<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-62227
AMERICAN COMMERCIAL LINES LLC
(Exact name of registrant as specified in its charter)
DELAWARE 52-210660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1701 EAST MARKET STREET
JEFFERSONVILLE, INDIANA 47130
(Address of principal executive offices)
(Zip Code)
(812) 288-0100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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 No X
As of November 1, 1998, the registrant had 100 membership interests outstanding.
<PAGE> 2
AMERICAN COMMERCIAL LINES LLC
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 25, 1998
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
1. Condensed Consolidated Statement of Earnings -
Quarters and Nine Months Ended September 26, 1997 and
September 25, 1998 2
2. Condensed Consolidated Statement of Cash Flows-
Nine Months Ended September 26, 1997 and
September 25, 1998 3
3. Condensed Consolidated Statement of Financial Position-
At December 26, 1997 and September 25, 1998 4
Notes to Condensed Consolidated Financial Statements 5
Item 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition 22
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 31
Item 6: Exhibits and Reports on Form 8-K 34
Signature 34
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<PAGE> 3
ITEM 1: FINANCIAL STATEMENTS
AMERICAN COMMERCIAL LINES LLC
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25,
1997 1998 1997 1998
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 166,611 $ 180,601 $ 442,034 $ 447,459
OPERATING EXPENSE
Materials, Supplies and Other 83,524 84,614 211,985 206,766
Labor and Fringe Benefits 38,678 46,101 110,696 119,360
Fuel 13,186 12,417 43,525 35,076
Depreciation and Amortization 10,252 12,809 30,381 33,378
Taxes, Other Than Income Taxes 5,096 6,433 16,021 17,460
------------- ------------- ------------- -------------
150,736 162,374 412,608 412,040
------------- ------------- ------------- -------------
OPERATING INCOME 15,875 18,227 29,426 35,419
OTHER EXPENSE
Interest Expense 1,163 17,370 3,063 19,467
Interest Expense, Affiliate - Net 2,414 36 6,680 4,007
Other, Net 667 520 256 1,207
------------- ------------- ------------- -------------
4,244 17,926 9,999 24,681
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 11,631 301 19,427 10,738
INCOME TAXES (BENEFIT) 2,884 (6,068) 6,572 (68,293)
------------- ------------- ------------- -------------
NET EARNINGS $ 8,747 $ 6,369 $12,855 $79,031
------------- ------------- ------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 4
AMERICAN COMMERCIAL LINES LLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 26, SEPTEMBER 25,
1997 1998
------------- --------------
(UNAUDITED)
OPERATING ACTIVITIES
<S> <C> <C>
Net Earnings $ 12,855 $ 79,031
Adjustments to Reconcile Net Earnings to
Net Cash Provided (Used ):
Depreciation and Amortization 30,629 34,068
Deferred Income Taxes (10) (70,091)
Other Operating Activities 2,391 6,667
Changes in Operating Assets and Liabilities:
Accounts Receivable 1,830 2,232
Materials and Supplies (7) (11,892)
Accrued Interest (94) 14,519
Other Current Assets (260) (3,869)
Due to Affiliates (6,333) (13,805)
Other Current Liabilities (29,486) 374
--------- ---------
Net Cash Provided by Operating Activities 11,515 37,234
INVESTING ACTIVITIES
Property Additions (41,512) (39,922)
Proceeds from Property Dispositions 1,673 6,423
Restricted Investments -- (26,128)
Other Investing Activities (6,595) (11,114)
--------- ---------
Net Cash Used by Investing Activities (46,434) (70,741)
FINANCING ACTIVITIES
Recapitalization Distribution -- (695,000)
Issuance of Membership Interests -- 60,047
Debt Issued -- 735,000
Financing Costs -- (27,000)
Long-Term Debt Repaid (4,484) (98,830)
Affiliate Debt Repaid (11,200) (11,200)
Cash Dividends Paid (14,250) (9,500)
Other Financing -- (6,285)
Short Term Borrowing from Affiliates 60,391 94,715
--------- ---------
Net Cash Provided by Financing Activities 30,457 41,947
Net Increase (Decrease) in Cash and Cash Equivalents (4,462) 8,440
Cash and Cash Equivalents at Beginning of Period 7,446 (1,081)
--------- ---------
Cash and Cash Equivalents at End of Period $ 2,984 $ 7,359
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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AMERICAN COMMERCIAL LINES LLC
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<TABLE>
<CAPTION>
DEC. 26, SEPTEMBER 25,
1997* 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ (1,081) $ 7,359
Accounts Receivable, Net 77,449 93,525
Materials and Supplies 33,526 39,117
Deferred Income Taxes 1,378 -
Other Current Assets 10,167 15,068
------------ ------------
Total Current Assets 121,439 155,069
PROPERTIES-Net 460,295 542,046
RESTRICTED INVESTMENTS - 26,128
NET PENSION ASSET 19,091 20,575
OTHER ASSETS 31,307 55,741
============ ============
Total Assets $ 632,132 $ 799,559
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 13,714 $ 20,699
Accrued Payroll and Fringe Benefits 16,131 18,338
Due to Affiliates 27,599 -
Short Term Borrowings from Affiliate 6,550 -
Deferred Revenue 7,894 12,711
Accrued Claims and Insurance Premiums 6,620 10,883
Accrued Interest 904 15,423
Other Current Liabilities 34,582 46,145
------------ ------------
Total Current Liabilities 113,994 124,199
LONG-TERM NOTE PAYABLE TO AFFILIATE 67,200 -
DEFERRED INCOME TAXES 71,302 -
LONG-TERM DEBT 43,746 757,400
PENSION LIABILITY - 24,158
OTHER LONG-TERM LIABILITIES 36,389 38,715
------------ ------------
332,631 944,472
------------ ------------
SHAREHOLDER'S EQUITY/MEMBER'S DEFICIT
Common Stock/Member's Interest 6,006 220,047
Other Capital 165,164 152,946
Retained Earnings (Deficit) 128,331 (517,906)
------------ ------------
Total Shareholder's Equity/Member's Deficit 299,501 (144,913)
------------ ------------
Total Liabilities and Shareholder's Equity/Member's Deficit $ 632,132 $ 799,559
============ ============
</TABLE>
- ---------------
*Derived from the audited December 26, 1997 consolidated statement of financial
position.
See accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
NOTE 1. BASIS OF PRESENTATION
American Commercial Lines LLC ("ACL" or the "Company") was a wholly owned
subsidiary of CSX Corporation until June 30, 1998. On June 30, 1998, the
Company's parent, American Commercial Lines Holdings LLC ("Holdings") completed
a recapitalization in a series of transactions in which the barge business of
Vectura Group, Inc. ("Vectura") and its subsidiaries was combined with that of
the Company. The Company issued $735 million in new debt, Vectura contributed
certain of its assets and liabilities (referred to as the NMI contribution) plus
$60 million in cash and the Company paid a $695 million distribution to CSX and
$75 million of existing liabilities of Vectura. In addition, CSX contributed to
the capital of Holdings approximately $163 million of existing liabilities owed
to CSX.
The transactions described above have been accounted for as a
recapitalization of the Company with the NMI contribution accounted for by the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16. The purchase price of $5 million is less than the fair value of
the assets being acquired, resulting in a reduction of long-term assets of
approximately $7.3 million.
If the recapitalization of ACL and the purchase of NMI had occurred as of
December 28, 1996, the proforma results of operations would have been:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT. 26, SEPT. 25,
1997 1998
--------- -----------
<S> <C> <C>
Operating revenue $532,289 $505,657
Operating income 41,019 39,578
Loss before income taxes 12,074 14,618
Income taxes 1,011 797
Net loss 13,085 15,415
</TABLE>
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the company's
financial position at December 26, 1997 and September 25, 1998, the results of
its operations and its cash flows for the nine months ended September 26, 1997
and September 25, 1998, such adjustments being of a normal recurring nature.
Operating results for the nine months ended September 25, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ended December 25, 1998.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the 1997 audited consolidated financial
statements and the notes related thereto included in the Company's Registration
Statement on Form S-4 (Registration No. 333-62227).
The Company's fiscal year ends on the last Friday in December. The
financial statements presented are for the 39 weeks ended September 26, 1997 and
September 25, 1998, and the fiscal year ( 52 weeks) ended December 26, 1997.
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<PAGE> 7
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) --
(Continued)
NOTE 2. STOCKHOLDER'S EQUITY/MEMBER'S DEFICIT
The components of the change in stockholder's equity/member's deficit follow:
<TABLE>
<CAPTION>
COMMON MEMBER'S OTHER RETAINED
STOCK EQUITY CAPITAL EARNINGS TOTAL
--------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 26, 1997 $ 6,006 $165,164 $ 128,331 $ 299,501
Net earnings 79,031 79,031
Cash dividends to CSX prior to the recapitalization (9,500) (9,500)
Distributions to CSX pursuant to the recapitalization (20,768) (20,768)
CSX Pension Plan spin-off (23,893) (23,893)
Cash distribution to CSX pursuant to the recapitalization (695,000) (695,000)
Contribution of capital by CSX 163,169 163,169
Recapitalization of ACL's assets and liabilities (6,006) $155,000 (148,994) -
Issuance of membership interests 65,047 65,047
Fees related to the recapitalization (2,500) (2,500)
--------- -------- --------- ---------- -----------
Balance at September 25, 1998 $ - $220,047 $152,946 $(517,906) $(144,913)
========= ======== ========= ========== ===========
</TABLE>
Distributions to CSX pursuant to the recapitalization include $11,814 for
certain barges, $7,304 in net assets of certain terminal operations, and $1,650
other. The barges are being leased back to ACL under an operating lease.
Revenues and operating income of the terminal operations are not material.
NOTE 3. MATERIAL AND SUPPLIES
Materials and Supplies are carried at average cost and consist of the
following:
<TABLE>
<CAPTION>
DEC. 26, SEPT. 25,
1997 1998
--------- ---------
<S> <C> <C>
Raw Materials $5,917 $7,521
Work in Process 7,243 10,258
Parts and Supplies 20,366 21,338
--------- ---------
$ 33,526 $ 39,117
========= =========
</TABLE>
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<PAGE> 8
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 4. INCOME TAXES
ACL was reorganized as a limited liability company in the second quarter
of 1998. As such, ACL passes through its U.S. Federal and state (but not
foreign) taxable income to its member who is responsible for income taxes on
such taxable income. All of ACL'S corporate subsidiaries were converted to
limited liability companies (except for ACL Capital Corp. and the foreign
subsidiaries) on or about June 30, 1998 prior to the recapitalization (see Note
1). Due to the change in the tax status, the Company reversed previously
recognized deferred income taxes resulting in a benefit of $65.5 million. The
Company reversed an additional $6.5 million of deferred income taxes as a tax
benefit on June 30, 1998 resulting from the change in tax status of the
subsidiaries.
The components of income tax expense (benefit) computed at federal
statutory rate follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ----------------------
SEPT. 26, SEPT. 25, SEPT. 26, SEPT. 25,
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Tax at Federal Statutory Rate $ 4,070 $ 105 $ 6,799 $ 3,758
State Income Taxes, Net 90 -- 280 239
Foreign Operations, net (624) 125 531 2,667
Tax effect of income taxable to member resulting
from change in tax status and other items (652) 192 (1,038) (2,976)
Reversal of previously established deferred income
taxes resulting from change of tax status -- (6,490) (71,981)
-------- -------- -------- --------
Total Income Tax Expense (Benefit) $ 2,884 $ (6,068) $ 6,572 $(68,293)
======== ======== ======== ========
</TABLE>
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<PAGE> 9
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) --
(Continued)
NOTE 5. EMPLOYEE BENEFIT PLAN
Prior to January 1, 1998, certain employees of ACL participated in the
combined CSX Pension Plan for which ACL was allocated a portion of the annual
net pension expense. CSX determined that it would spin-off the assets and
liabilities in the CSX Pension Plan attributable to ACL employees to a
newly-created plan sponsored by ACL. The plan spin-off was completed in June
1998. This transfer of assets and benefit liabilities resulted in the Company
recording a pension liability of approximately $24 million and a corresponding
reduction to other capital. The assets transferred to the new plan of
approximately $52 million were determined based on regulations established under
the Employee Retirement Income Security Act of 1974. ("ERISA"). The benefits to
be received by ACL participants will not change as a result of the spin-off.
The Company also continues to sponsor other defined benefit pension plans,
in connection with which the Company has a pension asset of approximately $21
million at September 25, 1998.
NOTE 6. NON-CASH FINANCING ACTIVITIES
Pursuant to the recapitalization, CSX contributed to the capital of Holdings
$163.2 million of existing debt, including a long term loan with a principal
balance of $67.2 million and short-term borrowings of $96.0 million.
Additionally, ACL distributed to CSX $11.8 million for certain barges and $7.3
million in net assets in certain terminal operations. The NMI contribution was
financed through the issuance of $5.0 million of membership interests. ACL
recorded a pension liability of $23.9 million and a corresponding charge to
other capital as a result of the CSX Pension Plan spin-off (See Note 5).
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<PAGE> 10
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) --
(CONTINUED)
NOTE 7. LONG-TERM DEBT
Long-Term Debt consists of the following:
<TABLE>
<CAPTION>
DEC. 26, SEPT. 25,
1997 1998
-------- --------
<S> <C> <C>
$235 million Term Loan - interest rate of 8.44% $235,000
$200 million Term Loan - interest rate of 8.19% 200,000
$300 million Senior Notes - interest rate of 10.25% 300,000
Terminal Revenue Facilities Refunding Bonds, interest rate of 7.75% $ 24,400 24,400
U.S. Government Guaranteed Ship Financing Bonds 23,830
-------- --------
Total 48,230 759,400
Less, current maturities 4,484 2,000
-------- --------
Total Long-Term Debt $ 43,746 $757,400
======== ========
</TABLE>
The Company also has a Revolving Credit Facility which provides for revolving
loans not to exceed the aggregate principal amount of $100 million, maturing in
2005. There were no borrowings on the facility at September 25, 1998.
The $235 million Term Loan matures in 2007 and amortizes at the rate of $1
million per year for years one through eight and $227 million for year nine. The
$200 million Term Loan matures in 2006 and amortizes at the rate of $1 million
per year for years one through five, $20 million for year six, $75 million for
year seven and $100 million for year eight. The two Term Loans and the Revolving
Credit Facility bear interest at a rate equal to LIBOR plus a margin based on
the Company's performance. Interest on the Term Loans is payable quarterly. The
Senior Notes mature in 2008 and have a fixed interest rate of 10.25%. Interest
is payable semi-annually. The Term Loans and Revolving Credit Facility are
collateralized by most of the Company's assets. The Senior Notes are not
collateralized. The Term Loans, Revolving Credit Facility and Senior Notes
contain a number of covenants, including specified financial ratios and tests.
In June 1998, the Company deposited $26.1 million into an escrow fund which,
together with future income earned on such amount, is to be used to repay $24.4
million principal of the Terminal Revenue Refunding Bonds plus redemption
premium and interest thereon. The escrow funds are invested in U.S. Government
obligations and are irrevocably pledged and assigned solely for the payment of
principal, redemption premium and interest on the Terminal Facilities Revenue
Refunding Bonds. The U.S. Government Guaranteed Ship Financing Bonds were repaid
on June 30, 1998, prior to their maturity.
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<PAGE> 11
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) --
(CONTINUED)
NOTE 8. CONTINGENCIES
A number of legal actions are pending against ACL in which claims are
made in substantial amounts. While the ultimate results of pending litigation
cannot be predicted with certainty, management does not currently expect that
resolution of these matters will have a material adverse effect on the
consolidated results of operations, financial position and cash flows of ACL.
NOTE 9. BUSINESS SEGMENTS (IN $000'S)
<TABLE>
<CAPTION>
REPORTABLE SEGMENTS ALL OTHER
-------------------------
BARGING CONSTRUCTION SEGMENTS (1) TOTAL
------- ------------ ------------ -----
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 26, 1997
Revenues from external customers $121,794 $ 37,551 $ 7,266 $166,611
Intersegment revenues -- 401 1,034 1,435
Segment earnings 14,673 3,355 1,603 19,631
THREE MONTHS ENDED SEPTEMBER 25, 1998
Revenues from external customers $144,844 $ 29,735 $ 6,022 $180,601
Intersegment revenues -- 377 1,272 1,649
Segment earnings 12,275 3,807 2,145 18,227
NINE MONTHS ENDED SEPTEMBER 26, 1997
Revenues from external customers $354,133 $ 65,641 $ 22,260 $442,034
Intersegment revenues -- 30,745 3,170 33,915
Segment earnings 30,723 4,578 5,393 40,694
NINE MONTHS ENDED SEPTEMBER 25, 1998
Revenues from external customers $361,182 $ 67,053 $ 19,224 $447,459
Intersegment revenues -- 11,442 3,266 14,708
Segment earnings 29,105 7,957 5,767 42,829
</TABLE>
(1) Financial data for segments below the reporting thresholds are
attributable to two operating segments -- a segment operating terminals
along the U.S. inland waterways and a segment providing voice and data
communications to marine companies operating on the U.S. inland
waterways.
-10-
<PAGE> 12
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
The following is a reconciliation of ACL's revenues from
external customers and segment earnings to ACL's consolidated totals.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 26, SEPT. 25, SEPT. 26, SEPT. 25,
1997 1998 1997 1998
---------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Revenues from external customers $ 166,611 $ 180,601 $ 442,034 $ 447,459
Intersegment revenues 1,435 1,649 33,915 14,708
Elimination of intersegment revenues (1,435) (1,649) (33,915) (14,708)
---------------------------------------------------------
Operating revenue $ 166,611 $ 180,601 $ 442,034 $ 447,459
=========================================================
EARNINGS
Total segment earnings $ 19,631 $ 18,227 $ 40,694 $ 42,829
Unallocated amounts:
Management service fee charged by CSX (3,756) -- (11,268) (7,410)
Interest expense (1,163) (17,370) (3,063) (19,467)
Interest expense, affiliate - net (2,414) (36) (6,680) (4,007)
Other, net (667) (520) (256) (1,207)
---------------------------------------------------------
Earnings before income taxes $ 11,631 $ 301 $ 19,427 $ 10,738
=========================================================
</TABLE>
-11-
<PAGE> 13
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
(CONTINUED)
NOTE 10. CHANGES IN ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This Statement requires that public business enterprises disclose
information about their products and services, operating segments, the
geographic areas in which they operate, and their major customers. Management
adopted the provisions of this Statement in 1997.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained For Internal Use." This Statement requires
capitalization of (i) external direct costs of materials and services incurred
in developing or obtaining internal-use computer software; (ii) payroll and
payroll-related costs for employees who are directly associated with and who
devote time to the internal-use computer software project and (iii) interest
costs incurred in developing computer software for internal use. Costs that are
considered to be related to research and development activities would be
expensed as incurred. Similarly, training and maintenance costs would be
expensed, and allocations to amounts capitalized of general and administrative
or overhead costs would not be permitted. Management adopted this Statement with
early application in 1997 with no significant effect on the financial
statements.
In February 1998, the FASB issued Statement No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits." The Statement
supersedes the disclosure requirements in Statements No. 87, "Employer's
Accounting for Pensions", No. 88, "Accounting for Settlements and Curtailments
of Defined Benefit Plans and for Termination Benefits", and No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions." Statement No. 132
eliminates certain existing disclosure requirements, but at the same time adds
new disclosures. The Company will adopt the provisions of this Statement in
1998.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", which establishes new rules for the reporting of comprehensive income.
The purpose of reporting comprehensive income is to report all changes in equity
of an enterprise that result from recognized transactions and other economic
events of a period other than transactions with owners in their capacity as
owners. Statement No. 130 does not specify a format for the financial statement
that portrays the components of comprehensive income but requires that a Company
display an amount representing total comprehensive income for the periods
reported in the financial statement. The Company adopted Statement No. 130 in
the first quarter of 1998 but the adoption had no impact on the Company's
shareholder's equity or net earnings.
-12-
<PAGE> 14
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
(CONTINUED)
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" (SOP 98-5) which requires costs of start-up
activities and organizational costs to be expensed as incurred. The Company has
historically expensed start-up costs. It will adopt SOP 98-5 in fiscal 1999, and
does not anticipate that it will have any significant impact on the Company's
financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-dominated
forecasted transaction. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. This statement is effective for fiscal
years beginning after June 15, 1999, but earlier application is encouraged. The
Company has not determined when it will adopt Statement No. 133, but expects
adoption will not have a significant effect on its financial statements.
NOTE 11. GUARANTOR FINANCIAL STATEMENTS
The $735 million of debt issued by the Company is guaranteed by the
Company's wholly owned domestic subsidiaries, other than ACL Capital Corp.
(which was formed in connection with the transaction), any Accounts Receivable
Subsidiary (as defined in the indentures with respect to such debt) and certain
subsidiaries of the Company without substantial assets or operations (the
"Subsidiary Guarantors"). Such guarantees are full, unconditional and joint and
several. Separate financial statements of the Subsidiary Guarantors are not
presented because management has determined that they would not be material to
investors. The following supplemental financial information sets forth on a
combined basis, condensed consolidated statements of financial position,
statements of earnings and statements of cash flows for the Subsidiary
Guarantors, non-guarantor subsidiaries and for the Company.
-13-
<PAGE> 15
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED COMBINING STATEMENT OF EARNINGS FOR THE QUARTER ENDED
SEPTEMBER 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR OTHER COMBINED
SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 152,500 $ 14,111 $ 166,611
OPERATING EXPENSE
Materials, Supplies and Other 78,246 5,278 -- 83,524
Labor and Fringe Benefits 36,797 1,881 38,678
Fuel 12,092 1,094 13,186
Depreciation and Amortization 9,328 924 10,252
Taxes, Other Than Income Taxes 5,096 -- 5,096
--------- --------- --------- ---------
141,559 9,177 -- 150,736
--------- --------- --------- ---------
OPERATING INCOME 10,941 4,934 -- 15,875
OTHER EXPENSE (INCOME)
Interest Expense 1,163 -- -- 1,163
Interest Expense, Affiliate - Net 2,414 528 (528) 2,414
Other, Net (984) 1,123 528 667
--------- --------- --------- ---------
2,593 1,651 -- 4,244
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES 8,348 3,283 -- 11,631
INCOME TAXES 2,296 588 -- 2,884
========= ========= ========= =========
NET EARNINGS $ 6,052 $ 2,695 $- $ 8,747
========= ========= ========= =========
</TABLE>
-14-
<PAGE> 16
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Condensed Combining Statement of Earnings for the Quarter Ended
September 25, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Other Combined
Subsidiaries Subsidiaries Eliminations Totals
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 164,224 $16,377 $ -- $ 180,601
OPERATING EXPENSE
Materials, Supplies and Other 77,733 6,881 -- 84,614
Labor and Fringe Benefits 43,202 2,899 -- 46,101
Fuel 11,387 1,030 -- 12,417
Depreciation and Amortization 11,532 1,277 -- 12,809
Taxes, Other Than Income Taxes 6,403 30 -- 6,433
--------- ------- -------- ---------
150,257 12,117 -- 162,374
--------- ------- -------- ---------
OPERATING INCOME 13,967 4,260 -- 18,227
OTHER EXPENSE (INCOME)
Interest Expense 17,370 -- -- 17,370
Interest Expense, Affiliate - Net 36 1,120 (1,120) 36
Other, Net (1,312) 712 1,120 520
--------- ------- -------- ---------
16,094 1,832 -- 17,926
--------- ------- -------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES (2,127) 2,428 -- 301
INCOME TAXES (BENEFIT) (6,728) 660 -- (6,068)
--------- ------- -------- ---------
NET EARNINGS $ 4,601 $ 1,768 $ -- $ 6,369
========= ======= ======== =========
</TABLE>
-15-
<PAGE> 17
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Condensed Combining Statement of Earnings for the Nine Months Ended
September 26, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Other Combined
Subsidiaries Subsidiaries Eliminations Totals
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 417,090 $ 24,944 $442,034
OPERATING EXPENSE
Materials, Supplies and Other 199,779 12,206 -- 211,985
Labor and Fringe Benefits 106,036 4,660 110,696
Fuel 41,287 2,238 43,525
Depreciation and Amortization 27,991 2,390 30,381
Taxes, Other Than Income Taxes 16,021 -- 16,021
--------- -------- -------- --------
391,114 21,494 -- 412,608
--------- -------- -------- --------
OPERATING INCOME 25,976 3,450 -- 29,426
OTHER EXPENSE (INCOME)
Interest Expense 3,063 -- -- 3,063
Interest Expense, Affiliate - Net 6,680 1,511 (1,511) 6,680
Other, Net (2,262) 1,007 1,511 256
--------- -------- -------- --------
7,481 2,518 -- 9,999
--------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 18,495 932 -- 19,427
INCOME TAXES 5,651 921 -- 6,572
--------- -------- -------- --------
NET EARNINGS $ 12,844 $ 11 $ -- $ 12,855
========= ======== ======== ========
</TABLE>
-16-
<PAGE> 18
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Condensed Combining Statement of Earnings for the Nine Months Ended
September 25, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Other Combined
Subsidiaries Subsidiaries Eliminations Totals
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 413,688 $ 33,771 $ -- $447,459
OPERATING EXPENSE
Materials, Supplies and Other 187,927 18,839 -- 206,766
Labor and Fringe Benefits 111,992 7,368 -- 119,360
Fuel 32,742 2,334 -- 35,076
Depreciation and Amortization 29,772 3,606 -- 33,378
Taxes, Other Than Income Taxes 17,376 84 -- 17,460
--------- -------- ---------- --------
379,809 32,231 -- 412,040
--------- -------- ---------- --------
OPERATING INCOME 33,879 1,540 -- 35,419
OTHER EXPENSE (INCOME)
Interest Expense 19,467 -- -- 19,467
Interest Expense, Affiliate - Net 4,007 2,651 (2,651) 4,007
Other, Net (2,577) 1,133 2,651 1,207
--------- -------- ---------- --------
20,897 3,784 -- 24,681
--------- -------- ---------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES 12,982 (2,244) -- 10,738
INCOME TAXES (BENEFIT) (69,048) 755 -- (68,293)
--------- -------- ---------- --------
NET EARNINGS (LOSS) $ 82,030 $ (2,999) $ -- $ 79,031
========= ======== ========== ========
</TABLE>
-17-
<PAGE> 19
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
Condensed Combining Statement of Cash Flows for the Nine Months Ended
September 25, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Other Combined
Subsidiaries Subsidiaries Eliminations Totals
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 12,844 $ 11 $ -- $12,855
Adjustments to Reconcile Net Earnings
to Net Cash Provided:
Depreciation and Amortization 28,239 2,390 -- 30,629
Deferred Income Taxes (1) (9) -- (10)
Other Operating Activities 1,807 584 2,391
Changes in Operating Assets and Liabilities:
Accounts Receivable (1,975) 3,805 -- 1,830
Materials and Supplies 482 (489) -- (7)
Accrued Interest (94) -- (94)
Other Current Assets (2,233) 1,973 -- (260)
Due to Affiliates (6,333) -- -- (6,333)
Other Current Liabilities (25,066) (4,420) -- (29,486)
-------- -------- -------- -------
Net Cash Provided by
Operating Activities 7,670 3,845 -- 11,515
INVESTING ACTIVITIES
Property Additions (16,485) (25,027) -- (41,512)
Proceeds from Property Dispositions 1,717 (44) -- 1,673
Restricted Investments -- -- -- --
Other Investing Activities (27,998) (2,195) 23,598 (6,595)
-------- -------- -------- -------
Net Cash Used by Investing Activities (42,766) (27,266) 23,598 (46,434)
FINANCING ACTIVITIES
Recapitalization Distribution -- -- -- -
Issuance of Membership Interests -- -- -- -
Debt Issued -- -- -- -
Financing Costs -- -- -- -
Long-Term Debt Repaid (4,484) -- (4,484)
Affiliate Debt Repaid (11,200) -- (11,200)
Cash Dividends Paid (14,250) (2,370) 2,370 (14,250)
Other Financing Activities -- 11,150 (11,150) --
Borrowings from Affiliates 60,391 14,818 (14,818) 60,391
-------- -------- -------- -------
Net Cash Provided by Financing Activities 30,457 23,598 (23,598) 30,457
Net (Decrease) Increase in Cash and Cash Equivalents (4,639) 177 -- (4,462)
Cash and Cash Equivalents at Beginning of Period 2,380 5,066 -- 7,446
-------- -------- -------- -------
Cash and Cash Equivalents at End of Period $ (2,259) $ 5,243 $ -- $ 2,984
======== ======== ======== =======
</TABLE>
-18-
<PAGE> 20
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(Continued)
Condensed Combining Statement of Cash Flows for the Nine Months Ended
September 25, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Other Combined
Subsidiaries Subsidiaries Eliminations Totals
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings (Loss) $ 82,030 $ (2,999) $ -- $ 79,031
Adjustments to Reconcile Net Earnings (Loss)
to Net Cash Provided:
Depreciation and Amortization 30,462 3,606 -- 34,068
Deferred Income Taxes (70,098) 7 -- (70,091)
Other Operating Activities 2,159 4,508 -- 6,667
Changes in Operating Assets and Liabilities:
Accounts Receivable 7,480 (5,248) -- 2,232
Materials and Supplies (12,246) 354 -- (11,892)
Accrued Interest 14,519 -- -- 14,519
Other Current Assets (11,205) 7,336 -- (3,869)
Due to Affiliates (13,805) -- -- (13,805)
Other Current Liabilities 268 106 -- 374
-------- -------- -------- --------
Net Cash Provided by
Operating Activities 29,564 7,670 -- 37,234
INVESTING ACTIVITIES
Property Additions (19,326) (20,596) -- (39,922)
Proceeds from Property Dispositions 6,198 225 -- 6,423
Restricted Investments (26,128) -- -- (26,128)
Other Investing Activities (23,684) 72 12,498 (11,114)
-------- -------- -------- --------
Net Cash Used by Investing Activities (62,940) (20,299) 12,498 (70,741)
FINANCING ACTIVITIES
Recapitalization Distribution (695,000) -- -- (695,000)
Issuance of Membership Interests 60,047 -- -- 60,047
Debt Issued 735,000 -- -- 735,000
Financing Costs (27,000) -- -- (27,000)
Long-Term Debt Repaid (98,830) -- -- (98,830)
Affiliate Debt Repaid (11,200) (2,500) 2,500 (11,200)
Cash Dividends Paid (9,500) (4,345) 4,345 (9,500)
Other Financing Activities (6,285) 15,343 (15,343) (6,285)
Borrowings from Affiliates 94,715 4,000 (4,000) 94,715
-------- -------- -------- --------
Net Cash Used by Financing Activities 41,947 12,498 (12,498) 41,947
Net (Decrease) Increase in Cash and Cash Equivalents 8,571 (131) -- 8,440
Cash and Cash Equivalents at Beginning of Year (5,138) 4,057 -- (1,081)
-------- -------- -------- --------
Cash and Cash Equivalents at End of Period $ 3,433 $ 3,926 $ -- $ 7,359
======== ======== ======== ========
</TABLE>
-19-
<PAGE> 21
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Condensed Combining Statement of Financial Position at
December 26, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Other Combined
Subsidiaries Subsidiaries Eliminations Totals
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ (5,138) $ 4,057 $ -- $ (1,081)
Accounts Receivable - Net 69,234 8,215 -- 77,449
Materials and Supplies 30,918 2,608 -- 33,526
Deferred Income Taxes 1,371 7 -- 1,378
Other Current Assets 13,383 804 (4,020) 10,167
--------- ------- --------- ---------
Total Current Assets 109,768 15,691 (4,020) 121,439
PROPERTIES-NET 406,709 53,586 -- 460,295
RESTRICTED INVESTMENTS -- -- -- --
NET PENSION ASSET 19,091 -- -- 19,091
OTHER ASSETS 80,611 20,183 (69,487) 31,307
--------- ------- --------- ---------
TOTAL ASSETS $ 616,179 $89,460 $ (73,507) $ 632,132
========= ======= ========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 10,351 $ 3,363 $ -- $13,714
Accrued Payroll and Fringe Benefits 16,016 115 -- 16,131
Due to Affiliates 27,562 4,057 (4,020) 27,599
Short Term Borrowings from Affiliate 6,550 -- -- 6,550
Deferred Revenue 7,894 -- -- 7,894
Accrued Claims and Insurance Premiums 6,620 -- -- 6,620
Accrued Interest 904 -- -- 904
Other Current Liabilities 28,352 6,230 -- 34,582
--------- ------- --------- ---------
Total Current Liabilities 104,249 13,765 (4,020) 113,994
LONG-TERM NOTE PAYABLE TO AFFILIATE 67,200 29,722 (29,722) 67,200
DEFERRED INCOME TAXES 71,318 (16) -- 71,302
LONG-TERM DEBT 43,746 -- -- 43,746
PENSION LIABILITY -- -- -- --
OTHER LONG-TERM LIABILITIES 30,165 6,224 -- 36,389
--------- ------- --------- ---------
316,678 49,695 (33,742) 332,631
--------- ------- --------- ---------
SHAREHOLDER'S EQUITY
Common Stock 6,006 36 (36) 6,006
Other Capital 165,164 40,453 (40,453) 165,164
Retained Earnings (Deficit) 128,331 (724) 724 128,331
--------- ------- --------- ---------
Total Shareholder's Equity 299,501 39,765 (39,765) 299,501
--------- ------- --------- ---------
Total Liabilities and Shareholder's Equity $ 616,179 $89,460 $ (73,507) $ 632,132
========= ======= ========= =========
</TABLE>
-20-
<PAGE> 22
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Condensed Combining Statement of Financial Position at
September 25, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Other Combined
Subsidiaries Subsidiaries Eliminations Totals
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 3,434 $ 3,925 $ -- $ 7,359
Accounts Receivable - Net 80,062 13,463 -- 93,525
Materials and Supplies 36,863 2,254 -- 39,117
Deferred Income Taxes -- -- -- --
Other Current Assets 24,514 (6,532) (2,914) 15,068
--------- --------- --------- ---------
Total Current Assets 144,873 13,110 (2,914) 155,069
PROPERTIES - NET 471,694 70,352 -- 542,046
RESTRICTED INVESTMENTS 26,128 -- -- 26,128
NET PENSION ASSET 20,575 -- -- 20,575
OTHER ASSETS 115,722 20,111 (80,092) 55,741
--------- --------- --------- ---------
TOTAL ASSETS $ 778,992 $ 103,573 $ (83,006) $ 799,559
========= ========= ========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $16,852 $ 3,847 $ -- $ 20,699
Accrued Payroll and Fringe Benefits 18,246 92 -- 18,338
Due to Affiliates -- 2,914 (2,914) --
Short Term Borrowings from Affiliate -- -- -- --
Deferred Revenue 12,711 -- -- 12,711
Accrued Claims and Insurance Premiums 10,883 -- -- 10,883
Accrued Interest 15,423 -- -- 15,423
Other Current Liabilities 40,233 5,912 -- 46,145
--------- --------- --------- ---------
Total Current Liabilities 114,348 12,765 (2,914) 124,199
LONG-TERM NOTE PAYABLE TO AFFILIATE -- 43,383 (43,383) --
DEFERRED INCOME TAXES 16 (16) -- --
LONG-TERM DEBT 757,400 -- -- 757,400
PENSION LIABILITY 24,158 -- -- 24,158
OTHER LONG-TERM LIABILITIES 27,983 10,732 -- 38,715
--------- --------- --------- ---------
923,905 66,864 (46,297) 944,472
--------- --------- --------- ---------
SHAREHOLDER'S EQUITY/MEMBER'S DEFICIT
Common Stock/Member's Interest 220,047 -- -- 220,047
Other Capital 152,946 44,778 (44,778) 152,946
Retained Earnings (Deficit) (517,906) (8,069) 8,069 (517,906)
--------- --------- --------- ---------
Total Shareholder's Equity/Member's Deficit (144,913) 36,709 (36,709) (144,913)
--------- --------- --------- ---------
Total Liabilities and Shareholder's Equity/Member's Deficit $ 778,992 $ 103,573 $ (83,006) $ 799,559
========= ========= ========= =========
</TABLE>
-21-
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
American Commercial Lines LLC ("ACL" or the "Company") is an integrated marine
transportation and service company, providing barge transportation services on
the inland waterways of North and South America. The Company supports its
barging operations by providing towboat and barge design and construction,
terminal services and ship-to-shore voice and data telecommunications services
to the Company and third parties.
ACL was a wholly owned subsidiary of CSX Corporation ("CSX") until June 30,
1998. On June 30, 1998, ACL's parent, American Commercial Lines Holdings LLC
("Holdings") completed a recapitalization in a series of transactions in which
the barging operations of National Marine, Inc. ("NMI") and its subsidiaries
were combined with those of ACL. Pursuant to these transactions, ACL issued $735
million in new debt and NMI's parent, Vectura Group, Inc. ("Vectura")
contributed certain of its assets and liabilities plus $60 million in cash. ACL
paid a $695 million distribution to CSX and retired $75 million of Vectura's
existing liabilities.
As described in Note 1 of Notes to the Condensed Consolidated Financial
Statements, the transactions were accounted for as a recapitalization of ACL
with the NMI contribution accounted for by the purchase method of accounting.
ACL integrated NMI's operations into its operations in the third quarter,
increasing its barge fleet by approximately 16%.
<TABLE>
<CAPTION>
ACL'S FLEET SIZE
June 26, 1998 Sept. 25, 1998
------------- --------------
<S> <C> <C>
Covered hoppers 2,758 3,052
Open hoppers 811 918
Tankers 249 453
----- -----
Total 3,818 4,423
Towboats 145 201
</TABLE>
-22-
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS
The Company's business is seasonal, and its quarterly revenue and profits
historically have been lower during the first and second fiscal quarters of the
year (January through June) and higher during the third and fourth fiscal
quarters (July through December) due to the transportation demand for the fall
grain harvest.
THREE MONTHS ENDED SEPTEMBER 25, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
26, 1997
Operating Revenue. Operating revenue for the three months ended September 25,
1998 increased 8.4% to $180.6 million from $166.6 million for the same period in
1997. Domestic barging revenues increased $20.8 million. Ton-miles increased 11%
while the rate per ton-mile remained relatively constant. Volumes increased with
the acquisition of NMI but were adversely impacted by a series of three
hurricanes in the Gulf region and low water on the Ohio River. Spot grain rates
increased in the third quarter of 1998 compared to 1997, primarily due to a
temporary capacity constraint caused by heavy north-bound loading demand and
adverse operating conditions. Since a significant portion of ACL's grain tonnage
was previously priced, the impact of the spot rate increase was minimal. Other
dry cargo rates continue to be lower than 1997. Sales to third-party customers
at Jeffboat, the Company's marine construction subsidiary, fell $7.8 million,
primarily due to a softening in the demand for hopper barges. International
revenues increased $2.3 million due to increased volumes.
Operating Expense. Operating expense for the three months ended September 25,
1998 increased 7.7%, to $162.4 million from $150.7 million in the same period
last year. Domestic barging expenses increased $22.5 million, primarily due to
the larger fleet size but also because of adverse operating conditions resulting
from the hurricanes. Fuel prices continued to be favorable to 1997, decreasing
by 25% from 58 cents per gallon in 1997 to 43 cents per gallon in 1998. The
Company is rapidly integrating NMI's operations. Most of the duplicate general
and administrative costs were eliminated in early September, including workforce
reductions of 65 employees. Port costs have been reduced through eliminating
duplicate fleeting facilities and utilizing excess capacity in certain fleets.
Most of the combination synergy initiatives were implemented late in the third
quarter, so the impact on expenses was minimal. Cost savings are expected to
increase in the fourth quarter. Jeffboat's expenses decreased $8.3 million,
primarily due to lower volumes. International barging expenses increased by $2.9
million, largely due to increased volumes. Elimination of the CSX corporate
management fee reduced 1998 expenses by nearly $3.5 million.
-23-
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, CONTINUED
Operating Income. Operating income for the three months ended September 25, 1998
increased 14.8% to $18.2 million from $15.9 million for the same period in 1997,
due to the foregoing factors.
Interest Expense. Interest expense for the three months ended September 25,
1998 was $17.4 million compared with $3.6 million for the same period in 1997.
The increase is due to $735 million of long- term debt obtained for ACL's
recapitalization.
Earnings Before Income Taxes. Earnings before income taxes for the three months
ended September 25, 1998 were $0.3 million compared with $11.6 million for the
same period in 1997, primarily due to higher interest expense.
Income Taxes (Benefit). Income taxes for the three months ended September 25,
1998 decreased to a benefit of $6.1 million from an expense of $2.9 million for
the same period in 1997. The Company's domestic corporate subsidiaries, except
ACL Capital Corp. were converted to limited liability companies on or about June
30, 1998. Due to the change in the tax status, previously recognized deferred
income taxes were reversed resulting in a benefit of $6.5 million.
Net Earnings. Net earnings for the three months ended September 25, 1998 were
$6.4 million compared with $8.7 million for the same period in 1997, due to the
foregoing factors.
NINE MONTHS ENDED SEPTEMBER 25, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
26, 1997
Operating Revenue. Operating revenue for the nine months ended September 25,
1998 rose 1.2% to $447.5 million from $442.0 million for the same period in
1997. Domestic barging revenue fell $1.8 million. Lower rates in the first half
of 1998 caused revenue to decrease by approximately $16 million. The reduction
in rates was primarily due to decreased demand for U.S. grain exports, which
negatively impacted rate per ton for all dry cargoes. Volumes in the first half
of the year were lower than 1997 due to reduced grain exports and adverse river
conditions in early 1998, including extended periods of high water on the
Mississippi River. Ton-miles increased in the third quarter with the acquisition
of NMI's barging operations. International revenues increased $8.8 million
primarily due to expansion in Argentina and increased volumes in Venezuela.
Sales to third-party customers at Jeffboat increased $1.4 million.
-24-
<PAGE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, CONTINUED
Operating Expense. Operating expense for the nine months ended September 25,
1998 was nearly constant at $412.0 million vs. $412.6 million during the 1997
period. Domestic barging expenses decreased $2.1 million. While expenses
increased in the third quarter of 1998 due to the larger fleet, first-half
expenses decreased due to lower fuel prices, reduced levels of barge repair,
improved boat to barge ratios and reduced use of outside towing services.
International barging expenses increased $10.7 million primarily due to
expansion in Argentina and flooding on the Parana/Paraguay River system during
the second quarter of 1998. Jeffboat's expenses decreased by $2.0 million
primarily due to productivity improvements.
Operating Income. Operating income for the nine months ended September 25, 1998
rose 20.4% to $35.4 million from $29.4 million for the same period in 1997, due
to the foregoing factors.
Interest Expense. Interest expense for the nine months ended September 25, 1998
rose to $23.5 million compared with $9.7 million for the same period in 1997.
The increase is due to $735 million of long -term debt obtained for ACL's
recapitalization.
Earnings Before Income Taxes. Earnings before income taxes for the nine months
ended September 25, 1998 decreased to $10.7 million compared with $19.4 million
in the same period in 1997, due to the foregoing factors.
Income Taxes (Benefit). Income taxes for the nine months ended September 25,
1998 decreased to a benefit of $68.3 million from an expense of $6.6 million for
the same period in 1997. The Company was reorganized as a limited liability
company in the second quarter of 1998. Due to the change in the tax status,
previously recognized deferred income taxes were reversed, resulting in a
benefit of $72 million.
Net Earnings. Net earnings for the nine months ended September 25, 1998 rose to
$79.0 million from $12.9 million for the same period in 1997, due to the
foregoing factors.
-25-
<PAGE> 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, CONTINUED
OUTLOOK
Entering the fourth quarter, spot grain rates should increase slightly, but
other dry cargo rates are expected to be lower than 1997. Domestic barging
volumes should increase due to the larger fleet, slightly offset by the
negative impact of hurricanes that continued into the first two weeks of the
quarter. Integration of NMI's operations will continue with further cost
savings expected.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the recapitalization, ACL participated in CSX's cash management plan
through which most of its cash needs were funded by CSX and any excess cash was
advanced to CSX for investment. In June 1998, the Company borrowed $47.7 million
from CSX to redeem $23.8 million of U.S. Government Guaranteed Ship Financing
Bonds and to deposit $26.1 million into an escrow fund which will be used to
repay $24.4 million principal of Terminal Revenue Refunding Bonds. CSX
contributed to the capital of Holdings all existing debt owed to CSX.
In connection with the recapitalization, the Company obtained $735 million in
long-term debt, including two term loans in the aggregate principal amount of
$435 million and $300 million in senior notes. The Company also has available
borrowings of $100 million under a revolving credit facility. The terms of the
long-term borrowings are discussed in Note 7 of the Notes to the Condensed
Consolidated Financial Statements. All of this debt is guaranteed by certain
wholly owned domestic subsidiaries. There are no material limitations on the
ability of these subsidiaries to pay dividends to the Company.
Management believes that cash generated from operations together with the
borrowings available under the revolving credit facility are more than
sufficient to fund its cash requirements including capital expenditures for
fleet replacement and international expansion, working capital, interest
payments and scheduled principal payments.
Capital expenditures for 1998 are projected to be approximately $60 million with
approximately $30 million allocated to international expansion. As of September
25, 1998, $40 million had been spent.
-26-
<PAGE> 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, CONTINUED
YEAR 2000
In mid-1997, the Company formed a Year 2000 project team to identify information
technology and non-technology systems that require modification for the Year
2000. A project plan has been developed with goals and target dates. The
Company's business areas are in various stages of this project plan. Certain
changes to the project plan were made to accommodate the integration of the
operations of NMI. The Company currently expects to have substantially
completed programming changes and internal testing of internal mission critical
computer systems by July 1999. Significant enterprise testing of
mission-critical systems is expected to begin in April 1999, with such
enterprise testing continuing through 1999. The Company currently expects to
have substantially completed remediation and testing of both information
technology and non-technology systems that the Company deems are of high
business value and priority by July 1999.
The Company incurred expenses of $1.1 million throughout 1997 and in the first
three quarters of 1998 related to this project, which represents approximately
13% of its total information technology operating expense for the related
periods. The remaining cost of the Year 2000 project is presently estimated at
$2.4 million, which will be expensed as incurred through 2000. A portion of the
total Year 2000 project expense is represented by existing staff that has been
or will be redeployed to this project. The Company does not believe that the
redeployment of existing staff will have a material adverse effect on its
business, results of operations or financial position. However, the remaining
cost and the date on which the Company believes it will complete the Year 2000
project are based on management's current estimates, which are derived utilizing
numerous assumptions of future events, including the continued availability of
certain staff resources, and are inherently uncertain.
As part of its Year 2000 project, the Company is in communication with its
mission-critical suppliers, large customers and financial institutions and other
significant third parties to assess their Year 2000 readiness. Risks associated
with any such third parties located outside the United States may be higher
insofar as it is generally believed that non-U.S. businesses may not be
addressing their Year 2000 issues on as timely a basis as U.S. businesses.
-27-
<PAGE> 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, CONTINUED
The Company believes its planning efforts are adequate to address its Year 2000
concerns. There can be no assurance, however, that the Company's efforts will be
successful in a task of this size and complexity. The Company is currently
assessing the consequences of its Year 2000 initiative not being completed on
schedule or its remediation efforts not being successful. Upon completion of
such assessment, the Company will begin contingency planning, including efforts
to address potential disruptions in third-party services, such as
telecommunications and electricity, on which the Company's systems and
operations rely. There can be no assurance that the Company's contingency plans
or its efforts with respect to third parties will prevent a material adverse
effect on the Company's business, results of operations or financial condition.
CHANGES IN ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (the "FASB") issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This Statement requires that public business enterprises disclose information
about their products and services, operating segments, the geographic areas in
which they operate, and their major customers. Management adopted the provisions
of this Statement in 1997.
In 1998, the American Institute of Certified Public Accounts ("AICPA") issued
Statement of Position No. 98-1. "Accounting for the Costs of Computer Software
Developed or Obtained For Internal Use." This Statement requires capitalization
of (i) external direct costs of materials and services incurred in developing or
obtaining internal-use computer software; (ii) payroll and payroll-related costs
for employees who are directly associated with and who devote time to the
internal-use computer software project and (iii) interest costs incurred in
developing computer software for internal use. Costs that are considered to be
related to research and development activities would be expensed as incurred.
Similarly, training and maintenance costs would be expensed, and allocations to
amounts capitalized of general and administrative or overhead costs would not be
permitted. Management adopted this Statement with early application in 1997 with
no significant effect on the financial statements.
In February 1998, the FASB issued Statement No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits." The Statement supersedes the
disclosure requirements in Statements No. 87, "Employer's Accounting for
Pensions", No. 88, "Accounting for Settlements and Curtailments of Defined
Benefit Plans and for Termination Benefits", and No. 106, "Employer's Accounting
for Postretirement Benefits Other Than Pensions." Statement No. 132 eliminates
certain existing disclosure requirements, but at the same time adds new
disclosures. The Company will adopt the provisions of the Statement in 1998.
-28-
<PAGE> 30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, CONTINUED
In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive
Income", which established new rules for the reporting of comprehensive income.
The purpose of reporting comprehensive income is to report all changes in equity
of an enterprise that result from recognized transactions and other economic
events of a period other than transactions with owners in their capacity as
owners. Statement No. 130 does not specify a format for the financial statement
that portrays the components of comprehensive income but requires that a Company
display an amount representing total comprehensive income for the periods
reported in the financial statement. The Company adopted Statement No. 130 in
the first quarter of 1998 but the adoption had no impact on the Company's
shareholder's equity or net earnings.
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5) which requires costs of start-up
activities and organizational costs to be expensed as incurred. The Company has
historically expensed start-up costs. It will adopt SOP 98-5 in fiscal 1999, and
does not anticipate that it will have any significant impact on the Company's
financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-dominated
forecasted transaction. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. This statement is effective for fiscal
years beginning after June 15, 1999, but earlier application is encouraged. The
Company has not determined when it will adopt Statement No. 133, but expects
adoption will not have a significant effect on its financial statements.
-29-
<PAGE> 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, CONTINUED
FORWARD LOOKING STATEMENTS
This Quarterly Report contains certain forward-looking statements as defined in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Any statements that express or involve discussions as to
expectations, beliefs, plans (often, but not always through the use of words or
phrases such as "expect", "believe", and "will continue") are not historical
facts and may be forward-looking. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results to materially differ from those considered by the forward-looking
statements. Such factors include (i) substantial leverage and ability to service
debt; (ii) changing market trends in the barge and inland shipping industries;
(iii) general economic and business conditions including a prolonged or
substantial recession in the United States or certain international commodity
markets such as the market for grain exports; (iv) annual worldwide weather
conditions, particularly those weather conditions affecting North and South
America; (v) the ability of the company to integrate NMI within the expected
time frame; and (vi) the ability of the Company to comply with Year 2000
issues. As a result of the foregoing and other factors, no assurances can be
given as to future results, levels of activity and achievements. Any
forward-looking statements speak only as of the date the statement was made.
The Company undertakes no obligation to update or revise any forward-looking
statements.
-30-
<PAGE> 32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
The Company is named as a defendant in various lawsuits that have arisen in the
ordinary course of its business. Claimants seek damages of various amounts for
personal injuries, property damage and other matters. All material claims
asserted under lawsuits of this description and nature are covered by insurance
policies. The Company is not aware of any litigation that would be deemed
material to the financial condition, results of operations or liquidity of the
Company that is not covered by insurance coverages and policies.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive Federal, state and local
environmental laws and regulations which, among other things, specify
requirements for the management of oil, hazardous wastes, and hazardous
substances and impose liability for releases of these materials into the
environment. The Company devotes resources toward achieving and maintaining
compliance with environmental requirements. The Company believes, except as
otherwise set forth herein, that it is in material compliance with environmental
requirements and that noncompliance is not likely to have a material adverse
effect on the Company. However, there can be no assurance that the Company will
be at all times in material compliance with all environmental requirements. The
Company does not anticipate material capital expenditures for environmental
controls in the current or succeeding fiscal year.
As in the case with others in the maritime industry, a release of oil, hazardous
waste, hazardous substances or other pollutants into the environment at or by
the Company's properties or vessels, as a result of the Company's current or
past operations, or at a facility to which the Company has shipped wastes, or
the existence of historical contamination at any of the Company's properties,
could result in material liability to the Company. The Company conducts loading
and unloading of dry commodities, liquids and scrap materials in and near
waterways. Such operations present a potential that some such materials might be
spilled into a waterway thereby exposing the Company to potential liability.
While the amount of such liability could be material, the Company endeavors to
conduct its operations in a manner that it believes reduces such risks.
-31-
<PAGE> 33
ITEM 1. LEGAL PROCEEDINGS, CONTINUED
Federal, state and local governments could in the future enact laws or
regulations concerning environmental matters that affect the Company's
operations or facilities, increase the Company's costs of operation, or
adversely affect the demand for the Company's services. The Company cannot
predict the effect that such future laws or regulations could have on the
Company. Nor can the Company predict what environmental conditions may be found
to exist at the Company's current or past facilities or at other properties
where the Company or its predecessors have arranged for the disposal of wastes
and the extent of liability that may result from the discovery of such
conditions. It is possible that such future laws or undiscovered conditions
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The U.S. Environmental Protection Agency ("EPA") and the Department of Justice
("DOJ") have alleged that the Mid-South Terminal Company ("MSTC") violated
provisions of the Federal Clean Water Act by spilling scrap metal into the
McKellar Lake during barge loading operations at an MSTC terminal located near
Memphis, Tennessee. The Company holds a 50% interest in MSTC, which is a joint
venture between American Commercial Terminal-Memphis LLC and Mid-South Terminal
Company L.P. DOJ indicated it may bring criminal charges against MSTC with
regard to the alleged violations. MSTC has been engaged in discussions with the
DOJ to resolve this matter. Based on these discussions, the Company anticipates
that a fine is likely to be assessed by DOJ. The Company anticipates that any
fine assessed by DOJ is not likely to be material. As part of the resolution,
MSTC may be required to remove spilled scrap metal from the lake.
Tiger Shipyard LLC ("Tiger"), a wholly owned subsidiary of the Company, entered
a plea of no contest in Louisiana State District Court on September 25, 1998 to
one count of a multiple count indictment concerning alleged environmental
infractions during the early 1990's. The one count pertained to alleged
non-permitted discharge of contaminated barge wash water into the Mississippi
River. As part of a comprehensive plea agreement, Tiger agreed to pay a fine of
$420,000. The State District Court dismissed all other counts against the
Company, dismissed all counts against all individual employees, and the United
States Attorney's Office for the Middle District of Louisiana also agreed to
close its investigation involving the Company. This plea agreement was not
related to the facts and circumstances involved with Tiger's petition for
reimbursement from the Federal Superfund for other clean-up activities and
costs. Tiger intends to proceed with that claim.
-32-
<PAGE> 34
ITEM 1. LEGAL PROCEEDINGS, CONTINUED
The Company is involved as a potentially responsible party ("PRP") with respect
to the clean-up of hazardous waste disposal sites (Superfund Sites) identified
under CERCLA and similar state laws. While CERCLA authorizes joint and several
liability for remediation costs at clean-up or remediation sites, as a practical
matter, such costs are typically allocated among the waste generators and other
involved parties.
Jeffboat LLC, a wholly owned subsidiary of the Company, was named a PRP at the
Third Site in Zionsville, Indiana. Jeffboat estimates that its share of costs
for the remaining phases of clean-up at the Third Site will not be material.
Jeffboat has also received notice of potential liability with regard to waste
allegedly transshipped from the Third Site to the Four County Landfill in
Rochester, Indiana. At this time, there is no estimate of Jeffboat's potential
liability with respect to the Four County Landfill, but the Company does not
believe such liability is likely to be material.
American Commercial Barge Line LLC, a wholly owned subsidiary of the Company,
was named as a PRP at the Southern Shipbuilding facility in Slidell, Louisiana.
At this time, there is no estimate of potential liability with regard to the
Southern Shipbuilding site, but the Company does not believe such liability is
likely to be material.
The Company has also received notice that certain barges formerly owned by SCNO
Barge Line, Inc. and The Valley Line Company (companies from which ACL
purchased assets) also allegedly sent waste to the Southern Shipbuilding
Superfund site prior to the Company's purchase of such assets from these
companies. The Company believes that it is not responsible for such waste and
also believes it is indemnified for such claims under the respective Asset
Purchase Agreements. The Company has provided notice of claims for
indemnification pursuant to such Asset Purchase Agreements.
Pursuant to its recapitalization, the Company assumed certain liabilities for
environmental matters involving Vectura and its subsidiaries including NMI.
Vectura has received an order from the EPA under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the
Federal Superfund clean-up statute, regarding contamination at the former Dravo
Mechling property in Seneca, Illinois now owned by a Company subsidiary. The
Order required that Vectura perform site sampling and possible future
remediation at the site. Based on the investigation of the site to date, the
Company and its consultants believe that extensive further remediation will be
unnecessary but are awaiting the EPA's review and proposed clean-up standards.
The Company believes that its liability at the Seneca site is not likely to be
material.
-33-
<PAGE> 35
ITEM 1. LEGAL PROCEEDINGS, CONTINUED
NMI has been named as a PRP at the SBA Shipyard site in Houma, Louisiana. The
Company believes that its share of costs at the SBA Shipyard site is not likely
to be material.
Because CERCLA liability is retroactive, it is possible in the future that the
Company may be identified as a PRP with respect to other waste disposal sites,
where wastes generated by the Company have been transported and disposed.
As of September 25, 1998, the Company had accruals of approximately $1.1 million
for environmental matters. Given the uncertainties associated with such matters,
there can be no assurance that liabilities will not exceed reserves.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit 27.1 - Financial Data Schedule
Reports on Form 8-K
There were no reports on Form 8-K filed in the third quarter of 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
American Commercial Lines LLC has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN COMMERCIAL LINES LLC
Date: November 9, 1998 By: /s/ James J. Wolff
-----------------------------
Name: James J. Wolff
Title: Senior Vice President and
Chief Financial Officer
-34-
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