UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark one)

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

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

Commission File Number 001-32627

HORIZON LINES, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		74-3123672 (I.R.S. Employer Identification No.)
4064 Colony Road, Suite 200, Charlotte, North Carolina		28211
(Address of principal executive offices)		(Zip Code)

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

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

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

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

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

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

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

At July 25, 2011, 30,906,540 shares of the Registrant’s common stock, par value $.01 per share, were outstanding.

 

 

HORIZON LINES, INC.
Form 10-Q Index

		Page No.
Part I. Financial Information			1
1. Financial Statements			1
Unaudited Condensed Consolidated Balance Sheets			1
Unaudited Condensed Consolidated Statements of Operations			2
Unaudited Condensed Consolidated Statements of Cash Flows			3
Notes to Unaudited Condensed Consolidated Financial Statements			4
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
3. Quantitative and Qualitative Disclosures About Market Risk			35
4. Controls and Procedures			35
Part II. Other Information			36
1. Legal Proceedings			36
1A. Risk Factors			38
2. Unregistered Sales of Equity Securities and Use of Proceeds			38
3. Defaults Upon Senior Securities			38
4. Reserved			38
5. Other Information			38
6. Exhibits			38
Signature			39
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

1. Financial Statements

Horizon Lines, Inc.

		June 26,				December 26,
		2011				2010
Assets
Current assets
Cash		$	3,389			$	2,751
Accounts receivable, net of allowance of $6,768 and $6,959 at June 26, 2011 and December 26, 2010 respectively			129,066				112,196
Prepaid vessel rent			4,131				4,076
Materials and supplies			35,665				29,413
Deferred tax asset			3,250				2,964
Assets held for sale			15,420				18,215
Assets of discontinued operations			1,367				6,883
Other current assets			13,162				7,406
Total current assets			205,450				183,904
Property and equipment, net			170,696				176,442
Goodwill			314,149				314,149
Intangible assets, net			74,910				80,824
Other long-term assets			29,756				30,438
Total assets		$	794,961			$	785,757
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	31,666			$	43,413
Current portion of long-term debt, including capital lease			593,767				508,793
Accrued vessel rent			3,697				3,697
Liabilities of discontinued operations			579				3,699
Other accrued liabilities			111,041				108,499
Total current liabilities			740,750				668,101
Capital lease, net of current portion			6,661				7,530
Deferred rent			15,790				18,026
Deferred tax liability			5,222				4,775
Other long-term liabilities			25,030				47,533
Total liabilities			793,453				745,965
Stockholders’ equity
Preferred stock, $.01 par value, 30,500 shares authorized, no shares issued or outstanding			—				—
Common stock, $.01 par value, 100,000 shares authorized, 34,707 shares issued and 30,907 shares outstanding as of June 26, 2011 and 34,546 shares issued and 30,746 shares outstanding as of December 26, 2010			347				345
Treasury stock, 3,800 shares at cost			(78,538	)			(78,538	)
Additional paid in capital			193,758				193,266
Accumulated deficit			(113,331	)			(73,843	)
Accumulated other comprehensive loss			(728	)			(1,438	)
Total stockholders’ equity			1,508				39,792
Total liabilities and stockholders’ equity		$	794,961			$	785,757

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

Horizon Lines, Inc.

		Quarters Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Operating revenue		$	307,527			$	291,387			$	592,881			$	566,045
Operating expense:
Cost of services (excluding depreciation expense)			282,151				242,941				549,483				484,899
Depreciation and amortization			11,280				11,030				22,493				21,875
Amortization of vessel dry-docking			4,081				3,318				8,158				6,371
Selling, general and administrative			22,107				20,959				46,396				41,476
Legal settlement			(19,202	)			—				(19,202	)			—
Impairment charge			2,818				—				2,818				—
Miscellaneous (income) expense, net			(52	)			(825	)			437				(690	)
Total operating expense			303,183				277,423				610,583				553,931
Operating income (loss)			4,344				13,964				(17,702	)			12,114
Other expense:
Interest expense, net			12,910				9,846				23,626				19,676
Loss on modification of debt			11				—				630				—
Other expense, net			14				6				30				5
(Loss) income from continuing operations before income tax (benefit) expense			(8,591	)			4,112				(41,988	)			(7,567	)
Income tax (benefit) expense			(1,585	)			(13	)			(1,671	)			3
Net (loss) income from continuing operations			(7,006	)			4,125				(40,317	)			(7,570	)
Net income (loss) from discontinued operations			1,590				(475	)			830				(2,024	)
Net (loss) income		$	(5,416	)		$	3,650			$	(39,487	)		$	(9,594	)
Basic and diluted net (loss) income per share:
Continuing operations		$	(0.22	)		$	0.14			$	(1.30	)		$	(0.24	)
Discontinued operations			0.05				(0.02	)			0.03				(0.07	)
Basic and diluted net (loss) income per share		$	(0.17	)		$	0.12			$	(1.27	)		$	(0.31	)
Number of shares used in calculations:
Basic			31,018				30,595				30,971				30,431
Diluted			31,018				30,942				30,971				30,431
Dividends declared per common share		$	—			$	0.05			$	—			$	0.10

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

Horizon Lines, Inc.

		Six Months Ended
		June 26,				June 20,
		2011				2010
Cash flows from operating activities:
Net loss from continuing operations		$	(40,317	)		$	(7,570	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			12,332				11,716
Amortization of other intangible assets			10,161				10,159
Amortization of vessel dry-docking			8,158				6,371
Amortization of deferred financing costs			2,018				1,700
Impairment charge			2,818				—
Legal settlement			(19,202	)			—
Loss on modification of debt			630				—
Deferred income taxes			161				44
Gain on equipment disposals			(368	)			—
Gain on sale of interest in joint venture			—				(724	)
Stock-based compensation			364				1,563
Accretion of interest on 4.25% convertible notes			5,764				5,313
Accretion of interest on legal settlement			284				—
Changes in operating assets and liabilities:
Accounts receivable			(19,280	)			(5,750	)
Materials and supplies			(6,251	)			2,263
Other current assets			(5,755	)			(1,226	)
Accounts payable			(11,747	)			(2,276	)
Accrued liabilities			1,554				(6,137	)
Vessel rent			(1,894	)			(14,115	)
Vessel dry-docking payments			(7,966	)			(10,764	)
Accrued legal settlements			(884	)			—
Other assets/liabilities			(838	)			322
Net cash used in operating activities			(70,258	)			(9,111	)
Cash flows from investing activities:
Purchases of property and equipment			(7,041	)			(5,442	)
Proceeds from the sale of property and equipment			1,402				234
Proceeds from the sale of interest in joint venture			—				1,100
Net cash used in investing activities			(5,639	)			(4,108	)
Cash flows from financing activities:
Payments on long-term debt			(9,375	)			(9,375	)
Borrowing under revolving credit facility			97,500				75,500
Payments on revolving credit facility			(9,000	)			(45,500	)
Payment of financing costs			(6,848	)			—
Payments on capital lease obligations			(783	)			—
Dividends to stockholders			—				(3,060	)
Common stock issued under employee stock purchase plan			—				70
Net cash provided by financing activities			71,494				17,635
Net (decrease) increase in cash from continuing operations			(4,403	)			4,416
Net increase (decrease) in cash from discontinued operations			5,041				(6,263	)
Net increase (decrease) in cash			638				(1,847	)
Cash at beginning of period			2,751				6,419
Cash at end of period		$	3,389			$	4,572

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

HORIZON LINES, INC.

1. Organization

Horizon Lines, Inc. (the “Company”) operates as a holding company for Horizon Lines, LLC (“Horizon Lines”), a Delaware limited liability company, Horizon Logistics, LLC (“Horizon Logistics”), a Delaware limited liability company, Horizon Lines of Puerto Rico, Inc. (“HLPR”), a Delaware corporation, and Hawaii Stevedores, Inc. (“HSI”), a Hawaii corporation. Horizon Lines operates as a Jones Act container shipping business with primary service to ports within the continental United States, Puerto Rico, Alaska, and Hawaii. Horizon Lines also provides container shipping services to and from Guam and Micronesia. Under the Jones Act, all vessels transporting cargo between covered locations must, subject to limited exceptions, be built in the U.S., registered under the U.S. flag, manned by predominantly U.S. crews, and owned and operated by U.S.-organized companies that are controlled and 75% owned by U.S. citizens. Horizon Lines also offers terminal services and non-vessel operating common carrier (“NVOCC”) services through its subsidiary, Horizon Lines of Guam. In addition, on December 13, 2010, Horizon Lines commenced a weekly trans-Pacific liner service between Asia and the U.S. West Coast. HLPR operates as an agent for Horizon Lines in Puerto Rico and also provides terminal services in Puerto Rico. Prior to the divestiture of the third-party logistics operations, Horizon Logistics provided integrated logistics service offerings, including rail, trucking, warehousing, and distribution.

2. Basis of Presentation

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

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for a reasonable period following the date of these financial statements. As discussed in more detail in Note 3, the Company does not expect to be in compliance with the revised debt covenants in its Senior Credit Facility upon the close of its third fiscal quarter of 2011, which raises substantial doubt that the Company will continue as a going concern.

During the six months ended June 26, 2011, the entire component comprising the third-party logistics operations was discontinued and former logistics customers will no longer be customers of the Company. As part of the divestiture, the Company has transitioned some of the operations and personnel to other logistics providers. As such, there will not be any future cash inflows received from these logistics customers and no cash outflows related to these operations. In addition, the Company is not expected to have any significant continuing involvement in the divested logistics operations. As a result, the logistics operations have 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 26, 2010. 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 26, 2011 and the financial statements for the quarters and six months ended June 26, 2011 and June 20, 2010 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.

3. Long-Term Debt

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

		June 26,				December 26,
		2011				2010
Senior credit facility
Term loan		$	84,375			$	93,750
Revolving credit facility			188,500				100,000
4.25% convertible senior notes			319,178				313,414
Capital lease obligations			8,375				9,159
Total long-term debt			600,428				516,323
Less current portion			(593,767	)			(508,793	)
Long-term debt, net of current portion		$	6,661			$	7,530

The Company expects to experience a covenant breach under the Senior Credit Facility in connection with the amended financial covenants upon the close of the third fiscal quarter of 2011. Noncompliance with the financial covenants in the Senior Credit Facility constitutes an event of default, which, if not waived, could prevent the Company from borrowing under the Senior Credit Facility and could also result in acceleration of the maturity of the Senior Credit Facility. The indenture related to the Notes, as well as other of the Company’s material contracts, contain cross default provisions and certain acceleration clauses whereby if the maturity of the Senior Credit Facility is accelerated, maturity of the Notes can also be accelerated.

The Company anticipates working with its lenders and their advisors to obtain waivers and amendments or to refinance prior to any possible covenant noncompliance; however, the Company cannot provide assurance that it will be able to secure such amendments or a refinancing. As a result of these factors, the Company has classified its obligations under the Notes and the Senior Credit Facility as current liabilities in the accompanying Consolidated Balance Sheets as of June 26, 2011 and December 26, 2010. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern.

On March 22, 2011, the Court entered a judgment against the Company based on a plea agreement between the Company and the U.S. Department of Justice (the “DOJ”) whereby the Company was required to pay a fine of $45.0 million to resolve the investigation by the DOJ into its domestic ocean shipping business. On April 28, 2011, the Court amended the fine imposed on the Company by reducing the amount from $45.0 million to $15.0 million. As a result, no covenant default exists, or is expected to exist, under the indenture related to the 4.25% Convertible Senior Notes due 2012 (the “Notes”) with respect to the fine.

On June 1, 2011, the Company announced that it has entered into Restructuring Support Agreements, dated June 1, 2011 (the “Restructuring Agreements”) with certain holders of a majority of its Notes. The Restructuring Agreements relate to a refinancing of the Company’s outstanding indebtedness with such holders and a proposed asset-based revolving loan facility of up to $125.0 million, which remains under negotiation with a separate, third-party financial institution.

The Company has entered into amendments of the Restructuring Support Agreements on June 10, 2011, June 17, 2011, June 24, 2011, July 1, 2011, July 8, 2011, and July 22, 2011. The July 22, 2011 amendment extended the deadline by which the Company is required to receive subscription commitments from the holders.

The Company and the majority of the holders of the Notes continue to make significant progress in negotiations concerning certain substantive modifications to the recapitalization transaction announced on June 1, 2011, and the parties anticipate completing such negotiations and announcing a definitive transaction in the next several weeks. There is no assurance that negotiations will be successful.

Senior Credit Facility

On August 8, 2007, the Company entered into a credit agreement (the “Senior Credit Facility”) secured by substantially all of the owned assets of the Company. On June 11, 2009, the Senior Credit Facility was amended resulting in a reduction in the size of the revolving credit facility from $250.0 million to $225.0 million. On March 9, 2011, the Senior Credit Facility was amended to waive default conditions related to the settlement agreement with the DOJ. On June 24, 2011, the Senior Credit Facility was amended to modify the financial covenant ratios. The terms of the Senior Credit Facility also provide for a $5.0 million swingline subfacility and a $20.0 million letter of credit subfacility.

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

The March 2011 amendment to the Senior Credit Facility (i) increased the senior secured leverage ratio from 2.75x to 3.50x for the fiscal quarters ending March 27, 2011 and June 26, 2011, and from 2.75x to 3.00x for the fiscal quarter ending September 25, 2011 (remaining at 2.75x for all fiscal quarters thereafter), (ii) decreased the interest coverage ratio minimum from 3.50x to 2.50x for the fiscal quarters ending March 27, 2011 and June 26, 2011, from 3.50x to 2.75x for the fiscal quarter ending September 25, 2011, and from 3.50x to 3.00x for the fiscal quarter ending December 25, 2011 (remaining at 3.50x for all fiscal quarters thereafter), (iii) increased the spread over LIBOR and Prime rates by 250 bps, and (iv) restricted cash dividends from being paid on any class of capital stock. The amendment also revised the definition of Consolidated EBITDA by allowing for certain charges, including (i) transaction costs incurred in connection with obtaining the credit agreement amendment, the efforts to get convertible bondholder waiver consent, and any other proposed refinancing costs that are not counted as interest expense or capitalized as deferred financing fees in an amount not to exceed $5.0 million and (ii) litigation expenses related to antitrust litigation matters in an amount not to exceed $28 million in the aggregate, to be added back to the calculation of Consolidated EBITDA.

The June 2011 amendment to the Senior Credit Facility (i) increased the senior secured leverage ratio from 3.50x to 6.25x for the fiscal quarter ending June 26, 2011 and (ii) decreased the interest coverage ratio minimum from 2.50x to 1.50x for the fiscal quarter ending June 26, 2011.

As a result of the amendments to the Senior Credit Facility and efforts to refinance the Company’s existing debt, the Company paid $6.3 million in financing costs and recorded a loss on modification of debt of $0.6 million during 2011.

The Company made quarterly principal payments on the term loan of approximately $1.6 million from December 31, 2007 through September 30, 2009. Effective December 31, 2009, quarterly payments increased to $4.7 million through September 30, 2011, at which point quarterly payments will increase to $18.8 million until final maturity on August 8, 2012. Final maturity of the Senior Credit Facility could accelerate to February 15, 2012 unless the Notes are refinanced, or arrangements for the refinance of the Notes have been made, in each case on terms and conditions reasonably satisfactory to the Administrative Agent of the Senior Credit Facility. The interest rate payable under the Senior Credit Facility varies depending on the types of advances or loans the Company selects. Borrowings under the Senior Credit Facility bear interest primarily at LIBOR-based rates plus a spread which ranges from 5.25% to 6.0% (LIBOR plus 6.0% as of June 26, 2011) depending on the Company’s ratio of total secured debt to EBITDA (as defined in the Senior Credit Facility). The Company also has the option to borrow at Prime plus a spread which ranges from 4.25% to 5.0% (Prime plus 5.0% as of June 26, 2011). The weighted average interest rate under the Senior Credit Facility at June 26, 2011 was approximately 7.2%, which includes the impact of the interest rate swap (as defined below). The Company also pays a variable commitment fee on the unused portion of the commitment, ranging from 0.375% to 0.50% (0.50% as of June 26, 2011).

The Senior Credit Facility contains customary covenants, including two financial covenants with respect to the Company’s leverage ratio and interest coverage ratio and covenants that limit distribution of dividends and stock repurchases. It also contains customary events of default, subject to grace periods. The Company was in compliance with all such covenants as of June 26, 2011. As of June 26, 2011, total unused borrowing capacity under the revolving credit facility was $17.9 million, after taking into account $188.5 million outstanding under the revolver and $18.6 million utilized for outstanding letters of credit.

The Company has agreed that in the event its cash balance exceeds $17.5 million, the Company will not request borrowing under the Senior Credit Facility and, if such cash balance is in excess of that amount for more than three consecutive business days, to reduce borrowing under the Senior Credit Facility by the amount of the excess.

Derivative Instruments

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

The swap has been designated as a cash flow hedge of the variability of the cash flows due to changes in LIBOR and has been deemed to be highly effective. Accordingly, the Company records the fair value of the swap as an asset or liability on its consolidated balance sheet, and any unrealized gain or loss is included in accumulated other comprehensive loss. As of June 26, 2011, the Company recorded a liability of $2.3 million, which is included in other accrued liabilities in the accompanying condensed consolidated balance sheet. The liability of $2.3 million has been classified as current in order to conform to the classification of the underlying term loan debt. The Company recorded $20 thousand and $0.2 million in other comprehensive loss for the quarters ended June 26, 2011 and June 20, 2010, respectively, and $0.5 million in other comprehensive loss for each of the six months ended June 26, 2011 and June 20, 2010. No hedge ineffectiveness was recorded during the quarters and six months ended June 26, 2011 and June 20, 2010. If the hedge was deemed ineffective, or extinguished by either counterparty, any accumulated gains or losses remaining in other comprehensive loss would be fully recorded in interest expense during the period.

4.25% Convertible Senior Notes

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

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

	•		Prior to May 15, 2012, if during any calendar quarter, and only during such calendar quarter, the last reported sale price of the Company’s common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter exceeds 120% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter;
	•		During any five business day period prior to May 15, 2012, immediately after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each day of such measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock on such date and the conversion rate on such date;
	•		If, at any time, a change in control occurs or if the Company is a party to a consolidation, merger, binding share exchange or transfer or lease of all or substantially all of its assets, pursuant to which the Company’s common stock would be converted into cash, securities or other assets; or
	•		At any time after May 15, 2012 through the fourth scheduled trading day immediately preceding August 15, 2012.

Holders who convert their Notes in connection with a change in control may be entitled to a make-whole premium in the form of an increase in the conversion rate. In addition, upon a change in control, liquidation, dissolution or de-listing, the holders of the Notes may require the Company to repurchase for cash all or any portion of their Notes for 100% of the principal amount plus accrued and unpaid interest. As of June 26, 2011, none of the conditions allowing holders of the Notes to convert or requiring the Company to repurchase the Notes had been met. The Company may not redeem the Notes prior to maturity.

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

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

Fair Value of Financial Instruments

The estimated fair values of the Company’s debt as of June 26, 2011 and December 26, 2010 were $556.7 million and $498.0 million, respectively. The fair value of the Notes is based on quoted market prices. The fair value of the other long-term debt approximates carrying value.

4. Restructuring

In an effort to continue to effectively manage costs, during the fourth quarter of 2010, the Company initiated a plan to reduce its non-union workforce by at least 10%, or approximately 65 positions. The Company substantially completed the workforce reduction initiative on January 31, 2011 by eliminating a total of 64 positions, including 35 existing and 29 open positions.

The following table presents the restructuring reserves at June 26, 2011, as well as activity during the year (in thousands):

		Balance at												Balance at
		December 26,												June 26,
		2010				Payments				Adjustments				2011
Personnel related costs		$	2,032			$	(1,079	)		$	—			$	953
Other associated costs			10				(10	)			—				—
Total		$	2,042			$	(1,089	)		$	—			$	953

In the consolidated balance sheet as of June 26, 2011, the reserve for restructuring costs is recorded in other accrued liabilities.

5. Discontinued Operations

During the six months ended June 26, 2011, the entire component comprising the third-party logistics operations was discontinued and former logistics customers will no longer be customers of the Company. As part of the divestiture, the Company has transitioned some of the operations and personnel to other logistics providers. As such, there will not be any future cash inflows received from these logistics customers and no cash outflows related to these operations. In addition, the Company is not expected to have any significant continuing involvement in the divested logistics operations.

During the year ended December 26, 2010, the Company recorded a $5.0 million valuation allowance to adjust the carrying value of the net assets of its discontinued operations to the estimated fair value less costs to sell. As a result of better than expected cash collections of the accounts receivable, the Company reduced the valuation allowance against the net assets of its discontinued operations by $2.6 million during the quarter ended June 26, 2011.

The following table includes the major classes of assets that have been presented as Assets of discontinued operations and Liabilities of discontinued operations in the Consolidated Balance Sheets (in thousands):

		June 26,				December 26,
		2011				2010
Accounts receivable, net of allowance		$	2,645			$	10,319
Property and equipment, net			—				721
Deferred tax asset			114				648
Other assets			182				178
Subtotal			2,941				11,866
Valuation allowance			(1,574	)			(4,983	)
Total current assets of discontinued operations		$	1,367			$	6,883

		June 26,				December 26,
		2011				2010
Accounts payable		$	223			$	890
Other accrued liabilities			356				2,809
Total current liabilities of discontinued operations		$	579			$	3,699

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

		Three Months Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Operating revenue		$	3,099			$	14,274			$	13,683			$	25,748
Operating income (loss)			2,145				(479	)			1,365				(2,068	)
Net income (loss)			1,590				(475	)			830				(2,024	)

The following table presents summarized cash flow information for the discontinued operations included in the Consolidated Statements of Cash Flows (in thousands):

		Three Months Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Cash provided by (used in) operating activities		$	4,507			$	(4,622	)		$	5,098			$	(6,128	)
Cash used in investing activities			—				(74	)			(57	)			(135	)
Net increase (decrease) in cash from discontinued operations		$	4,507			$	(4,696	)		$	5,041			$	(6,263	)

6. Assets Held for Sale and Impairment Charge

Assets held for sale as of June 26, 2011 and December 26, 2010 includes payments for three new cranes which are not yet placed into service. These cranes were initially purchased for use in the Company’s Anchorage, Alaska terminal and were expected to be installed and become fully operational in December 2010. However, the Port of Anchorage Intermodal Expansion Project is encountering delays that could continue until 2014 or beyond. As such, the Company is currently marketing these cranes for sale and expects to complete the sale within one year. As a result of the reclassification to assets held for sale during the quarter ended June 26, 2011, the Company recorded an impairment charge of $2.8 million to write down the carrying value of the cranes to their estimated fair value less costs to sell.

7. Income Taxes

During the second quarter of 2009, the Company determined that it was unclear as to the timing of when it will generate sufficient taxable income to realize its deferred tax assets. Accordingly, the Company recorded a valuation allowance against its deferred tax assets. The valuation allowance is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance. In addition, until such time that the Company determines it is more likely than not that it will generate sufficient taxable income to realize its deferred tax assets, income tax benefits associated with future period losses will be fully reserved.

8. Stock-Based Compensation

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

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

		Three Months Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Stock options		$	8			$	44			$	60			$	321
Restricted stock / vested shares			35				874				234				1,157
Restricted stock units			39				—				39				—
ESPP			—				44				31				85
Total		$	82			$	962			$	364			$	1,563

Stock Options

The Company’s stock option plan provides for grants of stock options to key employees at prices not less than the fair market value of the Company’s common stock on the grant date. As of June 26, 2011, there was no unrecognized compensation costs related to stock options granted. A summary of stock option activity is presented below:

										Weighted-
						Weighted-				Average				Aggregate
						Average				Remaining				Intrinsic
		Number of				Exercise				Contractual				Value
Options		Options				Price				Term (years)				(000’s)
Outstanding at December 26, 2010			1,437,713			$	15.78
Granted			—				—
Exercised			—				—
Forfeited			(10,000	)			9.38
Expired			(19,926	)			16.95
Outstanding at June 26, 2011			1,407,787			$	15.81				5.28			$	—
Vested and exercisable at June 26, 2011			1,407,787			$	15.81				5.28			$	—

Restricted Stock

A summary of the status of the Company’s restricted stock awards as of June 26, 2011 is presented below:

						Weighted-
						Average
						Fair Value
		Number of				at Grant
Restricted Shares		Shares				Date
Nonvested at December 26, 2010			631,705			$	5.64
Granted			83,565				3.59
Vested			(22,500	)			14.63
Forfeited			(70,500	)			7.50
Nonvested at June 26, 2011			622,270			$	4.83

As of June 26, 2011, there was $1.2 million of unrecognized compensation expense related to all restricted stock awards, which is expected to be recognized over a weighted-average period of 1.4 years.

Restricted Stock Units

On June 2, 2011, the Company granted a total of 513,317 restricted stock units (“RSUs”) to all members of its Board of Directors including its interim President and Chief Executive Officer. The Company’s interim President and Chief Executive Officer received the grant of the RSUs in his capacity as a member of the Board of Directors. Each RSU has an economic value equal to a share of the Company’s Common Stock (excluding the right to receive dividends). The RSUs will vest June 2, 2012, subject to continued service on the Board of Directors through that date. The RSUs will be settled in cash once the grantee ceases to serve on the Company’s Board of Directors. In accordance with the award provisions, the compensation expense recorded in the Company’s Condensed Statement of Operations reflects the straight-line amortized fair value based on the period end closing price. Based on the value of the Company’s Common Stock on June 26, 2011, there was $0.5 million of unrecognized compensation expense related to the RSUs, which is expected to be recognized over a period of 11 months.

Employee Stock Purchase Plan

Effective April 1, 2011, the Company temporarily suspended the ESPP. There will be no stock-based compensation expense recognized in connection with the ESPP until such time the ESPP is reinstated.

9. Net (Loss) Income per Common Share

Basic net (loss) income per share is computed by dividing net (loss) income 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, using the treasury-stock method.

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

		Three Months Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Numerator:
Net (loss) income from continuing operations		$	(7,006	)		$	4,125			$	(40,317	)		$	(7,570	)
Net income (loss) from discontinued operations			1,590				(475	)			830				(2,024	)
Net (loss) income		$	(5,416	)		$	3,650			$	(39,487	)		$	(9,594	)
Denominator:
Denominator for basic net (loss) income per common share:
Weighted average shares outstanding			31,018				30,595				30,971				30,431
Effect of dilutive securities:
Stock-based compensation			—				347				—				—
Denominator for diluted net (loss) income per common share			31,018				30,942				30,971				30,431
Basic and diluted net (loss) income per common share
From continuing operations		$	(0.22	)		$	0.14			$	(1.30	)		$	(0.24	)
From discontinued operations			0.05				(0.02	)			0.03				(0.07	)
Basic and diluted net (loss) income per common share		$	(0.17	)		$	0.12			$	(1.27	)		$	(0.31	)

Certain of the Company’s unvested stock-based awards contain non-forfeitable rights to dividends. As a result, a total of 121,615 and 118,737 shares have been included in the denominator for basic net (loss) income per share for these participating securities during the quarters ended June 26, 2011 and June 20, 2010, respectively, and 137,873 and 122,458 shares have been included in the denominator for basic net (loss) income per share for these participating securities during the six months ended June 26, 2011 and June 20, 2010, respectively. In addition, a total of 3,092 shares have been excluded from the denominator during the quarter ended June 26, 2011, and a total of 46,463 and 204,087 shares have been excluded from the denominator during the six months ended June 26, 2011 and June 20, 2010, respectively as the impact would be anti-dilutive.

10. Comprehensive (Loss) Income

Comprehensive (loss) income is as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Net (loss) income		$	(5,416	)		$	3,650			$	(39,487	)		$	(9,594	)
Change in fair value of interest rate swap			20				158				474				496
Amortization of pension and post-retirement benefit transition obligation			118				104				236				207
Comprehensive (loss) income		$	(5,278	)		$	3,912			$	(38,777	)		$	(8,891	)

11. Property and Equipment

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

		June 26,				December 26,
		2011				2010
Vessels and vessel improvements		$	155,269			$	152,641
Containers			36,960				37,212
Chassis			14,947				14,524
Cranes			38,158				37,294
Machinery and equipment			32,977				29,756
Facilities and land improvements			26,578				26,368
Software			25,920				23,837
Construction in progress			4,404				7,635
Total property and equipment			335,213				329,267
Accumulated depreciation			(164,517	)			(152,825	)
Property and equipment, net		$	170,696			$	176,442

12. Intangible Assets

Intangible assets consist of the following (in thousands):

		June 26,				December 26,
		2011				2010
Customer contracts/relationships		$	141,430			$	141,430
Trademarks			63,800				63,800
Deferred financing costs			21,171				14,906
Total intangibles with definite lives			226,401				220,136
Accumulated amortization			(151,491	)			(139,312	)
Net intangibles with definite lives			74,910				80,824
Goodwill			314,149				314,149
Intangible assets, net		$	389,059			$	394,973

As discussed in Note 3, as result of the amendments of the Senior Credit Facility and efforts to refinance the Company’s existing debt, the Company paid $6.3 million in financing costs during the first six months of 2011.

13. Other Accrued Liabilities

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

		June 26,				December 26,
		2011				2010
Vessel operations		$	20,697			$	20,147
Payroll and employee benefits			15,062				13,996
Marine operations			11,580				8,777
Terminal operations			9,712				11,863
Fuel			7,805				8,032
Interest			9,595				7,344
Legal settlements			11,833				12,767
Restructuring			953				1,853
Other liabilities			23,804				23,720
Total other accrued liabilities		$	111,041			$	108,499

Other accrued liabilities of $23.8 million as of June 26, 2011 includes $1.5 million related to the unpaid portion of a separation agreement with the Company’s former chief executive officer.

14. Fair Value Measurement

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

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

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

On a recurring basis, the Company measures the interest rate swap at its estimated fair value. The fair value of the swap is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The unrealized loss on the interest rate swap of $2.3 million is classified within level 2 of the fair value hierarchy.

No other assets or liabilities are measured at fair value under the hierarchy as of June 26, 2011.

15. Pension and Post-retirement Benefit Plans

The Company provides pension and post-retirement benefit plans for certain of its union workers. Each of the plans is described in more detail below.

Pension Plans

The Company sponsors a defined benefit plan covering approximately 30 union employees as of June 26, 2011. 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 26, 2011 and June 20, 2010, and $0.4 million during each of the six months ended June 26, 2011 and June 20, 2010.

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 26, 2011 and June 20, 2010, and $0.2 million and $0.1 million during the six months ended June 26, 2011 and June 20, 2010, respectively.

The Company expects to make contributions to the above mentioned pension plans totaling $1.1 million during 2011.

Post-retirement Benefit Plans

In addition to providing pension benefits, the Company provides certain healthcare (both medical and dental) and life insurance benefits for eligible retired members (“post-retirement benefits”). For eligible employees hired on or before July 1, 1996, the healthcare plan provides for post-retirement health coverage for an employee who, immediately preceding his/her retirement date, was an active participant in the retirement plan and has attained age 55 as of his/her retirement date. For eligible employees hired after July 1, 1996, the plan provides post-retirement health coverage for an employee who, immediately preceding his/her retirement date, was an active participant in the retirement plan and has attained a combination of age and service totaling 75 years or more as of his/her retirement date. The Company recorded net periodic benefit costs related to the post-retirement benefits of $0.1 million during each of the quarters ended June 26, 2011 and June 20, 2010, and $0.2 million during each of the six months ended June 26, 2011 and June 20, 2010.

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 26, 2011 and June 20, 2010, and $0.2 million during each of the six months ended June 26, 2011 and June 20, 2010.

Other Plans

Under collective bargaining agreements, the Company participates in a number of union-sponsored, multi-employer benefit plans. Payments to these plans are made as part of aggregate assessments generally based on hours worked, tonnage of cargo moved, or a combination thereof. Expense for these plans is recognized as contributions are funded. 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.

16. Commitments and Contingencies

Legal Proceedings

Antitrust Matters

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 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, 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 and placed the Company on probation until the fine payments are completed. On April 28, 2011, the Court reduced the fine from $45.0 million to $15.0 million payable over five years without interest. The first $1.0 million of the fine was paid on April 25, 2011 and the Company must make payments of $1.0 million on or before the first anniversary thereof, $2.0 million on or before the second anniversary, $3.0 million on or before the third anniversary and $4.0 million on or before each of the fourth and fifth anniversary. The plea agreement provides that the Company will not face additional charges relating to the Puerto Rico tradelane. In addition, the plea agreement provides that the Company will not face any additional charges in connection with the Alaska trade, and the DOJ has indicated that the Company is not a target or subject of any Hawaii or Guam aspects of its investigation.

As part of the court’s judgment, the Company was placed on probation for five years. The terms of the probation include that the Company: 1) file annual audited financial reports, 2) not commit a criminal act during the probation period, 3) report any material adverse legal or financial event, and 4) annually certify that it has an antitrust compliance program in place that satisfies the federal sentencing guidelines requirements, including antitrust education to key personnel.

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

Thirty-two of the Class Action Lawsuits relate to ocean shipping services in the Puerto Rico tradelane and were consolidated into a single multidistrict litigation (“MDL”) proceeding in the District of Puerto Rico. On June 11, 2009, the Company entered into a settlement agreement with the named plaintiff class representatives in the Puerto Rico MDL. Under the settlement agreement, the Company has agreed to pay $20.0 million and to provide a base-rate freeze as described below to resolve claims for alleged antitrust violations in the Puerto Rico tradelane.

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

On July 8, 2009, the plaintiffs filed a motion for preliminary approval of the settlement in the Puerto Rico MDL, and the Court granted preliminary approval of the settlement on July 12, 2010. The settlement is subject to final approval by the Court. The Company has paid $10.0 million into an escrow account and the settlement agreement provides that the Company was required to pay the remaining $10.0 million after final approval of the settlement agreement by the Court. However, on April 26, 2011, the plaintiffs advised the Company that they would not object to the Company paying the remainder of the $10 million due under the settlement agreement in one payment of $5.0 million within 30 days after final approval of the settlement agreement and a second payment of $5.0 million within 60 days after final approval of the settlement agreement.

Some class members have elected to opt-out of the settlement, and the customers that have elected to opt-out of the settlement and customers not part of the settlement class may file lawsuits containing allegations similar to those made in the Puerto Rico MDL and seek the same type of damages under the Sherman Act as sought in the Puerto Rico MDL. The Company is not able to determine whether or not any actions will be brought against it or whether or not a negative outcome would be probable if brought against the Company, or a reasonable range for any such outcome, and has made no provisions for any potential proceedings in the accompanying financial statements. Given the volume of commerce involved in the Puerto Rico shipping business, an adverse ruling in a potential civil antitrust proceeding could subject the Company to substantial civil damages given the treble damages provisions of the Sherman Act.

In addition, the Company has actively engaged in discussions with a number of shippers in the Puerto Rico trade that have opted out of the MDL settlement. The Company has reached commercial agreements or is seeking to reach commercial agreements with certain of those shippers, with the condition that the shipper relinquishes any existing antitrust claims. In some cases, as part of the agreement, the Company has agreed to, or is seeking to agree to, future discounts which will be charged against operating revenue if and when the discount is earned and certain other conditions are met.

Twenty-five of the fifty-eight Class Action Lawsuits relate to ocean shipping services in the Hawaii and Guam tradelanes and were consolidated into a MDL proceeding in the Western District of Washington. On March 20, 2009, the Company filed a motion to dismiss the claims in the Hawaii and Guam MDL. On August 18, 2009, the United States District Court for the Western District of Washington entered an order dismissing, without prejudice, the Hawaii and Guam MDL. In dismissing the complaint, however, the plaintiffs were granted thirty days to amend their complaint. After several extensions, the plaintiffs filed an amended consolidated class action complaint on May 28, 2010. On July 12, 2010, the Company filed a motion to dismiss the plaintiffs’ amended complaint. The motion to dismiss the amended complaint was granted with prejudice on December 1, 2010. The plaintiffs appealed the Court’s decision to dismiss the amended complaint with the United States Court of Appeals for the Ninth Circuit and the appeal has been briefed by the parties. Oral argument has been set for September 1, 2011. The Company intends to vigorously defend against this purported class action lawsuit.

One district court case remains in the District of Alaska, relating to the Alaska tradelane. The Company and the class plaintiffs have agreed to stay the Alaska litigation, and the Company intends to vigorously defend against the purported class action lawsuit in Alaska.

In addition, on July 9, 2008, a complaint was filed by Caribbean Shipping Services, Inc. in the Circuit Court, 4th Judicial Circuit in and for Duval County, Florida, against the Company and other domestic shipping carriers alleging price-fixing in violation of the Florida Antitrust Act and the Florida Deceptive and Unlawful Trade Practices Act. The complaint seeks treble damages, injunctive relief, costs and attorneys’ fees. The case is not brought as a class action. On October 27, 2008, the Company filed a motion to dismiss. The motion to dismiss is pending.

In February 2011, the Commonwealth of Puerto Rico filed a lawsuit against the Company seeking monetary damages in its own right and on behalf of a class of persons who allegedly paid inflated prices for goods imported to Puerto Rico as a result of alleged price-fixing by the defendants in violation of the Puerto Rico Monopolies and Restraint of Trade Act. In addition, two lawsuits have been filed against the Company as putative class-action lawsuits on behalf of indirect purchasers, one of which is pending in the Court of First Instance for the Commonwealth of Puerto Rico and the other is pending in the United States District Court for the District of Puerto Rico.

On March 31, 2011, the Company entered into a settlement agreement with the Commonwealth of Puerto Rico and the named plaintiffs, individually and representing the indirect purchasers, to resolve claims relating to the Puerto Rico trade. The settlement agreement was entered into by the parties pursuant to a Memorandum of Understanding, dated February 22, 2011.

Under the settlement agreement, the plaintiffs and the Commonwealth of Puerto Rico agreed to settle claims alleged in the three lawsuits filed against the Company and the other defendants. Pursuant to the Settlement Agreement, each of the defendants will pay a one-third share of the total settlement amount of $5.3 million. Accordingly, the Company has agreed to pay $1.8 million as its share of the settlement amount. If the settlement agreement is finally approved, the settling defendants will receive a full release from the named plaintiffs, from the members of the settlement class, and from the Commonwealth of Puerto Rico in its own right and as parens patriae. The court granted preliminary approval of the settlement agreement on April 26, 2011. The Court granted final approval to the settlement agreement on July 19, 2011 and the Company made the final settlement payment on July 29, 2011.

On December 31, 2008, a securities class action lawsuit was filed against the Company by the City of Roseville Employees’ Retirement System in the United States District Court for the District of Delaware. The complaint purported to be on behalf of purchasers of the Company’s common stock. The complaint alleged, among other things, that the Company made material misstatements and omissions in connection with alleged price-fixing in the Company’s shipping business in Puerto Rico in violation of antitrust laws. The Company filed a motion to dismiss, and the Court granted the motion to dismiss on November 13, 2009 with leave to file an amended complaint. The plaintiff filed an amended complaint on December 23, 2009, and the Company filed a motion to dismiss the amended complaint on February 12, 2010. The Company’s motion to dismiss the amended complaint was granted with prejudice on May 18, 2010. On June 15, 2010, the plaintiff appealed the Court’s decision to dismiss the amended complaint. The Company filed its opposition brief with the Court of Appeals on December 22, 2010 and the plaintiffs filed their reply brief on February 2, 2011. Oral argument was held on June 23, 2011.

Through June 26, 2011, the Company has incurred approximately $31.3 million in legal and professional fees associated with the DOJ investigation, the antitrust related litigation, and other related legal proceedings.

Environmental Matters

The Company is subject to numerous laws and regulations relating to environmental matters and related record keeping and reporting. The Company has been advised that the U.S. Coast Guard and the offices of the U.S. Attorney for the Northern and Central Districts of California are investigating matters involving two of the Company’s vessels. The Company is fully and proactively cooperating with these investigations. During the year ended December 26, 2010, the Company recorded a provision in its Consolidated Statement of Operations of $0.5 million related to these contingencies. During the quarter ended June 26, 2011, the Company recorded an additional $1.0 million for a total of $1.5 million, which represents the Company’s best estimate of the potential liability. It is possible that the outcome of the investigation could result in a fine greater than $1.5 million or other actions against the Company that could have an adverse effect on the Company’s business and operations.

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

SFL Agreements

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

The Company has an interest in the variable interest entities (“VIE”) created in conjunction with the SFL transactions. However, based on a qualitative assessment as of June 26, 2011, the Company has determined it is not the primary beneficiary of the VIEs. The Company’s power to direct activities that most significantly impact the VIEs’ economic performance is limited to the maintenance and repair of the vessels. The Company’s maintenance and repair activities are performed primarily to conform to the requirements of the U.S. Coast Guard and to maintain the vessels’ on-time departure and arrival schedules. The Company’s obligation to absorb losses related to the residual guarantee or receive benefits related to the pre-agreed purchase price at the end of the twelve-year period are not considered to be significant to the cash flows of the VIE.

Certain contractual obligations and off-balance sheet obligations arising from this transaction include the annual operating lease obligations and the residual guarantee. The Company is accounting for the leases as operating leases. The residual guarantee is recorded at its fair value of approximately $0.3 million as a liability on the Company’s consolidated balance sheets as of June 26, 2011 and December 26, 2010.

Standby Letters of Credit

The Company has standby letters of credit primarily related to its property and casualty insurance programs. On June 26, 2011 and December 26, 2010, amounts outstanding on these letters of credit totaled $18.6 million and $11.3 million, respectively.

17. Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting for fair value measurements and disclosures. This amendment details additional disclosures on fair value measurements, requires a gross presentation of activities within a Level 3 roll-forward, and adds a new requirement to disclose transfers in and out of Level 1 and Level 2 measurements. The new disclosures are required of all entities that are required to provide disclosures about recurring and nonrecurring fair value measurements. This amendment is effective in the first interim or reporting period beginning after December 15, 2009, with an exception for the gross presentation of Level 3 roll-forward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The adoption of the provisions of this amendment required in the first interim period after December 15, 2009 did not have a material impact on the Company’s financial statement disclosures. In addition, the adoption of the provisions of this amendment during the quarter ended March 27, 2011 did not have a material impact on the Company’s financial statement disclosures.

18. Subsequent Events

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

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

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

Executive Overview

Softening trans-Pacific freight rates associated with our new China service, as well as the steep and persistent rise in fuel prices caused our second quarter 2011 results of operations to decline compared to the second quarter of 2010. In addition, the loss of steady month to month revenue from our previous trans-Pacific agreement and the expiration of certain equipment sharing agreements with Maersk also negatively impacted our 2011 results of operations as compared to 2010. We have undertaken efforts to reduce expenses and preserve liquidity, including, significantly reducing operating costs, seeking to restructure the terms of our existing indebtedness and pursuing the sale of selected assets.

The economic recovery in our domestic markets has continued at a slow and uneven pace. Persistent high unemployment and uncertainty in the economy have affected consumers and impacted their spending. In addition, construction spending remains at depressed levels and many state governments are enacting spending cutbacks, including workforce reductions and furloughs. As a result of the still uncertain macroeconomic environment and our specific challenges such as rate pressures in the China and Puerto Rico markets and volatile fuel prices, we remain focused on a series of successful cost management efforts.

Container volumes during the quarter and six months ended June 26, 2011 increased over the quarter and six months ended June 20, 2010 due to the commencement of our China service. Operating revenue for the quarter and six months ended June 26, 2011 increased as a result of the higher container volumes, higher fuel surcharges, and improved third party terminal services, which was partially offset by the loss of revenue under various transportation services agreements.

The increase in operating expense during the quarter and six months ended June 26, 2011 is primarily due to higher fuel prices and transportation expenses associated with the container volumes in our China service, and an increase in selling, general and administrative expenses. The increase in selling, general and administrative expenses is largely due to a separation agreement with our former chief executive officer, an increase in legal and professional expenses associated with the Department of Justice (“DOJ”) antitrust investigation and related legal proceedings, costs incurred in conjunction with our refinancing efforts, and expenses associated with our international operations, partially offset by a reversal of a portion of the charge recorded for the DOJ settlement and a decrease in stock-based compensation expense.

		Quarters Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
		($ in thousands)
Operating revenue		$	307,527			$	291,387			$	592,881			$	566,045
Operating expense			303,183				277,423				610,583				553,931
Operating income (loss)		$	4,344			$	13,964			$	(17,702	)		$	12,114
Operating ratio			98.6	%			95.2	%			103.0	%			97.9	%
Revenue containers (units)			75,208				64,596				146,737				124,884
Average unit revenue		$	3,852			$	3,934			$	3,792			$	3,944

We believe that in addition to GAAP based financial information, EBITDA and Adjusted EBITDA are meaningful disclosures for the following reasons: (i) EBITDA and Adjusted EBITDA are components of the measure used by our board of directors and management team to evaluate our operating performance, (ii) the senior credit facility contains covenants that require us to maintain certain interest expense coverage and leverage ratios, which contain EBITDA and Adjusted EBITDA as components, and restrict certain cash payments if certain ratios are not met, subject to certain exclusions, and our management team uses EBITDA and Adjusted EBITDA to monitor compliance with such covenants, (iii) EBITDA and Adjusted EBITDA are components of the measure used by our management team to make day-to-day operating decisions, (iv) EBITDA and Adjusted EBITDA are components of the measure used by our management to facilitate internal comparisons to competitors’ results and the marine container shipping and logistics industry in general and (v) the payment of discretionary bonuses to certain members of our management is contingent upon, among other things, the satisfaction by us of certain targets, which contain EBITDA and

Adjusted EBITDA as components. We acknowledge that there are limitations when using EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA and Adjusted EBITDA are not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as debt service, capital expenditures, and dry-docking payments. Because all companies do not use identical calculations, this presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The EBITDA amounts presented below contain certain charges that our management team excludes when evaluating our operating performance, for making day-to-day operating decisions and that have historically been excluded from EBITDA to arrive at Adjusted EBITDA when determining the payment of discretionary bonuses.

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

		Quarters Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Net (loss) income		$	(5,416	)		$	3,650			$	(39,487	)		$	(9,594	)
Net income (loss) from discontinued operations			1,590				(475	)			830				(2,024	)
Net (loss) income from continuing operations			(7,006	)			4,125				(40,317	)			(7,570	)
Interest expense, net			12,910				9,846				23,626				19,676
Income tax (benefit) expense			(1,585	)			(13	)			(1,671	)			3
Depreciation and amortization			15,361				14,348				30,651				28,246
EBITDA			19,680				28,306				12,289				40,355
Impairment charge			2,818				—				2,818				—
Department of Justice antitrust investigation costs			949				1,030				3,128				1,988
Loss on modification of debt/other refinancing costs			889				—				1,508				—
Union/other severance charge			151				97				2,964				360
Legal settlements			(18,202	)			—				(18,202	)			—
Adjusted EBITDA		$	6,285			$	29,433			$	4,505			$	42,703

In addition to EBITDA and Adjusted EBITDA, we use various other non-GAAP measures such as adjusted net (loss) income and adjusted net (loss) income 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 (loss) income 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) income to adjusted net (loss) income and net (loss) income per share to adjusted net (loss) income per share (in thousands, except per share amounts):

		Quarters Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Net (loss) income		$	(5,416	)		$	3,650			$	(39,487	)		$	(9,594	)
Net income (loss) from discontinued operations			1,590				(475	)			830				(2,024	)
Net (loss) income from continuing operations			(7,006	)			4,125				(40,317	)			(7,570	)
Adjustments:
Impairment charge			2,818				—				2,818				—
Department of Justice antitrust investigation costs			949				1,030				3,128				1,988
Loss on modification of debt/other refinancing costs			889				—				1,508				—
Union/other severance charge			151				97				2,964				360
Accretion of legal settlement			45				—				284				—
Legal settlements			(18,202	)			—				(18,202	)			—
Tax impact of adjustments			(521	)			(7	)			(775	)			(5	)
Total adjustments			(13,871	)			1,120				(8,275	)			2,343
Adjusted net (loss) income		$	(20,877	)		$	5,245			$	(48,592	)		$	(5,227	)

		Quarters Ended								Six Months Ended
		June 26,				June 20,				June 26,				June 20,
		2011				2010				2011				2010
Net (loss) income per share		$	(0.17	)		$	0.12			$	(1.27	)		$	(0.31	)
Net income (loss) per share from discontinued operations			0.05				(0.02	)			0.03				(0.07	)
Net (loss) income per share from continuing operations			(0.22	)			0.14				(1.30	)			(0.24	)
Adjustments:
Impairment charge			0.09				—				0.09				—
Department of Justice antitrust investigation costs			0.03				0.03				0.10				0.06
Loss on modification of debt/other refinancing costs			0.03				—				0.05				—
Union/other severance charge			—				—				0.10				0.01
Accretion of legal settlement			—				—				0.01				—
Legal settlement			(0.59	)			—				(0.59	)			—
Tax impact of adjustments			(0.01	)			—				(0.03	)			—
Total adjustments			(0.45	)			0.03				(0.27	)			0.07
Adjusted net (loss) income per share		$	(0.67	)		$	0.17			$	(1.57	)		$	(0.17	)

General

We believe that we are the nation’s leading Jones Act container shipping and integrated logistics company, accounting for approximately 36% of total U.S. marine container shipments from the continental U.S. to Alaska, Puerto Rico and Hawaii, constituting the three non-contiguous Jones Act markets, and to Guam and Micronesia. Under the Jones Act, all vessels transporting cargo between U.S. ports must, subject to limited exceptions, be built in the U.S., registered under the U.S. flag, manned by predominantly U.S. crews, and owned and operated by U.S.-organized companies that are controlled and 75% owned by U.S. citizens. In addition, on December 13, 2010, we commenced our own weekly trans-Pacific liner service between Asia and the U.S. West Coast. Our Five Star Express (“FSX”) service connects with our warehousing and distribution capabilities on the U.S. West Coast and intermodal rail service to inland destinations to create an integrated import/export solution. Using scheduled intermodal service from Los Angeles every week, we offer express inland service to Kansas City, Dallas, Chicago, Memphis, Atlanta and Charlotte.

History

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

Critical Accounting Policies

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

We believe that the application of our critical accounting policies, and the estimates and assumptions inherent in those policies, are reasonable. These accounting policies and estimates are periodically reevaluated and adjustments are made when facts or circumstances dictate a change. Historically, we have found the application of accounting policies to be appropriate and actual results have not differed materially from those determined using necessary estimates. There have been no material changes to the Company’s critical accounting policies during the six months ended June 26, 2011. The critical accounting policies can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2010 as filed with the Securities and Exchange Commission (“SEC”).

Seasonality

Our container volumes are subject to seasonal trends common in the transportation industry, including our China service. Financial results in the first quarter are normally lower due to reduced loads during the winter months, and as a result of the Chinese New Year’s affect on our China service. 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.

Results of Operations

Operating Revenue Overview

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

Over 80% of our revenue was generated from our shipping and logistics services in markets where the marine trade is subject to the Jones Act or other U.S. maritime laws. The balance of our revenue 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 other carriers lacking administrative presences in our markets, (iii) shipping services in the Asia to U.S. coast market, (iv) warehousing services for third-parties, and (v) other non-transportation services.

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

Cost of Services Overview

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

Quarter Ended June 26, 2011 Compared with the Quarter June 20, 2010

		Quarters Ended
		June 26,				June 20,
		2011				2010				Change				% Change
		($ in thousands)
Operating revenue		$	307,527			$	291,387			$	16,140				5.5	%
Operating expense:
Vessel			117,040				98,454				18,586				18.9	%
Marine			61,603				53,622				7,981				14.9	%
Inland			54,806				45,256				9,550				21.1	%
Land			36,985				35,591				1,394				3.9	%
Rolling stock rent			11,717				10,018				1,699				17.0	%
Cost of services			282,151				242,941				39,210				16.1	%
Depreciation and amortization			11,280				11,030				250				2.3	%
Amortization of vessel dry-docking			4,081				3,318				763				23.0	%
Selling, general and administrative			22,107				20,959				1,148				5.5	%
Impairment charge			2,818				—				2,818				100.0	%
Legal settlement			(19,202	)			—				(19,202	)			(100.0	)%
Miscellaneous income, net			(52	)			(825	)			773				(93.7	)%
Total operating expense			303,183				277,423				25,760				9.3	%
Operating income		$	4,344			$	13,964			$	(9,620	)			(68.9	)%
Operating ratio			98.6	%			95.2	%							3.4	%
Revenue containers (units)			75,208				64,596				10,612				16.4	%
Average unit revenue		$	3,852			$	3,934			$	(82	)			(2.1	)%