UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

(AMENDMENT NO. 1)

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 29, 2015

MATSON, INC.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number including area code: (808) 848-1211

(Former Name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

This Current Report on Form 8-K/A is filed as an amendment (Amendment No. 1) to the Current Report on Form 8-K filed on May 29, 2015 (the “Initial 8-K”) by Matson, Inc. (“Matson”), in order to provide the financial statements and pro forma financial information required by Item 9.01.  As previously reported in the Initial 8-K, on May 29, 2015, Matson Navigation Company, Inc. (“Matson Navigation”), a wholly-owned subsidiary of Matson, completed its acquisition of Horizon Lines, Inc. (“Horizon”) pursuant to the terms of that certain Agreement and Plan of Merger, dated as of November 11, 2014 (the “Merger Agreement”), as amended by Amendment No. 1, dated as of February 13, 2015 (the “Merger Agreement Amendment”), by and among Matson Navigation, Hogan Acquisition Inc., a wholly-owned subsidiary of Matson Navigation (“Merger Sub”), and Horizon.  At the effective time, as defined in the Merger Agreement, Merger Sub merged with and into Horizon, with Horizon continuing as the surviving entity and a direct wholly-owned subsidiary of Matson Navigation (the “Merger”).

The foregoing description of the Merger Agreement and the Merger Agreement Amendment, and the transactions contemplated therein is not complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement and the Merger Agreement Amendment, which are attached as Exhibit 2.1 to Matson’s Current Reports on Form 8-K filed on November 12, 2014 and February 17, 2015, respectively, and incorporated herein by reference.

Items and exhibits previously reported in the Initial 8-K that are not included in this Amendment No. 1 remain unchanged.

Item 9.01.             Financial Statements and Exhibits.

(a)   Financial Statements of Businesses Acquired

·                  The audited Consolidated Financial Statements of Horizon Lines, Inc. for the years ended December 21, 2014 and December 22, 2013, with reports of independent auditors, are attached as Exhibit 99.1 hereto and incorporated by reference into this Current Report on Form 8-K/A.

These consolidated financial statements reflect Horizon’s Alaska and Hawaii operations as continuing operations, and the Puerto Rico operations as discontinued operations, for the years ended December 21, 2014 and December 22, 2013.

·                  The unaudited Condensed Consolidated Balance Sheet of Horizon Lines, Inc. for the three-months ended March 22, 2015, and the Consolidated Statements of Operations and Cash Flows for the three-months ended March 22, 2015 and March 23, 2014 are attached as Exhibit 99.2 hereto and incorporated by reference into this Current Report on Form 8-K/A.

These consolidated financial statements reflect Horizon’s Alaska and Hawaii operations as continuing operations, and the Puerto Rico operations as discontinued operations, for the years ended December 21, 2014 and December 22, 2013.

·                  The consent of Ernst and Young, Horizon Lines Inc.’s independent auditors, is attached as Exhibit 23.1 hereto.

(b)   Pro Forma Financial Information

·                  The Unaudited Pro Forma Combined Condensed Balance Sheet at March 31, 2015, Unaudited Pro Forma Combined Condensed Statement of Operations for the three-month period ended March 31, 2015, and the Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 2014 are attached as Exhibit 99.3 hereto and incorporated by reference into this Current Report on Form 8-K/A.

The unaudited pro forma condensed combined balance sheet as of March 31, 2015 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2014 and the three-months ended March 31, 2015 (the “pro forma financial statements”) are based on the separate historical consolidated financial statements of the Company and Horizon. These pro forma financial statements reflect the acquisition of Horizon, and exclude the Hawaii operations which were sold to The Pasha Group, and other related events, and apply the assumptions and adjustments described in Exhibit 99.3.

(d)   Exhibits

The following exhibits are filed as part of this Current Report on Form 8-K/A:

23.1        Consent of Ernst & Young LLP.

99.1                        Audited Consolidated Financial Statements of Horizon Lines, Inc. for the years ended December 21, 2014 and December 23, 2013, with reports of independent auditors.

99.2                        Unaudited Condensed Consolidated Balance Sheet of Horizon Lines, Inc. for the three-months ended March 22, 2015, and the Consolidated Statements of Operations and Cash Flows for the three-months ended March 22, 2015 and March 23, 2014.

99.3                        Unaudited Pro Forma Combined Condensed Balance Sheet at March 31, 2015, Unaudited Pro Forma Combined Condensed Statement of Operations for the three-month period ended March 31, 2015, and the Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 2014.

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SIGNATURE

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

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Exhibit 23.1

Consent of Independent Auditor

We consent to the incorporation by reference in the following Matson, Inc. Registration Statements:

(1)         Registration Statement (Form S-8 No. 333-184623),

(2)         Registration Statement (Form S-8 No. 333-121194), as amended by Post-Effective Amendment No. 1 filed on April 26, 2007 and as further amended by Post-Effective Amendment No. 2 filed on June 7, 2012,

(3)         Registration Statement (Form S-8 No. 333-166539), as amended by Post-Effective Amendment No. 1 filed on June 7, 2012,

(4)         Registration Statement (Form S-8 No. 333-142384), as amended by Post-Effective Amendment No. 1 filed on June 7, 2012, and

(5)         Registration Statement (Form S-8 No. 333-69197), as amended by Post-Effective Amendment No. 1 filed on June 7, 2012;

of our report dated July 31, 2015, with respect to the consolidated financial statements of Horizon Lines, Inc. included in this Current Report on Form 8-K.

Exhibit 99.1

FINANCIAL STATEMENTS

Horizon Lines, Inc.

Years Ended December 21, 2014 and December 22, 2013

With Report of Independent Auditors

Horizon Lines, Inc.

Financial Statements

Year Ended December 21, 2014 and December 22, 2013

Contents

Report of Independent Auditors

The Board of Directors of

Matson, Inc.

We have audited the accompanying consolidated financial statements of Horizon Lines, Inc., which comprise the consolidated balance sheets as of December 21, 2014 and December 22, 2013, and the related consolidated statements of operations, comprehensive loss, cash flows, and changes in stockholders’ deficiency for the years then ended and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Horizon Lines, Inc. at December 21, 2014 and December 22, 2013, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Charlotte, North Carolina

July 31, 2015

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Horizon Lines, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

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

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Horizon Lines, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

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

3

Horizon Lines, Inc.

Consolidated Statements of Comprehensive Loss

(In thousands)

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

4

Horizon Lines, Inc.

Consolidated Statements of Cash Flows

(In thousands)

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

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Horizon Lines, Inc.

Consolidated Statements of Changes in Stockholders’ Deficiency

(In thousands)

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

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Horizon Lines, Inc.

Notes to Consolidated Financial Statements

1.                       Basis of Presentation and Operations

Horizon Lines, Inc. (the “Company”) operates as a holding company for several wholly owned subsidiaries that function as its operating entities. Horizon Lines, LLC (“Horizon Lines”) operates as a Jones Act container shipping business with primary service to ports within the continental United States, Alaska, and Hawaii as well as Puerto Rico through December 2014 before ceasing container shipping in Puerto Rico as discussed below. 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 offered terminal services. Horizon Lines of Puerto Rico, Inc. (“HLPR”) operated as an agent for Horizon Lines in Puerto Rico and also provided terminal services in Puerto Rico. The Company discontinued its liner service between the U.S. and Puerto Rico and terminal services in Puerto Rico in the first quarter of 2015 (collectively, the “Puerto Rico operations”).

The accompanying consolidated financial statements include the consolidated accounts of the Company and its wholly owned subsidiaries and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ deficiency and cash flows. All significant intercompany accounts and transactions have been eliminated.

On November 11, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Matson Navigation Company, Inc., a Hawaii corporation (“Matson”), and Hogan Acquisition Inc., a Delaware corporation and a wholly owned Subsidiary of Matson (“Merger Sub”), pursuant to which Merger Sub would merge with and into the Company (the “Merger”), with the Company surviving the Merger and becoming a wholly owned subsidiary of Matson. On November 11, 2014, the Company also entered into a Contribution, Assumption and Purchase Agreement (the “Purchase Agreement”) with the Pasha Group, a California corporation (“Pasha”), SR Holdings LLC, a California limited liability company and wholly owned subsidiary of Pasha and Sunrise Operations LLC, a California limited liability company and wholly owned subsidiary of the Company, pursuant to which Pasha would acquire the Company’s Hawaii trade lane business (the “Hawaii Operations”), prior to closing of the Merger, for approximately $141.5 million in cash. The description of the Merger Agreement and the Purchase Agreement below does not purport to be complete and is qualified in its entirety by the full text of the Merger Agreement and the Purchase Agreement, as filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2014, as well as the Amendment No. 1 to Agreement and Plan of Merger (“Merger Amendment Agreement”), dated as of November 11, 2014, as filed with the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2015.

On February 25, 2015, at a special meeting (the “Special Meeting”) of the stockholders of the Company, the Company’s stockholders approved the proposal to adopt the Merger Agreement. The issued and outstanding shares of Company common stock entitled to vote at the Special Meeting consisted of 40,540,047 shares with 34,884,148 votes cast in favor of the proposal to adopt the Merger Agreement.

On May 29, 2015, Matson completed its acquisition of the Company pursuant to the terms of the Merger Agreement and Merger Amendment Agreement.  At the Effective Time, as defined in the Merger Agreement, Merger Sub merged with and into the Company, with the Company continuing as the surviving entity and a direct wholly owned subsidiary of Matson.  Concurrently with the closing of the Merger, the Company changed its name to Matson Alaska, Inc.

Immediately prior to the closing of the Merger, the Company completed the sale of its Hawaii Operations to Pasha pursuant to the terms of the Purchase Agreement, the proceeds of which were used to repay debt.

Pursuant to the Merger on May 29, 2015, Matson acquired the outstanding stock and warrants that were convertible to stock of the Company for $0.72 per share.  Subsequently, Matson repaid all of the Company’s outstanding debt.

The accompanying consolidated financial statements have been reclassified to present the Company’s Puerto Rico operations as discontinued operations in 2014 and 2013 in order for Matson to furnish audited financial statements required by Rule 3-05 of the U.S. Securities and Exchange Commission Regulation S-X.

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2.                       Significant Accounting Policies

Cash

Cash of the Company consists principally of cash held in banks.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts based upon the expected collectability of accounts receivable reflective of its historical collection experience. In circumstances in which management is aware of a specific customer’s inability to meet its financial obligation to the Company (for example, bankruptcy filings, accounts turned over for collection or litigation), the Company records a specific reserve for the bad debts against amounts due. For all other customers, the Company recognizes reserves for these bad debts based on the length of time the receivables are past due and other customer specific factors including, type of service provided, geographic location and industry. The Company monitors its collection risk on an ongoing basis through the use of credit reporting agencies. Accounts are written off after all means of collection, including legal action, have been exhausted. The Company does not require collateral from its trade customers.

The allowance for doubtful accounts approximated $1.2 million at December 21, 2014 and December 22, 2013.

Materials and Supplies

Materials and supplies consist primarily of fuel inventory aboard vessels and inventory for maintenance of property and equipment. Fuel is carried at cost on the first in, first out (FIFO) basis, while all other materials and supplies are carried at average cost.

Property and Equipment

Property and equipment are stated at cost. Certain costs incurred in the development of internal-use software are capitalized. Routine maintenance, repairs, and removals other than vessel dry-dockings are charged to expense. Expenditures that materially increase values, change capacities or extend useful lives of the assets are capitalized. Depreciation and amortization is computed by the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the Company’s assets are as follows:

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present or if other circumstances indicate that an impairment may exist, the Company determines whether an impairment loss should be recognized. An impairment loss is recognized for a long-lived asset (or asset group) that is held and used only if the sum of its estimated future undiscounted cash flows used to test for recoverability is less than its carrying value. Estimates of future cash flows used to test a long-lived asset (or asset group) for recoverability include only the future cash flows (cash inflows and associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the long-lived asset (or asset group). Estimates of future cash flows are based on the Company’s assumptions about its use of a long-lived asset (or asset group). The cash flow estimation period is based on the long-lived asset’s (or asset group’s) remaining useful life to the entity. When long-lived assets are grouped for purposes of performing the recoverability test, the remaining useful life of the asset group is based on the useful life of the primary asset. The primary asset of the asset group is the principal long-lived tangible asset being depreciated that is the most significant component asset from which the group derives its cash-flow-generating capacity. Estimates of future cash flows used to test the recoverability of a long-lived asset (or asset group) that is in use is based on the existing service potential of the asset (or asset group) at the date tested. Existing service potential encompasses the long-lived asset’s estimated useful life, cash flow generating capacity, and, the physical output capacity. The estimated cash flows include cash flows associated with future expenditures necessary to maintain the existing service potential, including those that replace the service potential of component parts, but they do not include cash flows associated with future capital expenditures that would increase the service potential. When undiscounted future cash flows will not be sufficient to recover the carrying amount of an asset, the asset is written down to its fair value.

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Vessel Dry-docking

Vessels must undergo regular inspection, monitoring and maintenance, referred to as dry-docking, to maintain the required operating certificates. United States Coast Guard regulations generally require that vessels be dry-docked twice every five years. The costs of these scheduled dry-dockings are customarily capitalized and are then amortized over a 30-month period beginning with the accounting period following the vessel’s release from dry-dock, because dry-dockings enable the vessel to continue operating in compliance with U.S. Coast Guard requirements.

The Company takes advantage of vessel dry-dockings to also perform normal repair and maintenance procedures on the vessels. These routine vessel maintenance and repair procedures are charged to expense as incurred. In addition, the Company will occasionally during a vessel dry-docking, replace vessel machinery or equipment and perform procedures that materially enhance capabilities of a vessel. In these circumstances, the expenditures are capitalized and depreciated over the estimated useful lives.

Leases

The Company leases certain vessels, facilities, equipment and vehicles under capital and operating leases. The commencement date of all leases is the earlier of the date the Company becomes legally obligated to make rent payments or the date the Company may exercise control over the use of the property. Rent expense is recorded as incurred. Certain of the Company’s leases contain fluctuating or escalating payments and rent holiday periods. The related rent expense is recorded on a straight-line basis over the lease term. Leasehold improvements associated with assets utilized under capital or operating leases are amortized over the shorter of the asset’s useful life or the lease term.

Intangible Assets

Intangible assets consist of goodwill, customer contracts/relationships, trademarks, and deferred financing costs. The Company amortizes customer contracts/relationships using the straight line method over the expected useful lives of 4 to 10 years. The Company also amortizes trademarks using the straight line method over the expected life of the related trademarks of 15 years. The Company amortizes debt issue cost using the effective interest method over the term of the related debt.

Goodwill has an indefinite life, and as a result is not amortized. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company identified its reporting unit by first determining its operating segment, and then assessed whether any components of the operating segment constituted a business for which discrete financial information is available and where segment management regularly reviews the operating results of the component. The Company concluded it had one operating segment and one reporting unit.

The Company reviews goodwill for impairment annually in the fourth quarter, and whenever events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the carrying amount of the Company’s single reporting unit exceeds its fair value (step one), the Company measures the possible goodwill impairment based on a hypothetical allocation of the estimated fair value of the reporting unit to all of the underlying assets and liabilities, including previously unrecognized intangible assets (step two). The excess of the reporting unit’s fair value over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent the reporting unit’s recorded goodwill exceeds the implied fair value of goodwill. A number of significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including market growth and market share, sales volumes and prices, costs of service, discount rate and estimated capital needs. Management considers historical experience and all available information at the time the fair value of a reporting unit is estimated. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. Changes in assumptions and estimates may affect the carrying value of goodwill and could result in additional impairment charges in future periods.

Revenue Recognition

The Company records transportation revenue and an accrual for the corresponding costs to complete delivery when the cargo first sails from its point of origin. The Company believes this method of revenue recognition does not result in a material difference in reported net income on an annual or quarterly basis as compared to recording transportation revenue between accounting periods based upon the relative transit time within each respective period with expenses recognized as incurred. The Company recognizes revenue and related costs of sales for terminal and other services upon completion of services.

Insurance Reserves

The Company maintains insurance for casualty, property and health claims. Most of the Company’s insurance arrangements include a level of self-insurance. Reserves are established based on the nature of the claim or the value of cargo damaged and the use of current trends and historical data for other claims. These estimates are based on historical information along with certain assumptions about future events and also include reserves for claims incurred but not reported, where applicable.

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Income Taxes

The Company accounts for income taxes under the liability method whereby deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effects on deferred tax assets and liabilities of subsequent changes in the tax laws and rates are recognized in income during the year the changes are enacted. Deferred tax assets are reduced by a valuation allowance when, in the judgment of management, it is more likely than not that some portion or all of the deferred tax assets will not be realizable.

Pension and Post-retirement Benefits

The Company has noncontributory pension plans and post-retirement benefit plans covering certain union employees. Costs of these plans are charged to current operations and consist of several components that are based on various actuarial assumptions regarding future experience of the plans. In addition, certain other union employees are covered by plans provided by their respective union organizations. The Company expenses amounts as paid in accordance with union agreements.

Amounts recorded for the pension plan and the post-retirement benefit plan reflect estimates related to future interest rates, investment returns, and employee turnover. The expected return on pension plan assets is determined using the fair market value of plan assets. The Company’s method for amortizing actuarial gains and losses is to amortize the gain or loss over the average expected future service of active participants expected to receive benefits. The Company reviews all assumptions and estimates on the single employer and post-retirement benefit plans on an ongoing basis.

The Company is required to recognize the overfunded or underfunded status of its defined benefit and post-retirement benefit plans as an asset or liability, with changes in the funded status recognized as an adjustment to the ending balance of accumulated other comprehensive loss in the year they occur. The pension plan and the post-retirement benefit plans are in an underfunded status.

Fiscal Period

The fiscal period of the Company typically ends on the Sunday before the last Friday in December. For fiscal year 2014, the fiscal period began on December 23, 2013 and ended on December 21, 2014. For fiscal year 2013, the fiscal period began on December 24, 2012 and ended on December 22, 2013. Both of the fiscal years ended December 21, 2014 and December 22, 2013 consisted of 52 weeks.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates include the assessment of the realization of accounts receivable, deferred tax assets and long-lived assets and the useful lives of intangible assets and property and equipment, as well as the estimate and recognition of liabilities.

Recent Accounting Pronouncements

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires entities to recognize revenue in the way it expects to be entitled for the transfer of promised goods or services to customers. When it becomes effective, the ASU will replace most of the existing revenue recognition requirements in U.S. GAAP, including industry-specific guidance. This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early application not permitted.  The FASB has issued for public comment a proposed revision to this standard that would defer the effective date for public companies to annual reporting periods beginning after December 15, 2017. ASU 2014-09 provides alternative methods of initial adoption, including retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the pronouncement recognized at the date of initial application. The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures.

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Supplemental Cash Flow Information

Non-cash financing activities were as follows (in thousands):

Cash payments for interest and income tax payments (refunds) were as follows (in thousands):

3.                       Long-Term Debt

Long-term debt, net of original issue discount or premium, consists of the following (in thousands):

On October 5, 2011, the Company issued the 6.00% Convertible Notes. On October 5, 2011, Horizon Lines issued the First Lien Notes, the Second Lien Notes, and entered into the ABL Facility. On January 31, 2013, Horizon Lines entered into the $20.0 Million Agreement and Horizon Lines Alaska Vessels, LLC (“Horizon Alaska”), the Company’s newly formed special purpose subsidiary, entered into the $75.0 Million Agreement. The 6.00% Convertible Notes, the First Lien Notes, the Second Lien Notes, the ABL Facility, the $20.0 Million Agreement, and the $75.0 Million Agreement are defined and described below.

The Company formed Sunrise Operations LLC and each of its downstream subsidiaries (collectively, the “Sunrise LLCs”) pursuant to the terms of the Purchase Agreement. The Sunrise LLCs currently have no operations. Accordingly, the Sunrise LLCs are each currently “Immaterial Subsidiaries” under the ABL Facility, the 6.00% Convertible Notes, the Second Lien Notes, and the $20.0 Million Agreement (collectively, the “Horizon Lines Debt Agreements”) and do not guarantee any of the Horizon Lines Debt Agreements.

Per the terms of the Horizon Lines Debt Agreements, the Alaska SPEs (as defined below) are not required to be a party thereto, and are considered “Unrestricted Subsidiaries” under the 6.00% Convertible Notes, the First Lien Notes, the Second Lien Notes, and the $20.0 Million Agreement. The Alaska SPEs do not guarantee any of the Horizon Lines Debt Agreements; however, they are the sole guarantors of the $75 Million Agreement.

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The 6.00% Convertible Notes are fully and unconditionally guaranteed by the Company’s subsidiaries other than the Immaterial Subsidiaries and Unrestricted Subsidiaries identified above. The ABL Facility, the First Lien Notes, the Second Lien Notes, and the $20.0 Million Agreement are fully and unconditionally guaranteed by the Company and each of its subsidiaries other than Horizon Lines and the Unrestricted Subsidiaries.

The ABL Facility is secured on a first-priority basis by liens on the 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, of the Company and the Company’s subsidiaries other than the Immaterial Subsidiaries and Unrestricted Subsidiaries identified above (collectively, the “ABL Priority Collateral”). Substantially all other assets of the Company and the Company’s subsidiaries, other than the assets of the Immaterial Subsidiaries and the Unrestricted Subsidiaries identified above, also serve as collateral for the Horizon Lines Debt Agreements (collectively, such other assets are the “Secured Notes Priority Collateral”).

The following table summarizes the issuers, guarantors and non-guarantors of each of the Horizon Lines Debt Agreements:

The following table lists the order of lien priority for each of the Horizon Lines Debt Agreements on the Secured Notes Priority Collateral and the ABL Priority Collateral, as applicable:

First Lien Notes

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. Horizon Lines 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 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 Horizon Lines. These covenants are subject to certain exceptions and qualifications. Horizon Lines was in compliance with all such applicable covenants as of December 21, 2014.

On October 5, 2011, the fair value of the First Lien Notes was $228.4 million, which reflected Horizon Lines’ 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.

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Second Lien Notes

The 13.00%-15.00% Second Lien Senior Secured Notes (the “Second Lien Notes”) were issued pursuant to an indenture on October 5, 2011.

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 were non-callable for two years from the date of their issuance, were callable by Horizon Lines at 106% of their aggregate principal amount, plus accrued and unpaid interest thereon in the third year, and thereafter the Second Lien Notes are callable by Horizon Lines at (i) 103% of their aggregate principal amount, plus accrued and unpaid interest thereon in the fourth year, and (ii) at par plus accrued and unpaid interest thereafter.

On April 15, 2012, October 15, 2012, April 15, 2013, October 15, 2013, April 15, 2014 and October 15, 2014, Horizon Lines issued an additional $7.9 million, $8.1 million, $8.7 million, $9.4 million, $10.1 million and $10.8 million, respectively, of Second Lien Notes to satisfy the payment-in-kind interest obligation under the Second Lien Notes. In addition, Horizon Lines elected to satisfy its interest obligation under the Second Lien Notes due April 15, 2015 by issuing additional Second Lien Notes. As such, as of December 21, 2014, Horizon Lines has recorded $4.3 million of accrued interest as an increase to long-term debt.

The Second Lien Notes contain affirmative and negative covenants that 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 Horizon Lines. These covenants are subject to certain exceptions and qualifications. Horizon Lines was in compliance with all such applicable covenants as of December 21, 2014.

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 and Horizon Lines entered into a Global Termination Agreement with Ship Finance International Limited (“SFL”) whereby Horizon Lines issued $40.0 million aggregate principal amount of its Second Lien Notes and 9,250,000 warrants that can be converted to 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 and covenants 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, April 15, 2013, October 15, 2013, April 15, 2014, and October 15, 2014, Horizon Lines issued an additional $3.1 million, $3.2 million, $3.5 million, $3.7 million, and $4.0 million, respectively, of SFL Notes to satisfy the payment-in-kind interest obligation under the SFL Notes. In addition, Horizon Lines has elected to satisfy its interest obligation under the SFL Notes due April 15, 2015 by issuing additional SFL Notes. As such, as of December 21, 2014, Horizon Lines has recorded $1.5 million of accrued interest as an increase to long-term debt.

ABL Facility

On October 5, 2011, Horizon Lines 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. Horizon Lines 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 is available to be used by Horizon Lines 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. In addition to allowing for the incurrence of the additional long-term debt under those agreements, amendments to the ABL Facility included, among other changes, (i) permission to make certain investments in the Alaska SPEs, including the proceeds of the $20.0 Million Agreement and the arrangements related to the charters and the sublease of the terminal facility licenses for the Vessels (as defined below), (ii) excluding the Alaska SPEs from the guarantee and collateral requirements of the ABL Facility and from the restrictions of the negative covenants and certain other provisions, (iii) 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, (iv) the exclusion of certain historical charges and expenses relating to discontinued operations and severance from the calculation of bank-defined Adjusted EBITDA, (v) the exclusion of the historical charter hire expense deriving from the Vessels from the calculation of bank-defined Adjusted EBITDA, and (vi) 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.

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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. Horizon Lines had $11.4 million of letters of credit outstanding as of December 21, 2014, which reduces our overall borrowing availability. As of December 21, 2014, there were no borrowings outstanding under the ABL facility and total borrowing availability was $71.7 million.

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. Horizon Lines was in compliance with all such applicable covenants as of December 21, 2014.

Subsequent to the end of the year, the ABL Facility was amended on April 22, 2015, to reduce the size of the facility from $100.0 million to $80.0 million.  The Company’s account receivable balances have decreased due to the closing of the Puerto Rico operations in the first quarter of 2015.  The decrease has resulted in a reduction in the maximum forecasted borrowing base below $80.0 million. In addition, this amendment reduces the requirement for testing the minimum fixed charge coverage ratio, from a minimum excess availability of $12.5 million to $10.0 million and the threshold for weekly borrowing base reporting from $14.0 million to $12.0 million.  The amendment also reduces the letter of credit sub-limit from $30.0 million to $20.0 million.

$75.0 Million Term Loan Agreement

Three of Horizon Lines’ Jones Act-qualified vessels: the Horizon Anchorage, Horizon Tacoma, and Horizon Kodiak (collectively, the “Vessels”) were previously chartered. The charter for the Vessels 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 Alaska, acquired off of charter the Vessels for a purchase price of approximately $91.8 million.

On January 31, 2013, Horizon Alaska, together with two newly formed subsidiaries of Horizon Lines, 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 under the $75.0 Million Agreement are secured by a first-priority lien on substantially all of the assets of Horizon Alaska, Horizon Vessels, and Alaska Terminals (collectively, the “Alaska SPEs”), which primarily includes the Vessels. The operations of the Alaska SPEs are limited to a bareboat charter of the Vessels between Horizon Alaska and Horizon Lines and a sublease of a terminal facility in Anchorage, Alaska between Alaska Terminals and Horizon Lines of Alaska.

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 borrowing under the $75.0 Million Agreement, the Alaska SPEs paid financing costs of $2.5 million during 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 Alaska SPEs will also pay, at maturity of the $75.0 Million Agreement, 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 Alaska SPEs were in compliance with all such covenants as of December 21, 2014. The agent and the lenders under the $75.0 Million Agreement do not have any recourse to the stock or assets of the Company or any of its subsidiaries (other than the Alaska SPEs or equity interests therein). Defaults under the $75.0 Million Agreement do not give rise to any remedies under the Horizon Lines Debt Agreements.

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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.

$20.0 Million Term Loan Agreement

On January 31, 2013, the Company and those of its subsidiaries that are parties (collectively, the “Loan Parties”) to the existing First Lien Notes, the Second Lien Notes, and the 6.00% Convertible Notes (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 does not provide for any amortization of principal, and the full outstanding amount of the loan is payable on September 30, 2016. Horizon Lines is not permitted to optionally prepay the $20.0 Million Agreement except for prepayment in full (together with a prepayment premium equal to 5.0% of the principal amount prepaid) following repayment in full of the First Lien Notes and the $75.0 Million Agreement.

In connection with the issuance of the $20.0 Million Agreement, Horizon Lines paid financing costs of $0.6 million during 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 proceeds of the loan borrowed under the $20.0 Million Agreement were contributed to Horizon Alaska to enable it to acquire the Vessels. Horizon Lines was in compliance with all such applicable covenants as of December 21, 2014.

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.

6.00% Convertible Notes

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, collectively the “6.00% Convertible Notes”). The 6.00% Convertible Notes were issued pursuant to an indenture, which the Company and the Loan Parties entered into with U.S. Bank , 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 6.00% Convertible Notes Indenture. As of December 21, 2014, $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. Upon conversion, foreign holders may, under certain conditions, receive warrants in lieu of shares of common stock.

In connection with the execution of the Merger Agreement, on November 11, 2014, the Company and U.S. Bank National Association (the “Trustee”), as trustee and collateral agent entered into a fifth supplemental indenture (the “Fifth Supplemental Indenture”) to the 6.00% Convertible Notes Indenture. The Fifth Supplemental Indenture provides that, subject to the satisfaction and discharge of all secure debt that is senior to the 6.00% Convertible Notes, immediately after consummation of the Merger contemplated by the Merger Agreement, the Company will make an irrevocable deposit (“the Merger Deposit”) with the Trustee of an amount in cash that is sufficient to pay the principal of, premium (if any) and interest on the 6.00% Convertible Notes on the scheduled due dates through and including its stated maturity. Upon receipt of the Merger Deposit, unless and until a default or event of default with respect to the payment of principal, premium (if any) or interest on the 6.00% Convertible Notes occurs,

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certain covenants in the 6.00% Convertible Notes Indenture will be suspended and neither the Company nor any of its subsidiaries will be obligated to comply with such covenants. The covenants subject to suspension, include, among others, covenants regarding the Company’s obligation to furnish annual and quarterly reports to the Trustee, covenants regarding restricted payments, covenants regarding restrictions on dividends and other distributions, incurrence of debt, incurrence of liens, affiliate transactions, and certain covenants regarding asset sales. The Trustee will use the Merger Deposit for payment of principal, premium (if any) and interest on the Notes pursuant to the terms of the 6.00% Convertible Notes Indenture.

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 6.00% Convertible 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 December 21, 2014, the fair value of the embedded conversion features was $18 thousand which was calculated using the Black-Scholes Pricing Model. The Company recorded a non-cash gain of $0.1 million and $0.3 million during the years ended December 21, 2014 and December 22, 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.

Warrants

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 December 21, 2014 there were 1.1 billion warrants outstanding for the purchase of up to 51.9 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. Each warrant is convertible into shares of the Company’s common stock at an exercise price of $0.01 per share, which the holder 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 22, 2013, and on December 21, 2014. The warrants will be evaluated on a continuous basis to determine if equity classification continues to be appropriate.

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Fair Value of Financial Instruments

The estimated fair value of the Company’s debt as of December 21, 2014 and December 22, 2013 totaled $522.6 million and $488.9 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.

Contractual maturities of long-term debt obligations as of December 21, 2014 are as follows (in thousands):

4.                       Impairment Charges

During 2014, the Company recorded $0.3 million of impairment charges related to the disposition of a crane in its Dutch Harbor location.

The Company made progress payments for three new cranes, which are still in the construction phase, that were initially purchased for use in our Anchorage, Alaska terminal. These cranes were expected to be installed and become fully operational in December 2010. However, the Port of Anchorage Intermodal Expansion Project encountered delays that continued beyond 2014. During 2013, the Company sold two of these cranes and recorded an impairment charge of $2.6 million to write down the carrying value of the cranes to their net proceeds.

5.                       Restructuring

Road Raiders

During 2014, the Company recorded a $0.3 million restructuring charge including $0.2 million of severance and $0.1 million of impairment charges of leasehold improvements resulting from the closure of its Road Raiders, Inland, Inc.’s and its downstream subsidiaries’ (collectively, “Road Raiders”) third party logistics business.

6.                       Discontinued Operations

Puerto Rico Operations

On December 5, 2012, the Company discontinued 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 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 additional charges of $1.0 million and $0.5 million during 2013 as a result of the return of a portion of its excess leased equipment and additional union and non-union severance, respectively.

The Company also initiated a plan during the fourth quarter of 2012 to further reduce its non-union workforce in connection 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. During the third quarter of 2013, the Company received additional information related to the liability associated with the withdrawal from the Port of Elizabeth’s multiemployer pension plan and recorded an additional $0.8 million restructuring charge. During the fourth quarter of 2013, the Company reached a settlement agreement whereby the Company paid $5.3 million to satisfy its liability associated with the withdrawal from the multiemployer pension plan.

During November 2014, the Company announced its decision to discontinue all of its sailings to and from Puerto Rico and its operations at the San Juan, Puerto Rico terminal. Final sailings of Puerto Rico vessels took place in January 2015 and terminal operations ceased in March 2015. In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards

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Update (“ASU”) 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in ASU 2014-08 change the requirements for reporting discontinued operations in ASC 205-20. The amendments change the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The amendments require expanded disclosures for discontinued operations and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014.  The Company adopted ASU 2014-08 during the year ended December 21, 2014 and presented its Puerto Rico operations as discontinued operations in all periods presented.

As a result of the decision to exit the Puerto Rico operations, the Company recorded a pre-tax restructuring charge of $65.7 million during the fourth quarter of 2014. The charge was comprised of $24.2 million of impairment charges and $41.5 million of restructuring reserves.

Impairment charge components related to the exit of the Puerto Rico operations for the year ended December 21, 2014 were as follows (in thousands):

The fair value of the San Juan terminal equipment was based on the estimated purchase price of the equipment, which was sold subsequent to year end for $7.3 million (Footnote 19). The fair value of the vessels and containers was based on quoted market prices or prices for similar assets, which were $4.4 million and $1.9 million, respectively. The fair value estimates for the terminal, vessels and container assets were Level 2 measurements in the ASC 820 hierarchy. The unamortized dry docking costs were impaired due to the reduction of the normal 30-month future service period for the associated vessels.

Restructuring charge components related to the exit of the Puerto Rico operations for the year ended December 21, 2014 were as follows (in thousands):

The Company’s decision to exit the Puerto Rico market resulted in the recognition of a liability of $26.8 million on a present value basis for the probable withdrawal from the multiemployer ILA-PRSSA Pension Fund. Expected total payments over 13.8 years are $53.8 million with annual cash outflows related to the multi-employer pension plan withdrawal as follows (in thousands):

The Company recorded $7.9 million of liabilities for the costs of exiting certain operating leases for containers, chassis and gensets based on contractual terms. Personnel related costs of $5.9 million relate to planned reductions in substantially all of the Puerto Rico work force. The Company expects to incur approximately $0.3 million of facility lease exit costs and other contract exit costs during the first quarter of 2015, once use of the facilities has ceased.

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On March 11, 2015, Horizon Lines and HLPR sold certain of their respective terminal assets to Luis A. Ayala Colon Sucrs, Inc. (“LAC”) for proceeds of $7.3 million pursuant to an asset purchase agreement. LAC assumed HLPR’s terminal lease with the Puerto Rico Port Authority, which reduced the Company’s future minimum operating lease payments by $12.8 million. The fourth quarter 2014 restructuring charge excluded the cost of exiting the terminal lease due to the expected sale of assets to LAC.  During March 2015, the Company sold two vessels, the Discovery and the Trader, for proceeds of $3.8 million, which equaled book value.

The following table presents the Puerto Rico restructuring reserves at December 23, 2012, December 22, 2013 and December 21, 2014, as well as activity during 2013 and 2014 (in thousands):

FSX Service

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. During the fourth quarter of 2011, the Company recorded a restructuring charge as a result of the shutdown of the FSX service. The restructuring charge included, among other things, an amount related to the present value of the Company’s future vessel lease obligations.

There were no restructuring reserves related to the FSX discontinued operations remaining at December 23, 2013 and December 21, 2014.  The following table presents the FSX restructuring reserves at December 23, 2012 and December 22, 2013, as well as activity during 2013 (in thousands):

During 2013, the Company incurred legal and professional fees associated with an arbitration proceeding. The Company was seeking reimbursement of certain costs and expenditures related to previously co-owned assets that were utilized as part of the Company’s FSX service. During the third quarter of 2013, an arbitration panel awarded the Company $3.0 million plus reimbursement of $0.8 million of legal fees and expenses, which was recorded as part of discontinued operations.

Net income from discontinued operations related to FSX was $34 thousand and $1.4 million for the years ended December 21, 2014 and December 22, 2013, respectively.  Liabilities of discontinued operations related to FSX were $0.1 million and $0.2 million at December 21, 2014 and December 22, 2013, respectively.

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Assets and Liabilities of Discontinued Operations

The following table presents balance sheet information for the discontinued operations for Puerto Rico and FSX included in the Consolidated Balance Sheets (in thousands):

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Results of Operations of Discontinued Operations

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

7.                       Property and Equipment

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

On January 31, 2013, the Company, through its newly-formed subsidiary Horizon Alaska, acquired off of charter the Vessels for a purchase price of $91.8 million. The charter for the Vessels 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. The $91.8 million purchase price was partially offset by certain liabilities, including an unfavorable lease liability and accrued vessel rent, to arrive at the Vessels’ carrying value as of the purchase date of $75.2 million.

Depreciation expense reflected in the consolidated statement of operations was $19.9 million and $19.4 million for the years ended December 21, 2014 and December 22, 2013, respectively. The majority of depreciation expense is related to vessels. Depreciation expense related to vessels was $11.8 million and $11.7 million for the years ended December 21, 2014 and December 22, 2013, respectively.

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8.                       Intangible Assets

Intangible assets other than goodwill consist of the following (in thousands):

The Company’s customer contracts/relationships intangible asset became fully amortized during the second quarter of 2014.

Estimated annual amortization expense associated with the Company’s definite lived intangible assets for each of the succeeding five fiscal years is as follows (in thousands):