Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

(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 ¨

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 þ No ¨

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ 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 26, 2013, 35,670,823 shares of the Registrant’s common stock, par value $.01 per share, were outstanding.

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

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, 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 and wholly-owned subsidiary. Horizon Lines operates as a Jones Act container shipping business with primary service to ports within the continental United States, Puerto Rico, Alaska, and Hawaii. 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. HLPR operates as an agent for Horizon Lines in Puerto Rico and also provides terminal services in Puerto Rico.

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.

During 2011, the Company discontinued its FSX trans-Pacific container shipping service. There will not be any significant future cash flows related to the operations in the FSX service. In addition, the Company does not have any significant continuing involvement in the divested operations. As a result, the FSX service has been classified as discontinued operations in all periods presented.

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 23, 2012. 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 June 23, 2013 and the financial statements for the quarters and six months ended June 23, 2013 and June 24, 2012 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.

The Company and each of its subsidiaries, other than Horizon Lines, LLC, fully and unconditionally guarantee the 11.00% First Lien Senior Secured Notes due 2016, the 13.00%-15.00% Second Lien Senior Secured Notes due 2016, the ABL Facility, and the $20.0 Million Term Loan Agreement, in each case issued by Horizon Lines, LLC. See Note 3 for additional information. All of the Company’s subsidiaries are wholly-owned.

As of the dates below, long-term debt consisted of the following (in thousands):

The 11.00% First Lien Senior Secured Notes (the “First Lien Notes”) were issued pursuant to an indenture on October 5, 2011. The First Lien Notes bear interest at a rate of 11.0% per annum, payable semiannually beginning on April 15, 2012, and mature on October 15, 2016. The First Lien Notes are callable at par plus accrued and unpaid interest. The Company is obligated to make mandatory prepayments of 1%, on an annual basis, of the original principal amount. These prepayments are payable on a semiannual basis and commenced on April 15, 2012. The First Lien Notes are fully and unconditionally guaranteed by all of the Company’s subsidiaries (collectively, the “Notes Guarantors”).

The First Lien Notes are secured by a first priority lien on all Secured Notes Priority Collateral and a second priority lien on all ABL Priority Collateral (each as defined below). The First Lien Notes contain affirmative and negative covenants which are typical for senior secured high-yield notes with no financial maintenance covenants. The First Lien Notes contain other covenants, including: change of control put at 101% (subject to a permitted holder exception); limitation on asset sales; limitation on incurrence of indebtedness and preferred stock; limitation on restricted payments; limitation on restricted investments; limitation on liens; limitation on dividends; limitation on affiliate transactions; limitation on sale/leaseback transactions; limitation on guarantees by restricted subsidiaries; and limitation on mergers, consolidations and sales of all/substantially all of the assets of the Company. These covenants are subject to certain exceptions and qualifications. The Company was in compliance with all such applicable covenants as of June 23, 2013.

On October 5, 2011, the fair value of the First Lien Notes was $228.4 million, which reflected the Company’s ability to call the First Lien Notes at 101.5% during the first year and at par thereafter. The original issue premium of $3.4 million is being amortized through interest expense through the maturity of the First Lien Notes.

On October 5, 2011, the Company completed the sale of $100.0 million aggregate principal amount of its 13.00%-15.00% Second Lien Senior Secured Notes (the “Second Lien Notes”). The Second Lien Notes are fully and unconditionally guaranteed by the Notes Guarantors.

The Second Lien Notes bear interest at a rate of either: (i) 13% per annum, payable semiannually in cash in arrears; (ii) 14% per annum, 50% of which is payable semiannually in cash in arrears and 50% is payable in kind; or (iii) 15% per annum payable in kind, payable semiannually, beginning on April 15, 2012, and maturing on October 15, 2016. The Second Lien Notes are non-callable for 2 years from the date of their issuance, and thereafter the Second Lien Notes will be callable by the Company at (i) 106% of their aggregate principal amount, plus accrued and unpaid interest thereon in the third year, (ii) 103% of their aggregate principal amount, plus accrued and unpaid interest thereon in the fourth year, and (iii) at par plus accrued and unpaid interest thereafter.

On April 15, 2012, October 15, 2012, and April 15, 2013, the Company issued an additional $7.9 million, $8.1 million and $8.7 million, respectively, of Second Lien Notes to satisfy the payment-in-kind interest obligation under the Second Lien Notes. In addition, the Company has elected to satisfy its interest obligation under the Second Lien Notes due October 15, 2013 by issuing additional Second Lien Notes. As such, as of June 23, 2013, the Company has recorded $3.5 million of accrued interest as an increase to long-term debt.

The Second Lien Notes are secured by a second priority lien on all Secured Notes Priority Collateral and a third priority lien on all ABL Priority Collateral. The Second Lien Notes contain affirmative and negative covenants which are typical for senior secured high-yield notes with no financial maintenance covenants. The Second Lien Notes contain other covenants, including: change of control put at 101% (subject to a permitted holder exception); limitation on asset sales; limitation on incurrence of indebtedness and preferred stock; limitation on restricted payments; limitation on restricted investments; limitation on liens; limitation on dividends; limitation on affiliate transactions; limitation on sale/leaseback transactions; limitation on guarantees by restricted subsidiaries; and limitation on mergers, consolidations and sales of all/substantially all of the assets of the Company. These covenants are subject to certain exceptions and qualifications. The Company was in compliance with all such applicable covenants as of June 23, 2013.

On October 5, 2011, the fair value of the Second Lien Notes was $96.6 million. The original issue discount of $3.4 million is being amortized through interest expense through the maturity of the Second Lien Notes.

During 2012, the Company entered into a Global Termination Agreement with Ship Finance International Limited (“SFL”) whereby the Company issued $40.0 million aggregate principal amount of its Second Lien Notes and warrants to purchase 9,250,000 shares of the Company’s common stock at a price of $0.01 per share to satisfy its obligations for certain vessel leases. The Second Lien Notes issued to SFL (the “SFL Notes”) have the same terms as the Second Lien Notes issued on October 5, 2011 (the “Initial Notes”), except that they are subordinated to the Initial Notes in the case of a bankruptcy, and holders of the SFL Notes, so long as then held by SFL, have the option to purchase the Initial Notes in the event of a bankruptcy. On April 9, 2012, the fair value of the SFL Notes outstanding on such date approximated face value. On October 15, 2012 and April 15, 2013, the Company issued an additional $3.1 million and $3.2 million, respectively, of SFL Notes to satisfy the payment-in-kind interest obligation under the SFL Notes. In addition, the Company has elected to satisfy its interest obligation under the SFL Notes due October 15, 2013 by issuing additional SFL Notes. As such, as of June 23, 2013, the Company has recorded $1.3 million of accrued interest as an increase to long-term debt.

On October 5, 2011, the Company entered into a $100.0 million asset-based revolving credit facility (the “ABL Facility”) with Wells Fargo Capital Finance, LLC (“Wells Fargo”). Use of the ABL Facility is subject to compliance with a customary borrowing base limitation. The ABL Facility includes an up to $30.0 million letter of credit sub-facility and a swingline sub-facility up to $15.0 million, with Wells Fargo serving as administrative agent and collateral agent. The Company has the option to request increases in the maximum commitment under the ABL Facility by up to $25.0 million in the aggregate; however, such incremental facility increases have not been committed to in advance. The ABL Facility was used on the closing date for the rollover of certain issued and outstanding letters of credit and is used by the Company for working capital and other general corporate purposes.

The ABL Facility was amended on January 31, 2013 in conjunction with the $75.0 Million Agreement and $20.0 Million Agreement (both as defined below). In addition to allowing for the incurrence of the additional long-term debt, amendments to the ABL Facility included, among other changes, (i) weekly borrowing base reporting in the event availability under the facility falls below a threshold of (a) $14.0 million or (b) 14.0% of the maximum commitment under the ABL Facility, (ii) the exclusion of certain historical charges and expenses relating to discontinued operations and severance from the calculation of bank-defined Adjusted EBITDA, (iii) the exclusion of the historical charter hire expense deriving from the Vessels (as defined below) from the calculation of bank-defined Adjusted EBITDA, and (iv) the inclusion of pro forma interest expense on the $75.0 Million Agreement and the $20.0 Million Agreement in the calculation of fixed charges.

The ABL Facility matures October 5, 2016 (but 90 days earlier if the First Lien Notes and the Second Lien Notes are not repaid or refinanced as of such date). The interest rate on the ABL Facility is LIBOR or a base rate plus an applicable margin based on leverage and excess availability, as defined in the agreement, ranging from (i) 1.25% to 2.75%, in the case of base rate loans and (ii) 2.25% to 3.75%, in the case of LIBOR loans. A fee ranging from 0.375% to 0.50% per annum will accrue on unutilized commitments under the ABL Facility. As of June 23, 2013, borrowings outstanding under the ABL facility totaled $32.5 million and total borrowing availability was $26.7 million. The Company had $13.2 million of letters of credit outstanding as of June 23, 2013.

The ABL Facility is secured by (i) a first priority lien on the Company’s interest in accounts receivable, deposit accounts, securities accounts, investment property (other than equity interests of the subsidiaries and joint ventures of the Company) and cash, in each case with certain exceptions and (ii) a fifth priority lien on all or substantially all other assets of the Company securing the $20.0 Million Agreement, the First Lien Notes, the Second Lien Notes and the 6.00% Convertible Notes.

The ABL Facility requires compliance with a minimum fixed charge coverage ratio test if excess availability is less than the greater of (i) $12.5 million or (ii) 12.5% of the maximum commitment under the ABL Facility. In addition, the ABL Facility includes certain customary negative covenants that, subject to certain materiality thresholds, baskets and other agreed upon exceptions and qualifications, will limit, among other things, indebtedness, liens, asset sales and other dispositions, mergers, liquidations, dissolutions and other fundamental changes, investments and acquisitions, dividends, distributions on equity or redemptions and repurchases of capital stock, transactions with affiliates, repayments of certain debt, conduct of business and change of control. The ABL Facility also contains certain customary representations and warranties, affirmative covenants and events of default, as well as provisions requiring compliance with applicable citizenship requirements of the Jones Act. The Company was in compliance with all such applicable covenants as of June 23, 2013.

Three of the Company’s Jones Act qualified vessels; the Horizon Anchorage, Horizon Tacoma, and Horizon Kodiak (the “Vessels”) were previously chartered. The charter for the Horizon Anchorage, Horizon Tacoma, and Horizon Kodiak was due to expire in January 2015. For each chartered vessel, the Company generally had the following options in connection with the expiration of the charter: (i) purchase the vessel for its fixed price or fair market value, (ii) extend the charter for an agreed upon period of time at a fixed price or fair market value charter rate or, (iii) return the vessel to its owner. On January 31, 2013, the Company, through its newly formed subsidiary Horizon Lines Alaska Vessels, LLC (“Horizon Alaska”), acquired off of charter the Vessels for a purchase price of approximately $91.8 million.

On January 31, 2013, Horizon Alaska, together with newly formed subsidiaries Horizon Lines Alaska Terminals, LLC (“Alaska Terminals”) and Horizon Lines Merchant Vessels, LLC (“Horizon Vessels”), entered into an approximately $75.8 million term loan agreement with certain lenders and U.S. Bank National Association (“U.S. Bank”), as the administrative agent, collateral agent and ship mortgage trustee (the “$75.0 Million Agreement”). The obligations are secured by substantially all of the assets of Horizon Alaska, Horizon Vessels, and Alaska Terminals (collectively, the “SPEs”), including the Vessels. The loan under the $75.0 Million Agreement accrues interest at 10.25% per annum, payable quarterly commencing March 31, 2013. Amortization of loan principal is payable in equal quarterly installments, commencing on March 31, 2014, and each amortization installment will equal 2.5% of the total initial loan amount (which may increase to 3.75% upon specified events). The full remaining outstanding amount of the loan under the $75.0 Million Agreement is payable on September 30, 2016. The proceeds of the loan under the $75.0 Million Agreement were utilized by Horizon Alaska to acquire the Vessels. In connection with the issuance of the $75.0 Million Agreement, the Company paid financing costs of $2.5 million during the first six months of 2013, which included loan commitment fees of $1.5 million. The financing costs have been recorded as a reduction to the carrying amount of the $75.0 Million Agreement and will be amortized through non-cash interest expense through maturity of the $75.0 Million Agreement. In addition to the commitment fees of $1.5 million paid in cash at closing, the Company will also pay an additional $0.8 million of closing fees by increasing the original $75.0 million principal amount. The Company is recording non-cash interest accretion through maturity of the $75.0 Million Agreement related to the additional closing fees.

The $75.0 Million Agreement contains certain covenants including a minimum EBITDA threshold and limitations on the incurrence of indebtedness, liens, asset sales, investments and dividends (all as defined in the agreement). The Company was in compliance with all such covenants as of June 23, 2013. The agent and the lenders under the $75.0 Million Agreement have acknowledged they have been notified that they do not, pursuant to the loan, have any recourse to the stock or assets of Horizon or any of its subsidiaries (other than the SPEs or equity interests therein). Defaults under the $75.0 Million Agreement do not give rise to any remedies under Horizon’s ABL facility or the Indentures.

On January 31, 2013, the fair value of the $75.0 Million Agreement approximated face value and was classified within level 2 of the fair value hierarchy. In determining the estimated fair value of the $75.0 Million Agreement, the Company utilized a quantitatively derived rating estimate and creditworthiness analysis, a credit rating gap analysis, and an analysis of credit market transactions. These analyses were used to estimate a benchmark yield, which was compared to the stated interest rate in the $75.0 Million Agreement. The Company determined the estimated benchmark yield approximated the stated interest rate.

On January 31, 2013, the Company and those of its subsidiaries that are parties (the “Loan Parties”) to the existing 11.00% First Lien Senior Secured Notes due 2016, the 13.00%-15.00% Second Lien Senior Secured Notes due 2016, and the 6.00% Series A Convertible Senior Secured Notes due 2017 (collectively, the “Notes”) entered into a $20.0 million term loan agreement with certain lenders and U.S. Bank, as administrative agent, collateral agent, and ship mortgage trustee (the “$20.0 Million Agreement”). The loan under the $20.0 Million Agreement matures on September 30, 2016 and accrues interest at 8.00% per annum, payable quarterly commencing March 31, 2013 with interest calculated assuming accrual beginning January 8, 2013. The $20.0 Million Agreement is secured by substantially all of the assets of the Loan Parties that secure the Notes, on a priority basis relative to the Notes. The $20.0 Million Agreement does not provide for any amortization of principal, and the full outstanding amount of the loan is payable on September 30, 2016. In connection with the issuance of the $20.0 Million Agreement, the Company paid financing costs of $0.5 million during the first six months of 2013. The financing costs have been recorded as a reduction to the carrying amount of the $20.0 Million Agreement and will be amortized through non-cash interest expense through maturity of the $20.0 Million Agreement.

The covenants in the $20.0 Million Agreement are substantially similar to the negative covenants contained in the indentures governing the Notes, which indentures permit the incurrence of the term loan borrowed under the $20.0 Million Agreement and the contribution of such amounts to Horizon Alaska (the “Indentures”). The proceeds of the loan borrowed under the $20.0 Million Agreement were contributed to Horizon Alaska to enable it to acquire the Vessels. Horizon Alaska is an “unrestricted subsidiary” under the Indentures.

On January 31, 2013, the fair value of the $20.0 Million Agreement approximated face value and was classified within level 2 of the fair value hierarchy. In determining the estimated fair value of the $20.0 Million Agreement, the Company utilized a quantitatively derived rating estimate and creditworthiness analysis, a credit rating gap analysis, and an analysis of credit market transactions. These analyses were used to estimate a benchmark yield, which was compared to the stated interest rate in the $20.0 Million Agreement. The Company determined the estimated benchmark yield approximated the stated interest rate.

On October 5, 2011, the Company issued $178.8 million in aggregate principal amount of new 6.00% Series A Convertible Senior Secured Notes due 2017 (the “Series A Notes”) and $99.3 million in aggregate principal amount of new 6.00% Series B Mandatorily Convertible Senior Secured Notes (the “Series B Notes” and, together with the Series A Notes, the “6.00% Convertible Notes”). The Series A Notes and the Series B Notes are each fully and unconditionally guaranteed by all of the Notes Guarantors. The 6.00% Convertible Notes were issued pursuant to an indenture, which the Company and the Notes Guarantors entered into with U.S. Bank National Association, as trustee and collateral agent, on October 5, 2011 (the “6.00% Convertible Notes Indenture”).

During 2012, the Company completed various debt-to-equity conversions of the 6.00% Convertible Notes. On October 5, 2012, all outstanding Series B Notes not previously converted into shares of the Company’s common stock were mandatorily converted into Series A Notes as required by the terms of the indenture. As of June 23, 2013, $2.0 million face value of the Series A Notes remains outstanding. The Series A Notes bear interest at a rate of 6.00% per annum, payable semiannually. The Series A Notes mature on April 15, 2017, and are convertible at the option of the holders, and at the Company’s option under certain circumstances into shares of the Company’s common stock or warrants, as the case may be.

The remaining Series A Notes are convertible into shares of the Company’s common stock at a conversion rate equal to 402.3272 shares of common stock per $1,000 principal amount of Series A Notes. Effective October 5, 2012, the Company has the option to convert all or any portion of the outstanding Series A Notes, upon not more than 60 days and not less than 20 days prior notice to noteholders; provided that (i) the Company’s common stock is listed on either the NYSE or NASDAQ markets and (ii) the 30 trading day volume weighted average price for the Company’s common stock for the 30-day period ending on the trading day preceding the date of such notice is equal to or greater than $15.75 per share. Holders of the Series A Notes may convert their notes at any time through the maturity date. Upon conversion, foreign holders may, under certain conditions, receive warrants in lieu of shares of common stock.

The conversion rate of the remaining Series A Notes may be increased in certain circumstances to compensate the holders thereof for the loss of the time value of the conversion right (i) if at any time the Company’s common stock or the common stock into which the new notes may be converted is greater than or equal to $11.25 per share and is not listed on the NYSE or NASDAQ markets or (ii) if a change of control occurs, unless at least 90% of the consideration received or to be received by holders of common stock, excluding cash payments for fractional shares, in connection with the transaction or transactions constituting the change of control, consists of shares of common stock, American Depositary Receipts or American Depositary Shares traded on a national securities exchange in the United States or which will be so traded or quoted when issued or exchanged in connection with such change of control. Upon a change of control, holders will have the right to require the Company to repurchase for cash the outstanding Series A Notes at 101% of the aggregate principal amount, plus accrued and unpaid interest.

The long-term debt and embedded conversion options associated with the Series A Notes and Series B Notes were recorded on the Company’s balance sheet at their fair value on October 5, 2011. On October 5, 2011, the fair value of the long-term debt portion of the Series A Notes and Series B Notes was $105.6 million and $58.6 million, respectively. The original issue discounts associated with the 6.00% Convertible Notes still outstanding are being amortized through interest expense through the maturity of the Series A Notes.

As of June 23, 2013, the fair value of the embedded conversion features was $0.2 million, which was calculated using the Black-Scholes Pricing Model. The Company recorded a non-cash gain of $0.1 million and $0.2 million during the quarter and six months ended June 23, 2013, respectively, for the change in fair value of embedded conversion features, which was recorded within other expense on the Condensed Consolidated Statement of Operations.

Certain warrants, not including the warrants issued to SFL, were issued pursuant to a warrant agreement, which the Company entered into with The Bank of New York Mellon Trust Company, N.A, as warrant agent, on October 5, 2011, as amended by Amendment No. 1, dated December 7, 2011 (the “Warrant Agreement”). Pursuant to the Warrant Agreement, each warrant entitles the holder to purchase common stock at a price of $0.01 per share, subject to adjustment in certain circumstances. In connection with a reverse stock split in December 2011, warrant holders will receive 1/25th of a share of the Company’s common stock upon conversion. As of June 23, 2013 there were 1.2 billion warrants outstanding for the purchase of up to 56.8 million shares of the Company’s common stock. Upon issuance, in lieu of payment of the exercise price, a warrant holder will have the right (but not the obligation) to require the Company to convert its warrants, in whole or in part, into shares of its common stock without any required payment or request that the Company withhold, from the shares of common stock that would otherwise be delivered to such warrant holder, shares issuable upon exercise of the Warrants equal in value to the aggregate exercise price.

Warrant holders will not be permitted to exercise or convert their warrants if and to the extent the shares of common stock issuable upon exercise or conversion would constitute “excess shares” (as defined in the Company’s certificate of incorporation) if they were issued in order to abide by the foreign ownership limitations imposed by the Company’s certificate of incorporation. In addition, a warrant holder who cannot establish to the Company’s reasonable satisfaction that it (or, if not the holder, the person that the holder has designated to receive the common stock upon exercise or conversion) is a United States citizen, will not be permitted to exercise or convert its warrants to the extent the receipt of the common stock upon exercise or conversion would cause such person or any person whose ownership position would be aggregated with that of such person to exceed 4.9% of the Company’s outstanding common stock.

The warrants contain no provisions allowing the Company to force redemption and there is no conditional obligation of the Company to redeem or convert the warrants. Each warrant is convertible into shares of the Company’s common stock at an exercise price of $0.01 per share, which the Company has the option to waive. In addition, the Company has sufficient authorized and unissued shares available to settle the warrants during the maximum period the warrants could remain outstanding. As a result, the warrants do not meet the definition of an asset or liability and were classified as equity on the date of issuance, on December 23, 2012, and on June 23, 2013. The warrants will be evaluated on a continuous basis to determine if equity classification continues to be appropriate.

The estimated fair values of the Company’s debt as of June 23, 2013 and December 23, 2012 were $512.3 million and $411.4 million, respectively. The fair value of the First Lien Notes and the Second Lien Notes is based upon quoted market prices. The fair value of the other long-term debt approximates carrying value.

On December 5, 2012, the Company announced that it would discontinue its sailing that departed Jacksonville, Florida each Tuesday and arrived in San Juan, Puerto Rico the following Friday. In association with the service change, the Company recorded a pre-tax restructuring charge of $3.1 million during the fourth quarter of 2012. The $3.1 million charge was comprised of an equipment-related impairment charge of $2.2 million and union and non-union severance and employee related expense of $0.9 million. The Company recorded an additional charge of $0.5 million and $0.2 million during the first and second quarters of 2013, respectively, as a result of the return of a portion of its excess leased equipment. The Company expects to complete the return of its remaining excess leased equipment during the second half of 2013.

The Company also initiated a plan during the fourth quarter of 2012 to further reduce its non-union workforce beyond the reductions associated with the Puerto Rico service change and recorded a charge of an additional $1.2 million of expenses for severance and other employee related costs. The Company’s non-union workforce was reduced by approximately 38 positions in total, including 26 existing and 12 open positions. The workforce reduction was completed on January 31, 2013.

During April 2013, the Company moved its northeast terminal operations to Philadelphia, Pennsylvania from Elizabeth, New Jersey. In association with the relocation of the terminal operations, the Company recorded an estimated restructuring charge of $4.1 million during the first quarter of 2013 resulting from the withdrawal from the Port of Elizabeth’s multiemployer pension plan.

The following table presents the restructuring reserves at June 23, 2013, as well as activity during the six months (in thousands):

On October 21, 2011, the Company finalized a decision to terminate the FSX trans-Pacific container shipping service, and ceased all operations related to the FSX service during the fourth quarter of 2011. The entire component comprising the FSX service has been discontinued. Accordingly, there will not be any significant future cash flows related to these operations.

On April 5, 2012, the Company entered into a Global Termination Agreement with SFL which enabled the Company to terminate early the bareboat charters of the five foreign-built, U.S.-flag vessels that formerly operated in the FSX service. The Global Termination Agreement became effective April 9, 2012. In connection with the Global Termination Agreement, the Company adjusted the restructuring charge related to its vessel lease obligations originally recorded during the fourth quarter of 2011. Based on (i) the issuance to SFL of $40.0 million in aggregate principal amount of Second Lien Notes, (ii) the 9,250,000 warrants issued to SFL on April 9, 2012, (iii) fees associated with the vessel lease termination and reimbursement obligations to the SFL Parties, and (iv) the net present value of the vessel lease liability as of April 9, 2012, the Company recorded an additional restructuring charge of $14.1 million during the 2nd quarter of 2012, which was recorded as part of discontinued operations.

The following table presents the restructuring reserves at June 23, 2013, as well as activity during the six months (in thousands):

The following table presents summarized financial information for the discontinued operations included in the Consolidated Statements of Operations (in thousands):

The net losses generated during the quarter and six months ended June 23, 2013 are primarily due to legal and professional fees associated with an ongoing arbitration proceeding. The Company is seeking reimbursement of certain costs and expenditures related to previously co-owned assets that were utilized as part of the Company’s FSX service. The Company expects the arbitration proceeding to conclude prior to the end of 2013.

Assets of discontinued operations totaled $28 thousand and $0.1 million as of June 23, 2013 and December 23, 2012, respectively and were comprised of uncollected accounts receivable. The Company expects to continue to collect these outstanding trade receivable balances throughout 2013. Liabilities of discontinued operations totaled $0.3 million and $0.9 million as of June 23, 2013 and December 23, 2012, respectively, and were comprised of liabilities associated with the shutdown

of the Company’s FSX service. The Company expects to satisfy these liabilities prior to the end of 2013. The assets and liabilities of discontinued operations are included within other current assets and other accrued liabilities, respectively, on the Condensed Consolidated Balance Sheets.

The Company continues to believe it will not generate sufficient taxable income to realize its deferred tax assets. Accordingly, the Company maintains 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 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

During 2012, after evaluating the merits and requirements of the tonnage tax regime, the Company revoked its election under subchapter R of the tonnage tax regime effective for the tax years beginning January 1, 2012. As a result, the activities attributable to the Company’s operation of the vessels in the Puerto Rico tradelane are no longer eligible as qualifying shipping activities under the tonnage tax regime, and therefore, the income (loss) derived from the Puerto Rico vessels will no longer be excluded from corporate income tax for U.S. federal income tax purposes. The Company’s decision was made based on several factors, including the expected economic challenges in Puerto Rico in the foreseeable future. Under the eligibility requirements of the tonnage tax regime, the Company may not elect back into the tonnage tax regime until five years following its revocation. The Company will reevaluate the merits of the tonnage tax regime at such time in the future.

The Company has accounted for the revocation of the tonnage tax as a change in tax status of its qualifying shipping activities. Accordingly, the Company recognized the impact of the revocation of its tonnage tax election in the first quarter of 2012, the period for which the Company filed its revocation statement with the Internal Revenue Service. The revocation had a minimal impact on the Company’s Condensed Consolidated Statement of Operations during 2012. The change in tax status resulted in the revaluation of the Company’s deferred taxes. The overall decrease in the Company’s net deferred tax assets was approximately $3.0 million, before the impact of the valuation allowance. After offsetting the decrease in net deferred tax assets with the valuation allowance, the impact on the Company’s net deferred taxes was minimal.

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, restricted shares, restricted stock units (“RSUs”), and vested shares granted under the Amended and Restated Equity Incentive Plan (the “Plan”), the 2009 Incentive Compensation Plan (the “2009 Plan”), and the 2012 Incentive Compensation Plan (the “2012 Plan”) 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 performance based criteria, if any, are met. RSUs granted under the 2012 Plan typically contain a graded vesting schedule with a portion vesting each year over a three-year period. 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):

On July 5, 2012, the Company granted Samuel A. Woodward, its President and Chief Executive Officer, 3.0 million RSUs. The grant was made pursuant to the employment agreement between Mr. Woodward and the Company. A portion of the RSUs

will vest during the periods ending December 31, 2013, December 31, 2014, and June 30, 2015, solely if Mr. Woodward remains in continuous employment with the Company. The remaining RSUs will vest on any of the same dates if Mr. Woodward remains in continuous employment with the Company and certain performance goals established by the Board of Directors or the Compensation Committee have been met. The Company did not meet the 2012 performance goals set forth in the RSU grant. As a result, the Company did not record any compensation expense during 2012 related to these performance based RSUs. Per the terms of the agreement, if any of the performance based RSUs do not vest on their assigned performance date solely because the performance goals are not met, then such RSUs shall remain outstanding and shall be eligible to vest on subsequent performance dates to the extent performance goals are established and met for such subsequent year. During the quarter ended June 23, 2013, the Company determined it does not expect to meet the performance goals established for 2013. Accordingly, the $0.4 million of expense recorded during the quarter ended March 24, 2013 related to these performance based RSUs was reversed during the quarter ended June 23, 2013.

On July 25, 2012, the Company granted 150,000 RSUs to each non-employee member of the Board of Directors. One-third of the RSUs vested on March 31, 2013 and the remaining RSUs will vest during the periods ending March 31, 2014 and March 31, 2015, if the director is continuously a member of the Board of Directors at those dates. Each vested RSU shall be settled by lump sum delivery of shares of the Company’s common stock within thirty days following termination of the director’s service as a member of the Board of Directors.

On July 25, 2012, the Company granted certain senior management employees of the Company a total of approximately 2.8 million RSUs. A portion of the RSUs granted will vest during the periods ending March 31, 2014 and March 31, 2015 solely if the employee remains in continuous employment with the Company. The other half of the RSUs will vest on any of those same dates if certain performance goals are met and the employee remains in continuous employment with the Company. The Company did not meet the 2012 performance goals set forth in the RSU grant. As a result, the Company did not record any compensation expense during 2012 related to these performance based RSUs. Per the terms of the agreement, if any of the performance based RSUs do not vest on their assigned performance date solely because the performance goals are not met, then such RSUs shall remain outstanding and shall be eligible to vest on subsequent performance dates to the extent performance goals are established and met for such subsequent year. During the quarter ended June 23, 2013, the Company determined it does not expect to meet the performance goals established for 2013. Accordingly, the $0.2 million of expense recorded during the quarter ended March 24, 2013 related to these performance based RSUs was reversed during the quarter ended June 23, 2013. Each vested RSU shall be settled within thirty days following termination of the employment with the Company. Fifty percent of the vested RSUs shall be settled in shares of the Company’s common stock and the remaining fifty percent of such vested RSUs shall be settled, in the discretion of the Company, either in shares of the Company’s common stock, cash or any combination thereof. The amount of any cash is to be determined based on the value of a share of the Company’s common stock on the settlement date.

On December 26, 2012, the Company granted a senior management employee of the Company a total of approximately 0.2 million RSUs. One half of the RSUs granted will vest during the periods ending March 31, 2014 and March 31, 2015 solely if the employee remains in continuous employment with the Company. The other half of the RSUs will vest on any of those same dates if certain performance goals are met and the employee remains in continuous employment with the Company.

On June 1, 2013, the Company granted a senior management employee of the Company a total of approximately 0.2 million RSUs. One half of the RSUs granted will vest during the periods ending March 31, 2014 and March 31, 2015 solely if the employee remains in continuous employment with the Company. The other half of the RSUs will vest on any of those same dates if certain performance goals are met and the employee remains in continuous employment with the Company.

A summary of the status of the Company’s RSU awards as of June 23, 2013 is presented below:

As of June 23, 2013, there was $8.1 million of unrecognized compensation expense related to the RSUs, which is expected to be recognized over a weighted-average period of 1.8 years.

A summary of the status of the Company’s restricted stock awards as of June 23, 2013 is presented below:

As of June 23, 2013, there was $0.1 million of unrecognized compensation expense related to all restricted stock awards, which is expected to be recognized over a weighted-average period of 0.8 years.

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. The Company has not granted any stock options since 2008. As of June 23, 2013, there was no unrecognized compensation costs related to stock options. A summary of stock option activity is presented below:

Basic net 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 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 and warrants to purchase common stock, using the treasury-stock method.

Warrants outstanding to purchase 56.4 million and 58.9 million common shares have been excluded from the denominator for diluted net loss per share during the quarters ended June 23, 2013 and June 24, 2012, respectively, as the impact would be anti-dilutive. In addition, warrants outstanding to purchase 56.4 million and 57.2 million common shares have been excluded from the denominator for diluted net loss per share during the six months ended June 23, 2013 and June 24, 2012, respectively, as the impact would be anti-dilutive.

Certain of the Company’s unvested stock-based awards contain non-forfeitable rights to dividends. In periods when the Company generates net income from continuing operations, shares are included in the denominator for these participating securities. However, in periods when the Company generates a net loss from continuing operations, shares are excluded from the denominator for these participating securities as the impact would be anti-dilutive. A total of 1 thousand and 2 thousand shares have been excluded from the denominator for basic net loss per share during the quarters ended June 23, 2013 and June 24, 2012, respectively. In addition, a total of 1 thousand and 3 thousand shares have been excluded from the denominator for basic net loss per share during the six months ended June 23, 2013 and June 24, 2012, respectively.

On August 27, 2012, the Company adopted a rights plan (the “Rights Plan”) intended to avoid an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, and thereby preserve the current ability of the Company to utilize certain net operating loss carryovers and other tax benefits of the Company. As part of the Rights Agreement, the Company authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of Common Stock to stockholders of record at the close of business on September 7, 2012. Each Right entitles the holder to purchase from the Company a unit consisting of one ten-thousandth of a share (a “Unit”) of Series A Participating Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Stock”) at a purchase price of $8.00 per Unit, subject to adjustment (the “Purchase Price”). Until a Right is exercised, the holder thereof, as such, will have no separate rights as a stockholder of the Company, including the right to vote or to receive dividends in respect of Rights. The issuance of the Rights alone does not cause any change in the number of shares deliverable upon the exercise of the Company’s outstanding warrants or convertible notes, or the exercise price or conversion price (as applicable) thereof. The Company intends to (i) include in its proxy statement for the Company’s 2014 Annual Meeting of Stockholders a proposal soliciting stockholder approval of the Rights Plan, or (ii) repeal the Rights Plan prior to the 2014 Annual Meeting. In the event that the Company elects to include a proposal to approve the Rights Plan in the proxy statement, and the Company does not receive the affirmative vote of the majority of shares present in person or represented by proxy at the 2014 Annual Meeting of Stockholders and entitled to vote on the matter, then the Company will promptly take action to repeal the Rights Plan.

In connection with the purchase of the Vessels and the issuance of the $75.0 Million Agreement and the $20.0 Million Agreement, the Company paid financing costs of $2.6 million during the six months of 2013. All of the Company’s deferred financing costs are being amortized through non-cash interest expense through the maturity of the associated debt agreement.

The Company has recorded certain of its legal settlements at their net present value and is recording accretion of the liability balance through interest expense. In addition to the current liabilities related to legal settlements, the Company also has commitments to make payments after June 23, 2014. The Company is required to make payments related to the plea agreement with the Antitrust Division of the Department of Justice (“DOJ”) of $4.0 million on or before March 24, 2015 and $4.0 million on or before March 21, 2016.

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 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

As of June 23, 2013, the Company’s liabilities measured at fair value on a recurring basis are as follows (in thousands):

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.

The Company sponsors a defined benefit plan covering approximately 30 union employees as of June 23, 2013. 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 June 23, 2013 and June 24, 2012, and $0.4 million during each of the six months ended June 23, 2013 and June 24, 2012.

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 June 23, 2013 and June 24, 2012, and $0.2 million during each of the six months ended June 23, 2013 and June 24, 2012.

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 of $0.1 million during each of the quarters ended June 23, 2013 and June 24, 2012, and $0.2 million during each of the six months ended June 23, 2013 and June 24, 2012.

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 June 23, 2013 and June 24, 2012, and $0.2 million during each of the six months ended June 23, 2013 and June 24, 2012.

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 has made higher payments related to increased 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. See Note 4 for information related to the estimated multi-employer pension plan withdrawal liability associated with the Company’s relocation of its northeast terminal operations from Elizabeth, New Jersey to Philadelphia, Pennsylvania.

On April 17, 2008, the Company received a grand jury subpoena and search warrant from the United States District Court for the Middle District of Florida seeking information regarding an investigation by the Antitrust Division of the Department of Justice (“DOJ”) into possible antitrust violations in the domestic ocean shipping business. On February 23, 2011, the Company entered into a plea agreement with the DOJ relating to the Puerto Rico tradelane and on March 22, 2011, the Court entered judgment accepting the Company’s plea agreement and imposed a fine of $45.0 million payable over five years without interest. On April 28, 2011, the Court reduced the fine from $45.0 million to $15.0 million payable over five years without interest.

Subsequent to the commencement of the DOJ investigation, class action lawsuits relating to ocean shipping services in the Puerto Rico, Hawaii and Alaska tradelanes were filed. The Company settled the class action lawsuits relating to the Puerto Rico tradelane and those lawsuits by plaintiffs who opted out of the class action. The United States District Court dismissed the class action lawsuits relating to the Hawaii tradelane and the United States Court of Appeals for the Ninth Circuit affirmed that decision. In May 2013, the plaintiffs in the lawsuit remaining in the District of Alaska filed a Notice of Voluntary Dismissal, resolving the last lawsuit arising out of the DOJ investigation. Any further antitrust lawsuits arising from the DOJ investigation against the Company or any of its current or former employees should be prevented by the applicable statute of limitations.

In May 2013, the U.S. Department of Justice declined to intervene in a qui tam complaint filed in the U.S. District Court for the Central District of California by Mario Rizzo under the Federal False Claims Act. The case was unsealed on May 15, 2013, and the Company was served with a complaint in June 2013. The case is entitled United States of America, ex rel. Mario Rizzo v. Horizon Lines, LLC et al. The qui tam complaint alleges, among other things, that the Company and other defendants, including freight forwarders, submitted false claims by claiming fuel surcharges in excess of what was agreed by the Department of Defense. The complaint seeks significant damages, penalties and other relief. The Company’s response to the complaint is due on August 7, 2013, and the Company intends to vigorously defend against the allegations set forth in the complaint.

In the ordinary course of business, from time to time, the Company becomes 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 generally maintains insurance, subject to customary deductibles or self-retention amounts, and/or reserves to cover these types of claims. The Company also, from time to time, becomes involved in routine employment-related disputes and disputes with parties with which the Company has contractual relations.

The Company has standby letters of credit, primarily related to its property and casualty insurance programs. On both June 23, 2013 and December 23, 2012, these letters of credit totaled $13.2 million.

Accounting pronouncements effective after June 23, 2013, are not expected to have a material effect on the Company’s consolidated financial position or results of operations.

Subsequent to June 23, 2013, the Company met the held for sale criteria for certain of its assets and intends to complete the sale of those assets within one year. As a result, the Company expects to record an impairment charge of approximately $3.0 million during the third quarter of 2013 in order to adjust the carrying value of the assets to the estimated proceeds less costs to sell.

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.

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) 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 industry in general and (iii) the payment of discretionary bonuses to certain members of our management is contingent upon, among other things, the satisfaction by Horizon Lines 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 tax payments and debt service requirements. 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.

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

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):

On June 25, 2013, we announced that we hope to convert the power plants on two of our steam turbine cargo vessels to modern diesel engines capable of burning conventional liquid fuels or liquefied natural gas (LNG). The project’s goal is to reduce fuel consumption and lower emissions. The project, which would include an integrated repowering solution encompassing main engines, supporting components, and LNG storage tanks, has attracted interest from both domestic and foreign shipyards. As a result, request-for-pricings (RFPs) have been issued to multiple U.S. and foreign shipyards. Although we have not decided where the repowering work would be conducted at this time, we requested a predetermination ruling from the USCG National Vessel Documentation Center on coastwise eligibility in order to determine if we could consider foreign options in addition to U.S. shipyards for the project. The USCG ruled that the work as described can take place in a foreign shipyard without jeopardizing the Jones Act status of the vessels.

On May 28, 2013, we announced that we will add a Jacksonville call to our southbound service between Houston and San Juan, which will continue to operate on a 14-day roundtrip timetable. The schedule enhancement offers shippers a Tuesday sailing every other week from Jacksonville to San Juan. Adding the Jacksonville call also creates a high-speed, over-the-weekend marine option through Houston for cargo bound for southeastern destinations along the Eastern Seaboard. Our weekly Thursday service departing Jacksonville for Puerto Rico remains unchanged. The first sailing of the new service departed Houston on Friday, June 7, 2013, and arrived in Jacksonville on Tuesday, June 11, 2013.

We believe that we are one of the nation’s leading Jones Act container shipping and integrated logistics companies. In addition, we are the only ocean carrier serving all three noncontiguous domestic markets of Alaska, Hawaii, and Puerto Rico from the continental United States. 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 13 vessels, all of which are fully qualified Jones Act vessels, and own or lease approximately 23,400 cargo containers. We provide comprehensive shipping and integrated logistics services in our markets. We have long-term access to terminal facilities in each of our ports, operating our terminals in Alaska, Hawaii, and Puerto Rico as well as contracting for terminal services in the seven ports in the continental U.S.

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 an integrated organization serving Alaska, Puerto Rico, and Hawaii, we are uniquely positioned to serve our customers that require shipping and logistics services in more than one of these markets.

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 revenue and expense 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 six months ended June 23, 2013. The critical accounting policies can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 23, 2012 as filed with the Securities and Exchange Commission (“SEC”).

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, improved margins, and increased earnings and cash flows.

We derive our revenue primarily from providing comprehensive shipping and integrated logistics services to and from the continental U.S. and Alaska, Puerto Rico, and Hawaii. 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.

During 2012, over 90% of our revenue was generated from our shipping and integrated logistics services in markets where the marine trade is subject to the Jones Act. The balance of our revenue was 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, (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.

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. 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.

Operating Revenue. Our operating revenue decreased $11.2 million, or 4.1% during the quarter ended June 23, 2013 as compared to the quarter ended June 24, 2012. This revenue decrease can be attributed to the following factors (in thousands):

The decrease in revenue container volume was primarily due to the discontinuation of our sailing that departed Jacksonville, Florida each Tuesday and arrived in San Juan, Puerto Rico the following Friday. Bunker and intermodal fuel surcharges, which are included in our transportation revenue, accounted for approximately 21.6% of total revenue in the quarter ended June 23, 2013 and approximately 23.7% of total revenue in the quarter ended June 24, 2012. We adjust our bunker and intermodal fuel surcharges as a result of changes 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 non-transportation revenue was primarily due to an increase related to certain transportation services agreements and other services.

Cost of Services. The $21.9 million decrease in cost of services is primarily due to the discontinuation of our sailing that departed Jacksonville, Florida each Tuesday, a decline in labor and other vessel operating expenses as a result of dry-docking certain of our vessels in China during 2012, and a reduction in vessel lease expense due to the purchase of three vessels previously under charter, partially offset by contractual rate increases.

Vessel expense, which is not primarily driven by revenue container volume, decreased $19.0 million for the quarter ended June 23, 2013 compared to the quarter ended June 24, 2012. This decrease was a result of the following factors (in thousands):

The $12.5 million decline in fuel costs is comprised of a $7.4 million decrease due to lower consumption as a result of fewer operating days in 2013 due to dry-docking transits during 2012 and the service adjustment in our Puerto Rico tradelane, as well as $5.1 million as a result of lower fuel prices. The decrease in labor and other vessel operating expense is primarily due to the service adjustment in our Puerto Rico tradelane and dry-docking certain of our vessels in China that occurred during the second quarter of 2012, partially offset by certain labor wage increases in 2013. The decrease in vessel lease expense is due to the purchase of three vessels previously under charter.

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 $1.2 million decrease in marine expense during the quarter ended June 23, 2013 was primarily due to the service adjustment in our Puerto Rico tradelane, partially offset by contractual increases.

Inland expense decreased to $45.1 million for the quarter ended June 23, 2013 compared to $46.6 million during the quarter ended June 24, 2012. The $1.5 million decrease in inland expense is primarily due to lower container volumes and a decline in fuel costs, partially offset by contractual rate increases.

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. The increase in land expense can be attributed to the following (in thousands):

Terminal overhead expense increased during 2013 due to higher utilities expense and maintenance of certain of our terminal locations. Yard and gate expense was lower as a result of decreased container volumes, partially offset by contractual increases.

Depreciation and Amortization. Depreciation and amortization was $9.6 million during the quarter ended June 23, 2013 as compared to $10.4 million during the quarter ended June 24, 2012. The increase in depreciation-owned vessels is due to the acquisition of three vessels that were previously chartered. The decrease in amortization of intangible assets was due to certain customer relationship assets becoming fully amortized and no longer subject to amortization expense.

Amortization of Vessel Dry-docking. Amortization of vessel dry-docking was $3.2 million during the quarter ended June 23, 2013 compared to $2.6 million for the quarter ended June 24, 2012. 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 $18.1 million for the quarter ended June 23, 2013 compared to $19.5 million for the quarter ended June 24, 2012, a decrease of $1.5 million or 7.4%. This decrease is primarily due to a $1.4 million reduction in legal fees, including legal and professional fees expenses associated with the antitrust investigation and related legal proceeding, $0.5 million associated with our reduction in force, and a $0.2 million decline in stock based compensation expense, partially offset by $1.1 million of higher incentive based compensation expense.

Restructuring Charge. The $0.4 million restructuring charge was associated with the return of excess equipment related to the service adjustment in Puerto Rico.

Miscellaneous (Income) Expense, Net. Miscellaneous income, net increased $2.7 million during the quarter ended June 23, 2013 compared to the quarter ended June 24, 2012, primarily as a result of higher gains on the sale of assets and a decrease in bad debt expense.

Interest Expense, Net. Interest expense, net decreased to $16.9 million for the quarter ended June 23, 2013 compared to $17.5 million for the quarter ended June 24, 2012, a decline of $0.6 million or 3.4%. This reduction was primarily due to the conversion into equity of our Series A Notes and Series B Notes during the second quarter of 2012, partially offset by interest expense related to the debt issued during the first quarter of 2013.

Income Tax Expense. The effective tax rate for the quarters ended June 23, 2013 and June 24, 2012 was (0.8)% and (0.2)%, respectively. We continue to believe it is unclear as to the timing of when we will generate sufficient taxable income to realize our deferred tax assets. Accordingly, we maintain 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 a result, we do not expect to record a current or deferred federal tax benefit or expense and only minimal state tax provisions during those periods.

Six Months Ended June 23, 2013 Compared with the Six Months Ended June 24, 2012

Operating Revenue. Our operating revenue decreased $30.0 million, or 5.6% during the six months ended June 23, 2013 as compared to the six months ended June 24, 2012. This revenue decrease can be attributed to the following factors (in thousands):

The decrease in revenue container volume was primarily due to the discontinuation of our sailing that departed Jacksonville, Florida each Tuesday and arrived in San Juan, Puerto Rico the following Friday. Bunker and intermodal fuel surcharges, which are included in our transportation revenue, accounted for approximately 21.9% of total revenue in the six months ended June 23, 2013 and approximately 22.9% of total revenue in the quarter ended June 24, 2012. We adjust our bunker and intermodal fuel surcharges as a result of changes 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 revenue container rate was primarily due to rate increases to mitigate increased variable expenses. The increase in non-transportation revenue was primarily due to higher third-party terminal stevedoring services and an increase related to certain transportation services agreements.

Cost of Services. The $43.1 million decrease in cost of services is primarily due to the discontinuation of our sailing that departed Jacksonville, Florida each Tuesday, a decline in labor and other vessel operating expenses as a result of dry-docking certain of our vessels in China during 2012, and a reduction in vessel lease expense due to the purchase of three vessels previously under charter, partially offset by contractual rate increases.

Vessel expense, which is not primarily driven by revenue container volume, decreased $31.4 million for the six months ended June 23, 2013 compared to the six months ended June 24, 2012. This decrease was a result of the following factors (in thousands):

The $19.6 million decline in fuel costs is comprised of a $13.0 million decrease due to lower consumption as a result of fewer operating days in 2013 due to dry-docking transits during 2012 and the service adjustment in our Puerto Rico tradelane, as well as $6.6 million as a result of lower fuel prices. The decrease in labor and other vessel operating expense is primarily due to the service adjustment in our Puerto Rico tradelane and dry-docking of our vessels in China that occurred during the first quarter of 2012, partially offset by labor wage increases in 2013. The decrease in vessel lease expense is due to the purchase of three vessels previously under charter.

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 $2.4 million decrease in marine expense during the six months ended June 23, 2013 was primarily due to the service adjustment in our Puerto Rico tradelane, partially offset by contractual increases.

Inland expense decreased to $87.0 million for the six months ended June 23, 2013 compared to $93.3 million during the six months ended June 24, 2012. The $6.3 million decrease in inland expense is primarily due to lower container volumes and a decline in fuel costs, partially offset by contractual rate increases.

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. The decrease in land expense can be attributed to the following (in thousands):

The reduction in non-vessel related maintenance expenses was primarily due to a higher level of repair and maintenance activities during the first half of 2012. Yard and gate expenses were lower as a result of decreased container volumes, partially offset by contractual increases.

Depreciation and Amortization. Depreciation and amortization was $19.2 million during the six months ended June 23, 2013 as compared to $20.8 million during the six months ended June 24, 2012. The increase in depreciation-owned vessels is due to the acquisition of three vessels that were previously chartered. The decrease in amortization of intangible assets was due to certain customer relationship assets becoming fully amortized and no longer subject to amortization expense.

Amortization of Vessel Dry-docking. Amortization of vessel dry-docking was $6.2 million during the six months ended June 23, 2013 compared to $6.6 million for the six months ended June 24, 2012. 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 $37.8 million for the six months ended June 23, 2013 compared to $41.0 million for the six months ended June 24, 2012, a reduction of $3.2 million or 7.8%. This decrease is primarily due to a $3.2 million reduction in legal fees, including legal and professional fees expenses associated with the antitrust investigation and related legal proceeding, consulting fees of $0.4 million, and $1.0 million associated with our reduction in force, partially offset by $2.4 million of higher stock and incentive based compensation expenses.

Restructuring Charge. During April 2013, we moved our northeast terminal operations to Philadelphia, Pennsylvania from Elizabeth, New Jersey. In association with the relocation of the terminal operations, we recorded a restructuring charge of $4.1 million during the first quarter of 2013 resulting from the estimated liability for withdrawal from the Port of Elizabeth’s multiemployer pension plan. The remaining $1.2 million restructuring charge was associated with the return of excess equipment and additional severance charges related to the service adjustment in Puerto Rico.

Miscellaneous Income, Net. Miscellaneous income, net increased $3.4 million during the six months ended June 23, 2013 compared to the six months ended June 24, 2012, primarily as a result of higher gains on the sale of assets and a decrease in bad debt expense.

Interest Expense, Net. Interest expense, net decreased to $32.6 million for the six months ended June 23, 2013 compared to $35.2 million for the six months ended June 24, 2012, a decline of $2.6 million or 7.4%. This reduction was primarily due to the conversion into equity of our Series A Notes and Series B Notes during the second quarter of 2012, partially offset by interest expense related to the debt issued during the first quarter of 2013 and the SFL Notes issued during the second quarter of 2012.

Income Tax Expense. The effective tax rate for both the six months ended June 23, 2013 and June 24, 2012 was (0.6)%. We continue to believe it is unclear as to the timing of when we will generate sufficient taxable income to realize our deferred tax assets. Accordingly, we maintain 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 a result, we do not expect to record a current or deferred federal tax benefit or expense and only minimal state tax provisions during those periods.

Our principal sources of funds have been (i) earnings before non-cash charges and (ii) borrowings under debt arrangements. Our principal uses of funds have been (i) capital expenditures on our container fleet, terminal operating equipment, purchase of vessels and improvements to our vessel fleet, and our information technology systems, (ii) vessel dry-docking expenditures, (iii) working capital consumption, (iv) the shutdown of our FSX service, and (v) principal and interest payments on our existing indebtedness. Cash totaled $13.8 million at June 23, 2013. As of June 23, 2013, borrowings outstanding under the ABL facility totaled $32.5 million and total borrowing availability was $26.7 million.

Net cash provided by operating activities was $1.1 million for the six months ended June 23, 2013 compared to net cash used in operating activities of $14.2 million for the six months ended June 24, 2012. The improvement in cash provided by operating activities is primarily due to the following (in thousands):

Net cash used in investing activities was $91.1 million for the six months ended June 23, 2013 compared to $3.4 million for the six months ended June 24, 2012. The $87.7 million increase in net cash consumed is primarily due to the acquisition of three vessels that were previously chartered.

Net cash provided by financing activities during the six months ended June 23, 2013 was $77.3 million compared to $36.1 million for the six months ended June 24, 2012. The net cash provided by financing activities during the six months ended June 23, 2013 included the issuance of $95.0 million of new debt in connection with the purchase of three vessels that were previously chartered as well as a net $10.0 million repayment under the ABL Facility as compared to $42.5 million borrowed under debt agreements during the six months ended June 24, 2012. In addition, during the six months ended June 23, 2013, we paid $5.6 million in financing costs related to fees associated with the new debt issued. We paid $4.4 million during the six months ended June 24, 2012 in financing costs related to our overall refinancing efforts and the conversion of debt to equity.

We expect 2013 revenue container volume and rates to be slightly higher than 2012 levels, excluding the loss of revenue container volumes associated with the reduced number of sailings from Jacksonville, Florida to San Juan, Puerto Rico. We expect revenue container rates to increase marginally and these increases are necessary to partially mitigate increases in expenses associated with our revenue container volumes, including our vessel payroll and benefits, stevedoring, port charges, wharfage, inland transportation costs, and rolling stock costs, among others.

During 2012 we incurred considerable expense associated with the dry-docking of our Puerto Rico vessels in Asia. Although we intend to dry-dock four of our west coast vessels in Asia during 2013 and we dry-docked four vessels in 2012, the expenses will be significantly lower in 2013 due to the much shorter transit and out of service times for our west coast vessels.

We will have overhead savings associated with the reduction in our non-union workforce beyond the reductions associated with the Puerto Rico service change. We continually evaluate our processes for potential efficiencies and have employed numerous cost savings initiatives. For example, our move from Elizabeth, New Jersey to Philadelphia will produce significant advantages for our customers and will also yield long term-cost efficiencies for us. These reductions will be partially offset by higher incentive and stock-based compensation expense, as well as other administrative expenses.

Our vessel lease expense will be approximately $13.8 million lower than in 2012 due to the acquisition of three of our Jones Act qualified vessels that were previously chartered on January 31, 2013. The lower vessel lease expense will be partially offset by approximately $8.5 million of additional interest expense in 2013 in connection with debt incurred for the acquisition of those vessels.

As a result of these factors, management continues to expect 2013 financial results will significantly exceed 2012 results, with 2013 adjusted EBITDA projected between $85.0 million and $97.0 million, compared with $66.0 million in fiscal 2012. We remain focused on continuing to further improve liquidity. Total liquidity during the remainder of 2013 is expected to range between a low of approximately $45.0 million at the end of fiscal July to a high of approximately $60.0 million at the end of fiscal December.

Based upon our current level of operations, we believe cash flow from operations and available cash, together with borrowings available under the ABL Facility, will be adequate to meet our liquidity needs for the next twelve months.

During the next twelve months, we expect to spend approximately $28.0 million and $22.0 million on capital expenditures and dry-docking expenditures, respectively. Such capital expenditures will include routine vessel modifications, rolling stock, and terminal infrastructure and equipment.

We also expect to spend approximately $3.5 million during the next twelve months for legal settlements and legal expenses associated with the DOJ investigation, as well as approximately $2.0 million related to severance and the repositioning and return of excess rolling stock equipment as a result of the modification of our Puerto Rico service.

During April 2013, we moved our northeast terminal operations from Elizabeth, New Jersey to Philadelphia, Pennsylvania. In association with the relocation, we recorded a restructuring charge that included an estimate of our liability related to the withdrawal from the Port of Elizabeth’s multiemployer pension plan. As of the date hereof, we have not yet received the actual withdrawal liability amount or the timing of such payments, however, we do expect to make payments related to our multiemployer pension plan withdrawal liability over the next twelve months.

In addition to the dry-docking and capital expenditures, legal settlements and DOJ related fees, we expect to utilize cash flows to make interest payments. Due to the seasonality within our business and the above mentioned payments and expenses, we will utilize borrowings under the ABL Facility during the next twelve months.

The 11.00% First Lien Senior Secured Notes (the “First Lien Notes”) were issued pursuant to an indenture on October 5, 2011. The First Lien Notes bear interest at a rate of 11.0% per annum, payable semiannually, beginning on April 15, 2012 and mature on October 15, 2016. The First Lien Notes are callable at par plus accrued and unpaid interest. We are obligated to make mandatory prepayments of 1%, on an annual basis, of the original principal amount. These prepayments are payable on a semiannual basis and commenced on April 15, 2012. The First Lien Notes are fully and unconditionally guaranteed by all of our subsidiaries (collectively, the “Notes Guarantors”).

The First Lien Notes are secured by a first priority lien on all Secured Notes Priority Collateral and a second priority lien on all ABL Priority Collateral (each as defined below). The First Lien Notes contain affirmative and negative covenants which are typical for senior secured high-yield notes with no financial maintenance covenants. The First Lien Notes contain other covenants, including: change of control put at 101% (subject to a permitted holder exception); limitation on asset sales; limitation on incurrence of indebtedness and preferred stock; limitation on restricted payments; limitation on restricted investments; limitation on liens; limitation on dividends; limitation on affiliate transactions; limitation on sale/leaseback transactions; limitation on guarantees by restricted subsidiaries; and limitation on mergers, consolidations and sales of all/substantially all of our assets. These covenants are subject to certain exceptions and qualifications. We were in compliance with all such applicable covenants as of June 23, 2013.

On October 5, 2011, the fair value of the First Lien Notes was $228.4 million, which reflected our ability to call the First Lien Notes at 101.5% during the first year and at par thereafter. The original issue premium of $3.4 million is being amortized through interest expense through the maturity of the First Lien Notes.

On October 5, 2011, we completed the sale of $100.0 million aggregate principal amount of our 13.00%-15.00% Second Lien Senior Secured Notes (the “Second Lien Notes”). The Second Lien Notes are fully and unconditionally guaranteed by the Notes Guarantors.

The Second Lien Notes bear interest at a rate of either: (i) 13% per annum, payable semiannually in cash in arrears; (ii) 14% per annum, 50% of which is payable semiannually in cash in arrears and 50% is payable in kind; or (iii) 15% per annum payable in kind, payable semiannually, beginning on April 15, 2012, and maturing on October 15, 2016. The Second Lien Notes are non-callable for 2 years from the date of their issuance, and thereafter the Second Lien Notes will be callable by us at (i) 106% of their aggregate principal amount, plus accrued and unpaid interest thereon in the third year, (ii) 103% of their aggregate principal amount, plus accrued and unpaid interest thereon in the fourth year, and (iii) at par plus accrued and unpaid interest thereafter.

On April 15, 2012, October 15, 2012, and April 15, 2013, we issued an additional $7.9 million, $8.1 million, and $8.7 million, respectively, of Second Lien Notes to satisfy the payment-in-kind interest obligation under the Second Lien Notes. In

addition, we have elected to satisfy our interest obligation under the Second Lien Notes due October 15, 2013 by issuing additional Second Lien Notes. As such, as of June 23, 2013, we have recorded $3.5 million of accrued interest as an increase to long-term debt.

The Second Lien Notes are secured by a second priority lien on all Secured Notes Priority Collateral and a third priority lien on all ABL Priority Collateral. The Second Lien Notes contain affirmative and negative covenants which are typical for senior secured high-yield notes with no financial maintenance covenants. The Second Lien Notes contain other covenants, including: change of control put at 101% (subject to a permitted holder exception); limitation on asset sales; limitation on incurrence of indebtedness and preferred stock; limitation on restricted payments; limitation on restricted investments; limitation on liens; limitation on dividends; limitation on affiliate transactions; limitation on sale/leaseback transactions; limitation on guarantees by restricted subsidiaries; and limitation on mergers, consolidations and sales of all/substantially all of our assets. These covenants are subject to certain exceptions and qualifications. We were in compliance with all such applicable covenants as of June 23, 2013.

During 2012, we entered into a Global Termination Agreement with Ship Finance International Limited (“SFL”) whereby we issued $40.0 million aggregate principal amount of our Second Lien Notes and warrants to purchase 9,250,000 shares of our common stock at a price of $0.01 per share to satisfy our obligations for certain vessel leases. The Second Lien Notes issued to SFL (the “SFL Notes”) have the same terms as the Second Lien Notes issued on October 5, 2011 (the “Initial Notes”), except that they are subordinated to the Initial Notes in the case of a bankruptcy, and holders of the SFL Notes, so long as then held by SFL, have the option to purchase the Initial Notes in the event of a bankruptcy. On April 9, 2012, the fair value of the SFL Notes outstanding on such date approximated face value. On October 15, 2012 and April 15, 2013, we issued an additional $3.1 million and $3.2 million, respectively, of SFL Notes to satisfy the payment-in-kind interest obligation under the SFL Notes. In addition, we have elected to satisfy our interest obligation under the SFL Notes due October 15, 2013 by issuing additional SFL Notes. As such, as of June 23, 2013, we have recorded $1.3 million of accrued interest as an increase to long-term debt.

On October 5, 2011, we entered into a $100.0 million asset-based revolving credit facility (the “ABL Facility”) with Wells Fargo Capital Finance, LLC (“Wells Fargo”). Use of the ABL Facility is subject to compliance with a customary borrowing base limitation. The ABL Facility includes an up to $30.0 million letter of credit sub-facility and a swingline sub-facility up to $15.0 million, with Wells Fargo serving as administrative agent and collateral agent. We have the option to request increases in the maximum commitment under the ABL Facility by up to $25.0 million in the aggregate; however, such incremental facility increases have not been committed to in advance. The ABL Facility was used on the closing date for the rollover of certain issued and outstanding letters of credit and is used by us for working capital and other general corporate purposes.

The ABL Facility matures October 5, 2016 (but 90 days earlier if the First Lien Notes and the Second Lien Notes are not repaid or refinanced as of such date). The interest rate on the ABL Facility is LIBOR or a base rate plus an applicable margin based on leverage and excess availability, as defined in the agreement, ranging from (i) 1.25% to 2.75%, in the case of base rate loans and (ii) 2.25% to 3.75%, in the case of LIBOR loans. A fee ranging from 0.375% to 0.50% per annum will accrue on unutilized commitments under the ABL Facility. As of June 23, 2013, borrowings outstanding under the ABL facility totaled $32.5 million and total borrowing availability was $26.7 million. We had $13.2 million of letters of credit outstanding as of June 23, 2013.

The ABL Facility is secured by (i) a first priority lien on our interest in accounts receivable, deposit accounts, securities accounts, investment property (other than equity interests of the subsidiaries and our joint ventures) and cash, in each case with certain exceptions and (ii) a fifth priority lien on all or substantially all other of our assets securing the $20.0 Million Agreement, the First Lien Notes, the Second Lien Notes and the 6.00% Convertible Notes.

includes certain customary negative covenants that, subject to certain materiality thresholds, baskets and other agreed upon exceptions and qualifications, will limit, among other things, indebtedness, liens, asset sales and other dispositions, mergers, liquidations, dissolutions and other fundamental changes, investments and acquisitions, dividends, distributions on equity or redemptions and repurchases of capital stock, transactions with affiliates, repayments of certain debt, conduct of business and change of control. The ABL Facility also contains certain customary representations and warranties, affirmative covenants and events of default, as well as provisions requiring compliance with applicable citizenship requirements of the Jones Act. We were in compliance with all such applicable covenants as of June 23, 2013.

Three of our Jones Act qualified vessels; the Horizon Anchorage, Horizon Tacoma, and Horizon Kodiak (the “Vessels”) were previously chartered. The charter for the Horizon Anchorage, Horizon Tacoma, and Horizon Kodiak was due to expire in January 2015. For each chartered vessel, we generally had the following options in connection with the expiration of the charter: (i) purchase the vessel for its fixed price or fair market value, (ii) extend the charter for an agreed upon period of time at a fixed price or fair market value charter rate or, (iii) return the vessel to its owner. On January 31, 2013, we, through our newly formed subsidiary Horizon Lines Alaska Vessels, LLC (“Horizon Alaska”), acquired off of charter the Vessels for a purchase price of approximately $91.8 million.

On January 31, 2013, Horizon Alaska, together with newly formed subsidiaries Horizon Lines Alaska Terminals, LLC (“Alaska Terminals”) and Horizon Lines Merchant Vessels, LLC (“Horizon Vessels”), entered into an approximately $75.8 million term loan agreement with certain lenders and U.S. Bank National Association (“U.S. Bank”), as the administrative agent, collateral agent and ship mortgage trustee (the “$75.0 Million Agreement”). The obligations are secured by substantially all of the assets of Horizon Alaska, Horizon Vessels, and Alaska Terminals (collectively, the “SPEs”), including the Vessels. The loan under the $75.0 Million Agreement accrues interest at 10.25% per annum, payable quarterly commencing March 31, 2013. Amortization of loan principal is payable in equal quarterly installments, commencing on March 31, 2014, and each amortization installment will equal 2.5% of the total initial loan amount (which may increase to 3.75% upon specified events). The full remaining outstanding amount of the loan under the $75.0 Million Agreement is payable on September 30, 2016. The proceeds of the loan under the $75.0 Million Agreement were utilized by Horizon Alaska to acquire the Vessels. In connection with the issuance of the $75.0 Million Agreement, we paid financing costs of $2.5 million during the first six months of 2013, which included loan commitment fees of $1.5 million. The financing costs have been recorded as a reduction to the carrying amount of the $75.0 Million Agreement and will be amortized through non-cash interest expense through maturity of the $75.0 Million Agreement. In addition to the commitment fees of $1.5 million paid in cash at closing, we will also pay an additional $0.8 million of closing fees by increasing the original $75.0 million principal amount. We are recording non-cash interest accretion through maturity of the $75.0 Million Agreement related to the additional closing fees.

The $75.0 Million Agreement contains certain covenants including a minimum EBITDA threshold and limitations on the incurrence of indebtedness, liens, asset sales, investments and dividends (all as defined in the agreement). We were in compliance with all such covenants as of June 23, 2013. The agent and the lenders under the $75.0 Million Agreement have acknowledged they have been notified that they do not, pursuant to the loan, have any recourse to the stock or assets of Horizon or any of its subsidiaries (other than the SPEs or equity interests therein). Defaults under the $75.0 Million Agreement do not give rise to any remedies under Horizon’s ABL facility or the Indentures.

On January 31, 2013, the fair value of the $75.0 Million Agreement approximated face value and was classified within level 2 of the fair value hierarchy. In determining the estimated fair value of the $75.0 Million Agreement, we utilized a quantitatively derived rating estimate and creditworthiness analysis, a credit rating gap analysis, and an analysis of credit market transactions. These analyses were used to estimate a benchmark yield, which was compared to the stated interest rate in the $75.0 Million Agreement. We determined the estimated benchmark yield approximated the stated interest rate.

On January 31, 2013, we and those of our subsidiaries that are parties (the “Loan Parties”) to the existing 11.00% First Lien Senior Secured Notes due 2016, the 13.00%-15.00% Second Lien Senior Secured Notes due 2016, and the 6.00% Series A Convertible Senior Secured Notes due 2017 (collectively, the “Notes”) entered into a $20.0 million term loan agreement with certain lenders and U.S. Bank, as administrative agent, collateral agent, and ship mortgage trustee (the “$20.0 Million Agreement”). The loan under the $20.0 Million Agreement matures on September 30, 2016 and accrues interest at 8.00% per annum, payable quarterly commencing March 31, 2013 with interest calculated assuming accrual beginning January 8, 2013. The $20.0 Million Agreement is secured by substantially all of the assets of the Loan Parties that secure the Notes, on a priority basis relative to the Notes. The $20.0 Million Agreement does not provide for any amortization of principal, and the full outstanding amount of the loan is payable on September 30, 2016. In connection with the issuance of the $20.0 Million Agreement, we paid financing costs of $0.5 million during the first six months of 2013. The financing costs have been recorded as a reduction to the carrying amount of the $20.0 Million Agreement and will be amortized through non-cash interest expense through maturity of the $20.0 Million Agreement.

On January 31, 2013, the fair value of the $20.0 Million Agreement approximated face value and was classified within level 2 of the fair value hierarchy. In determining the estimated fair value of the $20.0 Million Agreement, we utilized a quantitatively derived rating estimate and creditworthiness analysis, a credit rating gap analysis, and an analysis of credit market transactions. These analyses were used to estimate a benchmark yield, which was compared to the stated interest rate in the $20.0 Million Agreement. We determined the estimated benchmark yield approximated the stated interest rate.

On October 5, 2011, we issued $178.8 million in aggregate principal amount of new 6.00% Series A Convertible Senior Secured Notes due 2017 (the “Series A Notes”) and $99.3 million in aggregate principal amount of new 6.00% Series B Mandatorily Convertible Senior Secured Notes (the “Series B Notes” and, together with the Series A Notes, the “6.00% Convertible Notes”). The 6.00% Convertible Notes were issued pursuant to an indenture, which we and the Notes Guarantors entered into with U.S. Bank National Association, as trustee and collateral agent, on October 5, 2011 (the “6.00% Convertible Notes Indenture”).

During 2012, we completed various debt-to-equity conversions of the 6.00% Convertible Notes. On October 5, 2012, all outstanding Series B Notes not previously converted into shares of our common stock were mandatorily converted into Series A Notes as required by the terms of the indenture. As of June 23, 2013, $2.0 million face value of the Series A Notes remains outstanding. The Series A Notes bear interest at a rate of 6.00% per annum, payable semiannually. The Series A Notes mature on April 15, 2017, and are convertible at the option of the holders, and at our option under certain circumstances, including listing of our shares of common stock on either the NYSE or NASDAQ markets into shares of our common stock or warrants, as the case may be.

The remaining Series A Notes are convertible into shares of our common stock at a conversion rate equal to 402.3272 shares of common stock per $1,000 principal amount of Series A Notes. Effective October 5, 2012, we have the option to convert all or any portion of the outstanding Series A Notes, upon not more than 60 days and not less than 20 days prior notice to noteholders; provided that (i) our common stock is listed on either the NYSE or NASDAQ markets and (ii) the 30 trading day volume weighted average price for our common stock for the 30-day period ending on the trading day preceding the date of such notice is equal to or greater than $15.75 per share. Holders of the Series A Notes may convert their notes at any time through the maturity date. Upon conversion, foreign holders may, under certain conditions, receive warrants in lieu of shares of common stock.

The conversion rate of the remaining Series A Notes may be increased in certain circumstances to compensate the holders thereof for the loss of the time value of the conversion right (i) if at any time our common stock or the common stock into which the new notes may be converted is greater than or equal to $11.25 per share and is not listed on the NYSE or NASDAQ markets or (ii) if a change of control occurs, unless at least 90% of the consideration received or to be received by holders of common stock, excluding cash payments for fractional shares, in connection with the transaction or transactions constituting the change of control, consists of shares of common stock, American Depositary Receipts or American Depositary Shares traded on a national securities exchange in the United States or which will be so traded or quoted when issued or exchanged in connection with such change of control. Upon a change of control, holders will have the right to require us to repurchase for cash the outstanding Series A Notes at 101% of the aggregate principal amount, plus accrued and unpaid interest.

Certain warrants, not including the warrants issued to SFL, were issued pursuant to a warrant agreement, which we entered into with The Bank of New York Mellon Trust Company, N.A, as warrant agent, on October 5, 2011, as amended by Amendment No. 1 as of December 7, 2011 (the “Warrant Agreement”). Pursuant to the Warrant Agreement, each warrant entitles the holder to purchase common stock at a price of $0.01 per share, subject to adjustment in certain circumstances. In connection with a reverse stock split in December 2011, warrant holders will receive 1/25th of a share of our common stock upon conversion. As of June 23, 2013 there were 1.2 billion warrants outstanding for the purchase of up to 56.8 million shares of our common stock. Upon issuance, in lieu of payment of the exercise price, a warrant holder will have the right (but not the obligation) to require us to convert its warrants, in whole or in part, into shares of our common stock, without any required payment or request that we withhold, from the shares of common stock that would otherwise be delivered to such warrant holder, shares issuable upon exercise of the warrants equal in value to the aggregate exercise price.

Warrant holders will not be permitted to exercise or convert their warrants if and to the extent the shares of common stock issuable upon exercise or conversion would constitute “excess shares” (as defined in our certificate of incorporation) if they were issued. In addition, a warrant holder who cannot establish to our reasonable satisfaction that it (or, if not the holder, the person that the holder has designated to receive the common stock upon exercise or conversion) is a United States citizen, will not be permitted to exercise or convert its warrants to the extent the receipt of the common stock upon exercise or conversion would cause such person or any person whose ownership position would be aggregated with that of such person to exceed 4.9% of our outstanding common stock.

The warrants contain no provisions allowing us to force redemption and we have no conditional obligation to redeem or convert the warrants. Each warrant is convertible into shares of our common stock at an exercise price of $0.01 per share, which we have the option to waive. In addition, we have sufficient authorized and unissued shares available to settle the warrants during the maximum period the warrants could remain outstanding. As a result, the warrants do not meet the definition of an asset or liability and were classified as equity on the date of issuance. The warrants will be evaluated on a continuous basis to determine if equity classification continues to be appropriate.

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 June 23, 2013, the carrying value of goodwill was $198.8 million. Earnings estimated to be generated are expected to support the carrying value of goodwill. However, should our operating results differ from what is expected or other triggering events occur, it could imply that our goodwill may not be recoverable and may result in the recognition of a non-cash write down of goodwill.

Our primary interest rate exposure relates to the ABL Facility. As of June 23, 2013, we had $32.5 million outstanding under the ABL Facility. The interest rate on the ABL Facility is based on LIBOR or a base rate plus an applicable margin based on leverage and excess availability, as defined in the agreement, ranging from (i) 1.25% to 2.75%, in the case of base rate loans and (ii) 2.25% to 3.75%, in the case of LIBOR loans. Each quarter point change in interest rates would result in a $0.1 million change in annual interest expense on the ABL facility.

Accounting pronouncements effective after June 23, 2013, are not expected to have a material effect our consolidated financial position or results of operations.

This Form 10-Q (including the exhibits hereto) 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.

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, even if experience or future developments make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

See the section entitled “Risk Factors” in our Form 10-K for the fiscal year ended December 23, 2012, 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.

We maintain policies for managing risk related to exposure to variability in interest rates, fuel prices and other relevant market rates and prices which includes entering into derivative instruments in order to mitigate our risks. We do not currently have any derivative instruments outstanding.

Our exposure to market risk for changes in interest rates is limited to our ABL Facility and one of our operating leases. The interest rate for our ABL Facility is currently indexed to LIBOR of one, two, three, or six months as selected by us (or nine or twelve months, if available, and consented to by the Lenders), or the Alternate Base Rate as defined in the ABL Facility. One of our operating leases is currently indexed to LIBOR of one month.

In addition, at times we utilize derivative instruments tied to various indexes to hedge a portion of our quarterly exposure to bunker fuel price increases. These instruments consist of fixed price swap agreements. We do not use derivative instruments for trading purposes. Credit risk related to the derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties. We currently do not have any bunker fuel price hedges in place.

Changes in fair value of derivative financial instruments are recorded as adjustments to the assets or liabilities being hedged in the statement of operations or in accumulated other comprehensive income (loss), depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction represented, and the effectiveness of the hedge.

The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, each of the Company’s Chief Executive Officer and Chief Financial Officer has concluded that the Company’s disclosure controls and procedures are effective.

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ending June 23, 2013, that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

On April 17, 2008, we received a grand jury subpoena and search warrant from the United States District Court for the Middle District of Florida seeking information regarding an investigation by the Antitrust Division of the DOJ into possible antitrust violations in the domestic ocean shipping business. On February 23, 2011, we entered into a plea agreement with the DOJ relating to the Puerto Rico tradelane, and the Court entered judgment accepting our plea agreement and imposed a fine of $15.0 million payable over five years without interest.

Subsequent to the commencement of the DOJ investigation, class action lawsuits relating to ocean shipping services in the Puerto Rico, Hawaii and Alaska tradelanes were filed. We settled the class action lawsuits relating to the Puerto Rico tradelane and those lawsuits by plaintiffs who opted out of the class action. The United States District Court dismissed the class action lawsuits relating to the Hawaii tradelane and the United States Court of Appeals affirmed that decision. In May 2013, the plaintiffs in the lawsuit remaining in the District of Alaska filed a Notice of Voluntary Dismissal, resolving the last lawsuit arising out of the DOJ investigation. Any further antitrust lawsuits arising from the DOJ investigation against us or any of our current or former employees should be prevented by the applicable statute of limitations.

In May 2013, the U.S. Department of Justice declined to intervene in a qui tam complaint filed in the U.S. District Court for the Central District of California by Mario Rizzo under the Federal False Claims Act. The case was unsealed on May 15, 2013, and we were served with a complaint in June 2013. The case is entitled United States of America, ex rel. Mario Rizzo v. Horizon Lines, LLC et al. The qui tam complaint alleges, among other things, that we and other defendants, including freight forwarders, submitted false claims by claiming fuel surcharges in excess of what was agreed by the Department of Defense. The complaint seeks significant damages, penalties and other relief. Our response to the complaint is due on August 7, 2013, and we intend to vigorously defend against the allegations set forth in the complaint.

In the ordinary course of business, from time to time, we 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 generally maintain insurance, subject to customary deductibles or self-retention amounts, and/or reserves to cover these types of claims. We also, from time to time, become involved in routine employment-related disputes and disputes with parties with which we have contractual relations.

There have been no material changes from our risk factors as previously reported in our Annual Report on Form 10-K for the fiscal year ended December 23, 2012, as filed with the SEC.

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.


HORIZON LINES, INC.

By:		/s/ MICHAEL T. AVARA
		Michael T. Avara
		Executive Vice President & Chief Financial Officer (Principal Financial Officer & Authorized Signatory)


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


	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 Comprehensive Loss		3

Unaudited Condensed Consolidated Statements of Cash Flows		4

Notes to Condensed Consolidated Financial Statements (Unaudited)		5

2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

3. Quantitative and Qualitative Disclosures About Market Risk		37

4. Controls and Procedures		37

Part II. Other Information		38

1. Legal Proceedings		38

1A. Risk Factors		38

2. Unregistered Sales of Equity Securities and Use of Proceeds		38

3. Defaults Upon Senior Securities		38

4. Mine Safety Disclosures		38

5. Other Information		38

6. Exhibits		38

Signature		40

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101.INS XBRL Instance Document
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document


	June 23,			December 23,
	2013			2012
Assets
Current assets
Cash	$	13,824		$	27,839
Accounts receivable, net of allowance of $3,372 and $3,465 at June 23, 2013 and December 23, 2012, respectively		104,701			99,685
Materials and supplies		24,614			29,521
Deferred tax asset		3,610			4,626
Other current assets		9,253			8,563

Total current assets		156,002			170,234
Property and equipment, net		229,899			160,050
Goodwill		198,793			198,793
Intangible assets, net		42,050			48,573
Other long-term assets		26,179			23,584

Total assets	$	652,923		$	601,234

Liabilities and Stockholders’ Deficiency
Current liabilities
Accounts payable	$	42,262		$	46,584
Current portion of long-term debt, including capital lease		6,293			3,608
Accrued vessel rent		—			4,902
Other accrued liabilities		80,584			87,358

Total current liabilities		129,139			142,452
Long-term debt, including capital lease, net of current portion		527,183			434,222
Deferred rent		—			9,081
Deferred tax liability		3,769			4,662
Other long-term liabilities		29,651			27,559

Total liabilities		689,742			617,976

Stockholders’ deficiency
Preferred stock, $.01 par value, 30,500 shares authorized, no shares issued or outstanding		—			—
Common stock, $.01 par value, 150,000 shares authorized, 35,631 shares issued and outstanding as of June 23, 2013, and 100,000 shares authorized, 34,434 shares issued and outstanding as of December 23, 2012		961			954
Additional paid in capital		382,900			381,445
Accumulated deficit		(419,814	)		(397,958	)
Accumulated other comprehensive loss		(866	)		(1,183	)

Total stockholders’ deficiency		(36,819	)		(16,742	)

Total liabilities and stockholders’ deficiency	$	652,923		$	601,234


	Quarters Ended						Six Months Ended
	June 23,			June 24,			June 23,			June 24,
	2013			2012			2013			2012
Operating revenue	$	259,784		$	270,939		$	504,275		$	534,294
Operating expense:
Cost of services (excluding depreciation expense)		215,015			236,894			427,599			470,694
Depreciation and amortization		9,580			10,397			19,150			20,797
Amortization of vessel dry-docking		3,178			2,622			6,210			6,635
Selling, general and administrative		18,075			19,529			37,839			41,042
Restructuring charge		409			—			5,252			—
Impairment charge		18			257			18			257
Miscellaneous (income) expense, net		(2,467	)		233			(3,472	)		(77	)

Total operating expense		243,808			269,932			492,596			539,348
Operating income (loss)		15,976			1,007			11,679			(5,054	)
Other expense:
Interest expense, net		16,934			17,491			32,635			35,230
(Gain) loss on conversion of debt		(5	)		47,403			(5	)		36,421
Gain on change in value of debt conversion features		(114	)		(32,800	)		(159	)		(19,130	)
Other expense, net		7			4			9			18

Loss from continuing operations before income tax expense		(846	)		(31,091	)		(20,801	)		(57,593	)
Income tax expense		7			49			126			346

Net loss from continuing operations		(853	)		(31,140	)		(20,927	)		(57,939	)
Net loss from discontinued operations		(651	)		(14,934	)		(929	)		(20,641	)

Net loss	$	(1,504	)	$	(46,074	)	$	(21,856	)	$	(78,580	)

Basic and diluted net loss per share:
Continuing operations	$	(0.02	)	$	(1.55	)	$	(0.59	)	$	(5.00	)
Discontinued operations		(0.02	)		(0.75	)		(0.03	)		(1.78	)

Basic and diluted net loss per share	$	(0.04	)	$	(2.30	)	$	(0.62	)	$	(6.78	)

Number of weighted average shares used in calculations:
Basic		35,602			20,068			35,174			11,595
Diluted		35,602			20,068			35,174			11,595


	Balance at December 23, 2012		Provision			Payments			Balance at June 23, 2013
Personnel related costs	$	1,962	$	300		$	(958	)	$	1,304
Equipment and relocation costs		2,218		810			(2,196	)		832
Estimated multi-employer pension plan withdrawal liability		—		4,299	⁽¹⁾		—			4,299

Total	$	4,180	$	5,409		$	(3,154	)	$	6,435


	Quarters Ended						Six Months Ended
	June 23, 2013			June 24, 2012			June 23, 2013			June 24, 2012
Operating revenue	$	—		$	401		$	—		$	487
Operating loss		(651	)		(14,341	)		(929	)		(16,491	)
Net loss		(651	)		(14,934	)		(929	)		(20,641	)


Restricted Stock Units	Number of Shares			Weighted- Average Fair Value at Grant Date
Nonvested at December 23, 2012		6,119,167		$	1.87
Granted		416,667		$	1.51
Vested		(540,958	)	$	1.87
Forfeited		—			—

Nonvested at June 23, 2013		5,994,876		$	1.85


Restricted Shares	Number of Shares			Weighted- Average Fair Value at Grant Date
Nonvested at December 23, 2012		8,327		$	134.25
Granted		—			—
Vested		(4,144	)	$	123.00
Forfeited		—			—

Nonvested at June 23, 2013		4,183		$	145.25


Options	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (000’s)
Outstanding at December 23, 2012		36,059		$	390.75
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(9,230	)	$	357.50

Outstanding and exercisable at June 23, 2013		26,829		$	402.25		3.05	$	—


	June 23, 2013				December 23, 2012
	Historical		Net Book		Historical		Net Book
	Cost		Value		Cost		Value
Vessels and vessel improvements	$	226,020	$	134,407	$	156,705	$	63,855
Containers		35,295		20,097		35,604		20,573
Chassis		16,836		7,963		13,745		5,626
Cranes		28,600		12,859		28,070		13,371
Machinery and equipment		32,595		10,933		32,088		10,535
Facilities and land improvements		29,932		21,818		29,862		22,508
Software		23,895		1,203		23,562		1,308
Construction in progress		20,619		20,619		22,274		22,274

Total	$	413,792	$	229,899	$	341,910	$	160,050


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Conversion features within Series A Notes (Note 3)	$	—	$	—	$	229	$	229

Total liabilities	$	—	$	—	$	229	$	229


	Quarters Ended						Six Months Ended
	June 23, 2013			June 24, 2012			June 23, 2013			June 24, 2012
	($ in thousands)
Operating revenue	$	259,784		$	270,939		$	504,275		$	534,294
Operating expense		243,808			269,932			492,596			539,348

Operating income (loss)	$	15,976		$	1,007		$	11,679		$	(5,054	)

Operating ratio		93.9	%		99.6	%		97.7	%		100.9	%
Revenue containers (units)		56,159			59,768			107,480			116,854
Average unit revenue	$	4,263		$	4,269		$	4,310		$	4,263


Revenue container volume decrease	$	(11,530	)
Bunker and intermodal fuel surcharges decrease		(8,198	)
Revenue container rate increase		4,477
Other non-transportation services revenue increase		4,096

Total operating revenue decrease	$	(11,155	)


Vessel fuel costs decrease	$	(12,489	)
Vessel lease expense decrease		(3,705	)
Labor and other vessel operating expense decrease		(1,906	)
Vessel space charter expense decrease		(938	)

Total vessel expense decrease	$	(19,038	)


Revenue container volume decrease	$	(30,143	)
Bunker and intermodal fuel surcharges decrease		(11,943	)
Revenue container rate increase		7,636
Other non-transportation services revenue increase		4,431

Total operating revenue decrease	$	(30,019	)


Vessel fuel costs decrease	$	(19,556	)
Vessel lease expense decrease		(5,886	)
Labor and other vessel operating expense decrease		(4,560	)
Vessel space charter expense decrease		(1,444	)

Total vessel expense decrease	$	(31,446	)


Earnings adjusted for non-cash charges	$	23,016
Decrease in accounts receivable		5,748
Decrease in materials and supplies		4,558
Decrease in payments related to vessel leases		5,835
Decrease in accounts payable		(18,679	)
Increase in payments related to legal settlements		(5,000	)
Other changes in working capital, net		(161	)

Total improvement in cash used in operating activities	$	15,317



		3.1		Certificate of Amendment to the Company’s Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s report on Form 8-K filed June 21, 2013).

		10.1		Form of Restricted Stock Unit Agreement dated June 1, 2013 (filed as Exhibit 10.1 to the Company’s report on Form 8-K filed June 5, 2013).

		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.

		101.INS**		XBRL Instance Document

		101.SCH**		XBRL Taxonomy Extension Schema Document

		101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

		101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

		101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

		101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document


Exhibit No.		Description

3.1		Certificate of Amendment to the Company’s Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s report on Form 8-K filed June 21, 2013).

10.1		Form of Restricted Stock Unit Agreement (filed as Exhibit 10.1 to the Company’s report on Form 8-K filed June 5, 2013).

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.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document