%
Yard and gate		6,585		5,462		20.6	%
Warehouse		2,192		1,672		31.1	%

Total land expense	$	37,119	$	31,569		17.6	%

Non-vessel related maintenance expenses increased primarily due to $1.3 million of additional fuel expenses. In addition, $0.5 million of maintenance expenses incurred by HSI was offset by a decrease in overall repair expenses. The decrease in overall repair expenses is associated with lower volumes and our cost control efforts. Terminal overhead increased primarily due to the acquisition of HSI, a severance charge for several union employees who elected early retirement, and labor and other inflationary increases. 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 increased primarily due to rate increases in reefer monitoring.

Depreciation and Amortization. Depreciation and amortization was $10.8 million during the quarter ended June 22, 2008 compared to $10.2 million for the quarter ended June 24, 2007. The increase is due to a reduction in the estimated remaining useful lives of certain assets, partially offset by certain vessel assets becoming fully depreciated and no longer subject to depreciation expense. The increase in amortization of intangible assets is due to the amortization of the intangible assets recorded in conjunction with the acquisition of HSI.


	Quarters Ended
	June 22,		June 24,
	2008		2007		% Change
	(in thousands)
Depreciation and amortization:
Depreciation—owned vessels	$	2,554	$	2,723		(6.2	)%
Depreciation and amortization—other		3,184		2,537		25.5	%
Amortization of intangible assets		5,079		4,890		3.9	%

Total depreciation and amortization	$	10,817	$	10,150		6.6	%


Amortization of vessel dry-docking	$	4,400	$	4,559		(3.5	)%

Amortization of Vessel Dry-docking. Amortization of vessel dry-docking was $4.4 million during the quarter ended June 22, 2008 compared to $4.6 million for the quarter ended June 24, 2007. 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 increased to $26.3 million for the quarter ended June 22, 2008 compared to $20.6 million for the quarter ended June 24, 2007, an increase of $5.7 million or 27.7%. This increase is comprised of $2.4 million of expenses related to the Department of Justice antitrust investigation and related legal proceedings, an increase of approximately $2.3 million in the management bonus accrual, and an increase of approximately $0.4 million of compensation expense related to stock option and restricted stock grants.

Miscellaneous Expense (Income), Net. Miscellaneous expense, net increased $1.1 million during the quarter ended June 22, 2008 compared to the quarter ended June 22, 2007 primarily as a result of a lower gain on the sale of assets during 2008 and lower bad debt expense during 2007.

Horizon Logistics Segment

Horizon Logistics manages the integrated logistics service offerings, including rail, trucking and distribution operations, in addition to Horizon Services Group, an organization offering transportation management systems and customized software solutions to shippers, carriers and other supply chain participants. The amounts presented below exclude all intercompany transactions.


	Quarters Ended
	June 22,			June 24,
	2008			2007			Change			% Change
				(in thousands)
Operating revenue	$	8,788		$	1,472		$	7,316			497.0	%
Operating expense:
Inland		5,992			459			5,533			1,205.4	%
Land		657			476			181			38.0	%
Rolling stock rent		103			—			103			100.0	%

Cost of services		6,752			935			5,817			622.1	%
Depreciation and amortization		733			2,433			(1,700	)		(70.0	)%
Selling, general and administrative		2,611			941			1,670			177.5	%
Miscellaneous expense, net		36			49			(13	)		(26.5	)%

Total operating expense		10,132			4,358			5,774			132.5	%

Operating loss	$	(1,344	)	$	(2,886	)	$	1,542			53.4	%

Operating Revenue. Horizon Logistics operating revenue accounted for approximately 2.7% of consolidated operating revenue. Approximately $6.1 million of the $7.3 million increase during the quarter ended June 22, 2008 is due to the acquisition of Aero Logistics.

Cost of Services. Cost of services increased to $6.8 million for the quarter ended June 22, 2008 compared to $0.9 million for the quarter ended June 24, 2007, an increase of $5.8 million. The increase in cost of services is primarily due to increased inland expenses as a result of the acquisition of Aero Logistics.

Depreciation and Amortization. Depreciation and amortization was $0.7 million during the quarter ended June 22, 2008 compared to $2.4 million for the quarter ended June 24, 2007. The decrease is due to certain capitalized software assets becoming fully depreciated and no longer subject to depreciation expense. The increase in amortization of intangible assets is due to the amortization of the intangible assets recorded in conjunction with the acquisition of Aero Logistics.


	Quarters Ended
	June 22,		June 24,
	2008		2007		% Change
	(in thousands)
Depreciation and amortization:
Depreciation and amortization—other	$	489	$	2,433		(80.0	)%
Amortization of intangible assets		244		—		100.0	%

Total depreciation and amortization	$	733	$	2,433		(70.0	)%

Selling, General and Administrative. Selling, general and administrative costs increased to $2.6 million for the quarter ended June 22, 2008 compared to $0.9 million for the quarter ended June 24, 2007, an increase of $1.7 million. This increase is due to the ramp up of activities and personnel within the logistics segment, including the acquisition of Aero Logistics.

Unallocated Expenses

Interest Expense, Net. Interest expense, net decreased to $8.1 million for the quarter ended June 22, 2008 compared to $11.7 million for the quarter ended June 24, 2007, a decrease of $3.6 million or 30.8%. This decrease is a result of the August 2007 refinancing and the related lower interest rates payable on the outstanding debt.

Income Tax Expense. The Company’s effective tax rate for the quarters ended June 22, 2008 and June 24, 2007 was 15.2% and 10.3%, respectively. During 2006, the Company elected the application of tonnage tax. The Company modified its trade routes between the U.S. west coast and Guam and Asia during the first quarter of 2007. As such, the Company’s shipping activities associated with these modified trade routes became qualified shipping activities, and thus the income from these vessels is excluded from gross income in determining federal income tax liability. The Company’s effective tax rate is impacted by the Company’s income from qualifying shipping activities as well as the income from the Company’s non-qualifying shipping activities and will fluctuate based on the ratio of income from qualifying and non-qualifying activities.

Six Months Ended June 22, 2008 Compared with the Six Months Ended June 24, 2007

Horizon Lines Segment


	Six Months Ended
	June 22,			June 24,
	2008			2007			Change			% Change
				($ in thousands)
Operating revenue	$	620,015		$	566,322		$	53,693			9.5	%
Operating expense:
Vessel		213,370			175,880			37,490			21.3	%
Marine		100,196			93,992			6,204			6.6	%
Inland		100,098			95,214			4,884			5.1	%
Land		72,321			63,101			9,220			14.6	%
Rolling stock rent		22,837			22,010			827			3.8	%

Cost of services		508,822			450,197			58,625			13.0	%
Depreciation and amortization		21,426			21,223			203			1.0	%
Amortization of vessel dry-docking		8,775			8,319			456			5.5	%
Selling, general and administrative		48,884			41,680			7,204			17.3	%
Miscellaneous expense, net		1,230			2			1,228			61,400	%

Total operating expense		589,137			521,421			67,716			13.0	%

Operating income	$	30,878		$	44,901		$	(14,023	)		(31.2	)%


Operating ratio		95.0	%		92.1	%					3.1	%
Revenue containers (units)		137,399			139,815			(2,416	)		(1.7	)%

Operating Revenue. Horizon Lines operating revenue increased $53.7 million, or 9.5%, and accounted for approximately 97.3% of consolidated operating revenue. This revenue increase can be attributed to the following factors (in thousands):


Bunker and intermodal fuel surcharges included in rates	$	32,912
General rate increases		13,771
Revenue related to acquisition of HSI		8,646
Increase in non-transportation services		7,059
Revenue container volume decrease		(8,695	)

Total operating revenue increase	$	53,693

The revenue container volume declines are primarily due to continued overall soft market conditions in Puerto Rico, partially offset by general rate increases. Bunker and intermodal fuel surcharges, which are included in our transportation revenue, accounted for approximately 15.9% of total revenue in the six months ended June 22, 2008 and approximately 11.6% of total revenue in the six months ended June 24, 2007. We increased our bunker and intermodal fuel surcharges several times throughout 2007 and in the six months of 2008 as a result of fluctuations in the cost of fuel for our vessels, in addition to 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 non-transportation revenue is primarily due to higher space charter revenue resulting from an increase in fuel surcharges and the extension of the scope of services provided in connection with our expanded service between the U.S. west coast and Guam and Asia, partially offset by a decrease due to vessel charter revenue during 2007 and lower terminal services revenue. Prior to deploying one of the new vessels into the expanded service, we charted this vessel to a third party.

Cost of Services. The $58.6 million increase in cost of services is primarily due to an increase in fuel costs due to an increase in fuel prices and the deployment of the new vessels and expanded services between the U.S. west coast and Hawaii during 2007, which is partially offset by reduced expenses associated with lower container volumes and reduced expenses associated with our cost control efforts.

Vessel expense, which is not primarily driven by revenue container volume, increased $37.5 million for the six months ended June 22, 2008 compared to the six months ended June 24, 2007. This increase can be attributed to the following factors (in thousands):


Vessel fuel costs increase	$	31,593
Vessel lease expense increase		8,203
Labor and other vessel operating decrease		(2,306	)

Total vessel expense increase	$	37,490

The $31.6 million increase in fuel costs is comprised of $38.9 million increase in fuel prices offset by a $7.3 million decrease due to lower fuel consumption despite an increase in vessel operating days. The decrease in labor and other vessel operating expense decreased is due to additional operating expenses associated with five dry-dockings and $3.2 million related to certain one time expenses associated with the activation of the new vessels during the six months ended June 24, 2007. We continue to incur labor expenses associated with the vessel in dry-dock while also incurring expenses associated with the spare vessels deployed to serve as dry-dock relief. The reductions were partially offset by higher vessel lay up costs during the six months ended June 22, 2008.

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. Marine expense increased to $100.2 million for the six months ended June 22, 2008 from $94.0 million during the six months ended June 24, 2007 due to increased stevedoring costs related to services provided to third parties as a result of the acquisition of HSI, partially offset by lower container volumes.

Inland expense increased to $100.1 million for the six months ended June 22, 2008 compared to $95.2 million during the six months ended June 24, 2007. The increase in inland expense is due to $6.4 million in higher fuel costs, offset slightly by lower container volumes.


	Six Months Ended
	June 22,		June 24,
	2008		2007		% Change
	(in thousands)
Land expense:
Maintenance	$	26,112	$	24,382		7.1	%
Terminal overhead		28,677		24,184		18.6	%
Yard and gate		13,477		11,203		20.3	%
Warehouse		4,055		3,332		21.7	%

Total land expense	$	72,321	$	63,101		14.6	%

Non-vessel related maintenance expenses increased primarily due to $1.9 million of additional fuel expenses. In addition, $1.1 million of maintenance expenses incurred by HSI was offset by a decrease in overall repair expenses. The decrease in overall repair expenses is associated with lower volumes and our cost control efforts. Terminal overhead increased primarily due to the acquisition of HSI, a severance charge for several union employees who elected early retirement, and labor and other inflationary increases. 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 increased primarily due to rate increases in the monitoring of refrigerated containers.

Depreciation and Amortization. Depreciation and amortization was $21.4 million during the six months ended June 22, 2008 compared to $21.2 million for the six months ended June 24, 2007. The increase in amortization of intangible assets is due to the amortization of the intangible assets recorded in conjunction with the acquisition of HSI is offset by certain vessel assets becoming fully depreciated and no longer subject to depreciation expense.


	Six Months Ended
	June 22,		June 24,
	2008		2007		% Change
	(in thousands)
Depreciation and amortization:
Depreciation—owned vessels	$	5,051	$	5,452		(7.4	)%
Depreciation and amortization—other		6,220		5,990		3.8	%
Amortization of intangible assets		10,155		9,781		3.8	%

Total depreciation and amortization	$	21,426	$	21,223		1.0	%


Amortization of vessel dry-docking	$	8,775	$	8,319		5.5	%

Amortization of Vessel Dry-docking. Amortization of vessel dry-docking was $8.8 million during the six months ended June 22, 2008 compared to $8.3 million for the six months ended June 24, 2007. 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 increased to $48.9 million for the six months ended June 22, 2008 compared to $41.7 million for the six months ended June 24, 2007, an increase of $7.2 million or 17.3%. This increase is comprised of $2.4 million of expenses related to the Department of Justice antitrust investigation and related legal proceedings, an increase of approximately $2.4 million in the management bonus accrual, and an increase of approximately $1.2 million of compensation expense related to stock option and restricted stock grants and $1.0 million related to labor and other inflationary increases.

Miscellaneous Expense, Net. Miscellaneous expense, net increased $1.2 million during the six months ended June 22, 2008 compared to the six months ended June 24, 2007 primarily as a result of a lower gain on the sale of assets during 2008 and lower bad debt expense during 2007.

Horizon Logistics Segment


	Six Months Ended
	June 22,			June 24,
	2008			2007			Change			% Change
				(in thousands)
Operating revenue	$	16,890		$	3,043		$	13,847			455.0	%
Operating expense:
Inland		11,375			967			10,408			1,076.3	%
Land		1,262			964			298			30.9	%
Rolling stock rent		210			—			210			100.0	%

Cost of services		12,847			1,931			10,916			565.3	%
Depreciation and amortization		1,449			4,827			(3,378	)		(70.0	)%
Selling, general and administrative		5,120			1,723			3,397			197.2	%
Miscellaneous expense, net		67			79			(12	)		(15.2	)%

Total operating expenses		19,483			8,559			10,924			127.6	%

Operating loss	$	(2,593	)	$	(5,517	)	$	2,924			53.0	%

Operating Revenue. Horizon Logistics operating revenue accounted for approximately 2.7% of consolidated operating revenue. Approximately $12.0 million of the $13.8 million increase during the six months ended June 22, 2008 is due to the acquisition of Aero Logistics.

Cost of Services. Cost of services increased to $12.8 million for the six months ended June 22, 2008 compared to $1.9 million for the six months ended June 24, 2007, an increase of $10.9 million. The increase in cost of services is primarily due to increased inland expenses as a result of the acquisition of Aero Logistics.

Depreciation and Amortization. Depreciation and amortization was $1.4 million during the six months ended June 22, 2008 compared to $4.8 million for the six months ended June 24, 2007. The decrease is due to certain capitalized software assets becoming fully depreciated and no longer subject to depreciation expense. The increase in amortization of intangible assets is due to the amortization of the intangible assets recorded in conjunction with the acquisition of Aero Logistics.


	Six Months Ended
	June 22,		June 24,
	2008		2007		% Change
	(in thousands)
Depreciation and amortization:
Depreciation and amortization—other	$	941	$	4,827		(80.5	)%
Amortization of intangible assets		508		—		100.0	%

Total depreciation and amortization	$	1,449	$	4,827		(70.0	)%

Selling, General and Administrative. Selling, general and administrative costs increased to $5.1 million for the six months ended June 22, 2008 compared to $1.7 million for the six months ended June 24, 2007, an increase of $3.4 million. This increase is due to the ramp up of activities and personnel within the logistics segment, including the acquisition of Aero Logistics.

Unallocated Expenses

Interest Expense, Net. Interest expense, net decreased to $17.2 million for the six months ended June 22, 2008 compared to $22.9 million for the six months ended June 24, 2007, a decrease of $5.7 million or 24.9%. This decrease is a result of the August 2007 refinancing and the related lower interest rates payable on the outstanding debt.

Income Tax Expense (Benefit). The Company’s effective tax rate for the six months ended June 22, 2008 and June 24, 2007 was 16.2% and (4.3)%, respectively. During 2006, the Company elected the application of tonnage tax. The Company modified its trade routes between the U.S. west coast and Guam and Asia during the first quarter of 2007. As such, the Company’s shipping activities associated with these modified trade routes became qualified shipping activities, and thus the income from these vessels is excluded from gross income in determining federal income tax liability. During the first quarter of 2007, the Company recorded a $2.5 million, or $0.08 per diluted share, tax benefit related to a revaluation of the deferred taxes associated with the activities now subject to tonnage tax as a result of the modified trade routes. Excluding the benefits related to the refinements in methodology of applying tonnage tax, the Company’s effective tax rate was 11.5% for the six months ended June 24, 2007. The Company’s effective tax rate is impacted by the Company’s income from qualifying shipping activities as well as the income from the Company’s non-qualifying shipping activities and will fluctuate based on the ratio of income from qualifying and non-qualifying activities.

Liquidity and Capital Resources

Our principal sources of funds have been (i) earnings generated from operations and (ii) borrowings under debt arrangements. Our principal uses of funds have been (i) capital expenditures on our container fleet, our terminal operating equipment, improvements to our owned and leased vessel fleet, and our information technology systems, (ii) vessel dry-docking expenditures, (iii) working capital consumption, (iv) principal and interest payments on our existing indebtedness, (v) dividend payments to our common stockholders, (vi) acquisitions, (vii) share repurchases, (vii) premiums associated with a debt tender offer and (ix) purchases of equity instruments in conjunction with the Notes. Cash totaled $24.0 million at June 22, 2008. As of June 22, 2008, $73.1 million was available for borrowing under the revolving credit facility, after taking into account $170.0 million outstanding under the revolver and $6.9 million utilized for outstanding letters of credit.

Operating Activities

Net cash provided by operating activities was $16.6 million for the six months ended June 22, 2008 compared to net cash used in operating activities of $29.0 million for the six months ended June 24, 2007, an increase of $45.6 million. The increase in cash provided by operating activities is primarily due to the following (in thousands):


Decrease in vessel payments in excess of accrual	$	20,669
Increase in accounts payable and accrued liabilities, net		11,819
Decrease in management bonus payments in excess of accrual		12,998
Decrease in accounts receivable		6,053
Other increases in working capital, net		5,214
Earnings adjusted for non-cash charges		(11,189	)

	$	45,564

Investing Activities

Net cash used in investing activities was $7.5 million for the six months ended June 22, 2008 compared to $7.7 million for the six months ended June 24, 2007. The reduction is primarily related to a $2.9 million decrease in capital expenditures, offset by a $2.4 million decrease in proceeds from the sale of equipment increase and a $0.2 million purchase price adjustment related to the working capital received as part of the acquisition of Aero Logistics.

Financing Activities

Net cash provided by financing activities during the six months ended June 22, 2008 was $8.6 million compared to net cash used in financing activities of $38.1 million for the six months ended June 24, 2007. The net cash provided by financing activities during the six months ended June 22, 2008 included $48.0 million, net of repayments, borrowed under the Senior Credit Facility. The net cash used in financing activities during the six months ended June 24, 2007 includes a $25.0 million prepayment under the Prior Senior Credit Facility and $4.5 million in long-term debt payments related to the outstanding indebtedness secured by mortgages on the Horizon Enterprise and the Horizon Pacific.

On November 19, 2007, the Company’s Board of Directors authorized the Company to commence a stock repurchase program to buy back up to $50.0 million of its common stock. The program allowed the Company to purchase shares through open market repurchases and privately negotiated transactions at a price of $26.00 per share or less until the program’s expiration on December 31, 2008. The Company completed its share repurchase program by acquiring a total of 2,800,200 shares at a total cost of $50.0 million, including the purchase of 1,627,500 shares at a total cost of $29.3 million during the quarter ended March 23, 2008. Although the Company does not currently intend to repurchase additional shares, the Company will continue to evaluate market conditions and may, subject to approval by the Company’s Board of Directors, repurchase additional shares of its common stock in the future.

Outlook

Horizon Lines continues to experience extremely soft market conditions in Puerto Rico, stable market conditions in Hawaii and favorable market conditions in Alaska. In addition, we are facing the overall slowdown in the U.S. economy, rising fuel prices, and lower terminal services revenues. The price of fuel, a significant expense for our operations, has increased 50% this year. The price and supply of fuel is unpredictable and fluctuates based on events outside our control. The significant volatility and rapid increase in fuel prices negatively impacts our performance because adjustments in our fuel surcharges lag changes in actual fuel prices paid and we are unable to fully recover all of the incremental costs. We expect revenue container volume growth in Alaska and Hawaii but expect revenue volume declines in Puerto Rico. As a result, we expect overall revenue container volume declines of approximately (0.4%) and approximately 1.5% revenue growth in 2008 due to more favorable cargo mix and general rate increases. Horizon Logistics will continue to provide integrated logistics services, including rail, trucking, and distribution services to the Company, and is pursuing additional third party logistics business. Since Horizon Logistics is in the early stages of its existence, we do not expect the third party business to be significant in 2008. We will continue our process improvement initiatives and cost constraint efforts in both our liner and logistics divisions. Further, the ultimate extent of the U.S. economic slowdown and its impact on our business is unknown. As a result of these factors, we expect 2008 earnings per share of $1.03-$1.43, excluding any costs related to the Department of Justice antitrust investigation and related legal proceedings and a $0.8 million severance charge for several union employees who elected early retirement. We estimate that we may incur approximately $6.5 million in legal expenses related to the Department of Justice antitrust investigation and related legal proceedings in 2008. Including the $6.5 million in expected legal expenses and the $0.8 million severance charge, we expect earnings per share of $0.84-$1.24.

Capital Requirements

Our current and future capital needs relate primarily to debt service, maintenance and improvement of our vessel fleet, and providing for other necessary equipment acquisitions, including terminal cranes in Anchorage, Alaska and Guam. Cash to be used for investing activities, including purchases of property and equipment for the next twelve months is expected to total approximately $39.0-$44.0 million. Such capital expenditures will include continued redevelopment of our San Juan, Puerto Rico terminal, vessel regulatory and maintenance initiatives and other terminal infrastructure and equipment, including payments of $13.7 million related to the cranes in Alaska and $7.7 million related to the cranes in Guam. In addition, expenditures for vessel dry-docking payments are estimated at $17.5 million for the next twelve months.

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, the Company entered into a credit agreement providing for a $250.0 million five year revolving credit facility and a $125.0 million term loan with various financial lenders (the “Senior Credit Facility”). The obligations are secured by substantially all of the owned assets of the Company. 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.

On December 31, 2007, the Company made its first quarterly principal payment on the term loan of approximately $1.6 million, which payments will continue through September 30, 2009, at which point quarterly payments increase to $4.7 million through September 30, 2011, at which point quarterly payments increase to $18.8 million until final maturity on August 8, 2012. As of June 22, 2008, $291.9 million was outstanding under the Senior Credit Facility, which included a $121.9 million term loan and borrowings of $170.0 million under the revolving credit facility. 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 1.25% to 2.0% (LIBOR plus 1.50% as of June 22, 2008) depending on the Company’s ratio of total secured debt to EBITDA (as defined in the Senior Credit Facility). The weighted average interest rate at June 22, 2008 was approximately 4.5%. The Company also pays a variable commitment fee on the unused portion of the commitment, ranging from 0.25% to 0.40% (0.30% as of June 22, 2008).

The Senior Credit Facility contains customary affirmative and negative covenants and warranties, including two financial covenants with respect to the Company’s leverage and interest coverage ratio and limits the level of dividends and stock repurchases in addition to other restrictions. It also contains customary events of default, subject to grace periods. The Company was in compliance with all such covenants as of June 22, 2008.

Derivative Instruments

On March 31, 2008, the Company entered into an Interest Rate Swap Agreement (the “swap”) with Wachovia Bank, National Association (“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. 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 first interest payment was made on June 30, 2008 for both parties. The purpose of entering into this swap is to protect the Company against the risk of rising interest rates by effectively fixing the interest rate payable related to its 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, 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. As of June 22, 2008, the Company recorded an asset of $3.8 million, included in other long-term assets, in the accompanying consolidated balance sheet. The Company also recorded $2.4 million (net of tax of $1.4 million) in other comprehensive income (loss) for the quarter and six months ended June 22, 2008. No hedge ineffectiveness was recorded during the quarter and six months ended June 22, 2008.

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, if the last reported sale price of the Company’s common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter exceeds 120% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter;

•		Prior to May 15, 2012, if during the five business day period 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 June 22, 2008, 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 Company has obtained approval from its shareholders to increase the number of authorized but unissued shares such that the number of shares available for issuance to the financial institutions increased from 4.6 million to 17.8 million. 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 in accordance with EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF No. 00-19”).The Company received proceeds of $11.9 million related to the sale of the warrants, which has also been classified as equity because the warrants meet all of the equity classification criteria within EITF No. 00-19.

In accordance with SFAS 128, 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.

Interest Rate Risk

Our primary interest rate exposure relates to the Senior Credit Facility. As of June 22, 2008, the Company had outstanding a $121.9 million term loan and $170.0 million under the revolving credit facility, which bear interest at variable rates.

On March 31, 2008, the Company entered into an interest rate swap with Wachovia in the notional amount of $121.9 million. 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. Under the swap, the Company and Wachovia have agreed to exchange interest payments on the notional amount. The Company has agreed to pay a fixed rate of interest of 3.02%, and Wachovia has agreed to pay a floating interest rate equal to the three-month LIBOR rate. The first interest payment was made on June 30, 2008 for both parties. The purpose of entering into this swap is to protect the Company against the risk of rising interest rates related to its term loan.

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

Ratio of Earnings to Fixed Charges

Our ratio of earnings to fixed charges for the quarter and six months ended June 22, 2008 is as follows (in thousands):


	Quarter Ended			Six Months Ended
	June 22, 2008			June 22, 2008
Pretax income	$	8,533		$	11,128
Interest expense		8,216			17,259
Rentals		8,738			17,691

Total fixed charges	$	16,954		$	34,950

Pretax earnings plus fixed charges	$	25,487		$	46,078

Ratio of earnings to fixed charges		1.50	x		1.32	x

For the purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes plus fixed charges. Fixed charges consists of interest expense, including amortization of net discount or premium, and financing costs and the portion of operating rental expense (33%) that management believes is representative of the interest component of rent expense.

Recent Accounting Pronouncements

In May 2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash Upon Conversion” (“FSP APB 14-1”). FSP APB 14-1 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. As a result, the liability component would be recorded at a discount reflecting its below market coupon interest rate, and the liability component would subsequently be accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance being reflected in the results of operations. This change in methodology will affect the calculations of net income and earnings per share, but will not increase the Company’s cash interest payments. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Retrospective application to all periods presented is required and early adoption is prohibited. The Notes (as defined above) are within the scope of FSP APB 14-1. As such, the Company has assessed the impact of adopting FSP APB 14-1 and expects to adjust its reported amounts for the quarter and six months ended June 22, 2008 and fiscal year ended December 23, 2007 as follows (in thousands except per share amounts):


	Quarter Ended June 22, 2008							Six Months Ended June 22, 2008
	As					As		As					As
	Reported		Adjustments			Adjusted		Reported		Adjustments			Adjusted
Interest expense, net	$	8,147	$	2,206		$	10,353	$	17,156	$	4,357		$	21,513
Income tax expense		1,298		(829	)		469		1,802		(1,638	)		164
Net income		7,235		(1,377	)		5,858		9,326		(2,719	)		6,607

Net income per share
Basic		0.24		(0.05	)		0.19		0.31		(0.09	)		0.22
Diluted		0.24		(0.05	)		0.19		0.31		(0.09	)		0.22


	Year Ended December 23, 2007
	As						As
	Reported			Adjustments			Adjusted
Interest expense, net	$	41,672		$	3,204		$	44,876
Income tax benefit		(13,983	)		(1,205	)		(15,188	)
Net income		28,859			(1,999	)		26,860

Net income per share
Basic		0.87			(0.06	)		0.81
Diluted		0.85			(0.06	)		0.79

In addition, the Company will record the following estimated amounts as additional non-cash interest expense upon the adoption of FSP APB 14-1 (in thousands):


Fiscal Year
2008	$	8,901
2009		10,011
2010		11,060
2011		11,765
2012		4,821

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). Statement 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company is in the process of determining the impact the adoption of SFAS 162 will have on its consolidated results of operations and financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. As this statement relates only to disclosure requirements, the Company does not expect it to have an impact on its results of operations or financial position.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This standard is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. This standard is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement of certain financial assets and liabilities under an instrument-by-instrument election. Subsequent measurements for the financial assets and liabilities an entity elects to measure at fair value will be recognized in the results of operations. SFAS 159 also establishes additional disclosure requirements. This standard is effective for fiscal years beginning after November 15, 2007. Effective for fiscal year 2008, the Company has adopted the provisions of SFAS 159. The adoption did not have a financial impact on the Company’s results of operations and financial position.

In September 2006, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. As a result of SFAS 157 there is now a common definition of fair value to be used throughout GAAP. The FASB believes that the new standard will make the measurement of fair value more consistent and comparable and improve disclosures about those measures. The provisions of SFAS 157 were to be effective for fiscal years beginning after November 15, 2007. On February 6, 2008, the FASB agreed to defer the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Effective for fiscal 2008, the Company has adopted SFAS 157 except as it applies to those nonfinancial assets and nonfinancial liabilities. The adoption did not have a financial impact on the Company’s 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.

Factors that may cause actual results to differ from expected results include: 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); rising fuel prices; our substantial debt; restrictive covenants under our debt agreements; decreases in shipping volumes; our failure to renew our commercial agreements 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; adverse tax audits and other tax matters; and legal or other proceedings to which we are or may become subject, including the Department of Justice antitrust investigation and related legal proceedings.

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 23, 2007 as filed with the SEC and in this Form 10-Q for the quarter ended June 22, 2008 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.


	Page No.

Explanatory Note		3

Part I. Financial Information

2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3

Part II. Other Information

6. Exhibits		19

Signature		20

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


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.


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


Exhibit
No.		Description
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.

	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

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1.		I have reviewed this report on Form 10-Q, as amended by the Quarterly Report on Form 10-Q/A filed on the date hereof, 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)		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.


/s/ CHARLES G. RAYMOND
Charles G. Raymond
President and Chief Executive Officer (Principal Executive Officer)


/s/ MICHAEL T. AVARA
Michael T. Avara
Senior Vice President and Chief Financial Officer (Principal Financial Officer)

		In connection with the Quarterly Report of Horizon Lines, Inc. (the “Company”) on Form 10-Q for the period ending June 22, 2008 as filed with the Securities and Exchange Commission, and as amended by the Quarterly Report on Form 10-Q/A 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.


*		Filed herewith.


*		Filed herewith.