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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1998
OR
[ ] 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 (IRS Employer
Incorporation or Organization) Identification No.)
1701 EAST MARKET STREET
JEFFERSONVILLE, INDIANA 47130
(Address of Principal Executive Offices) (Zip Code)
(812) 288-0100
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity held
by nonaffiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the common equity was sold, or the average
bid and asked prices of such common equity, as of a specified date within 60
days prior to the date of filing. Not Applicable.
AS OF MARCH 1, 1999, THE REGISTRANT HAD 100 MEMBERSHIP INTERESTS OUTSTANDING.
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PART I
ITEM 1. BUSINESS.
HISTORY
American Commercial Lines LLC ("ACL"), a Delaware limited liability company, was
formed in April 1998 in connection with the conversion by merger of its
predecessor American Commercial Lines, Inc. ("ACL Inc."), a Delaware
corporation, into a limited liability company. ACL Inc. was formed in 1953 as
the holding company for a family of barge transportation and marine service
companies with an operating history beginning in 1915 and became a wholly-owned
subsidiary of CSX Corporation ("CSX") in 1984.
ACL achieved significant growth pursuant to its acquisitions of SCNO Barge
Lines, Inc. in 1988, Hines, Inc. in 1991, The Valley Line Company in 1992 and
Continental Grain Company's barging operations in 1996. Pursuant to the
Recapitalization Agreement, dated April 17, 1998, among CSX, Vectura Group Inc.,
a Delaware corporation now Vectura Group, LLC ("Vectura"), a Delaware limited
liability company, ACL's parent American Commercial Lines Holdings LLC (the
"Parent"), a Delaware limited liability company, ACL and National Marine, Inc.,
a Delaware corporation now National Marine LLC ("National Marine"), a Delaware
limited liability company, the Parent completed a recapitalization in a series
of transactions (the "Recapitalization") and combined the barging operations of
Vectura, National Marine and their subsidiaries with that of ACL.
To finance the Recapitalization, ACL incurred secured debt under a Credit
Agreement, dated June 30, 1998, with certain lenders and The Chase Manhattan
Bank, as administrative agent (the "Senior Credit Facilities"), consisting of a
$200.0 million Tranche B Term Loan due June, 2006, a $235.0 million Tranche C
Term Loan due June, 2007 (collectively the "Term Loans") and a revolving credit
facility providing for revolving loans and the issuance of letters of credit for
the account of ACL in an aggregate principal amount of up to $100.0 million due
June, 2005 (the "Revolving Credit Facility"). ACL also issued $300.0 million of
unsecured Series B 10-1/4% Senior Notes due June, 2008 (the "Senior Notes"),
pursuant to a trust indenture (the "Indenture") with United States Trust Company
of New York, as trustee.
GENERAL
ACL is an integrated marine transportation and service company, providing barge
transportation services. The principal cargoes carried are steel and other bulk
commodities, grain, coal and liquids including a variety of chemicals, petroleum
and edible oils. ACL supports its barging operations by providing towboat and
barge design and construction, terminal services and ship-to-shore voice and
data telecommunications services to ACL and third parties. ACL is the leading
provider of river barge transportation throughout the inland United States and
Gulf Intracoastal Waterway Systems, which include the Mississippi, Illinois,
Ohio, Tennessee and the Missouri Rivers and their tributaries and the
Intracoastal Canals that parallel the Gulf Coast (collectively, the "Inland
Waterways"). In addition, since expanding its barge transportation operations to
South America in 1993, ACL has become the leading provider of barge
transportation services on the Orinoco River and Lake Maracaibo in Venezuela and
the Parana/Paraguay River system serving Argentina, Brazil, Paraguay, Uruguay
and Bolivia.
At year end, ACL's combined domestic barge fleet was the largest in the United
States, consisting of 2,885 covered and 781 open barges, used for the
transportation of dry cargo, and 456 tank barges used for transportation of
liquid cargo. ACL's domestic barge fleet is supported by the largest towboat
fleet in the United States, consisting of 188 towboats at year end.
ACL has a strong and diverse domestic barging customer base consisting of
several of the leading industrial and agricultural companies in the United
States. ACL has numerous long-standing customer relationships, with 20 of its
top 25 customers having been customers of ACL for over 20 years. In many cases,
these relationships have resulted in multi-year contracts with these customers.
Long-term contracts generally provide for minimum tonnage or requirements
guarantees, which allow ACL to plan its logistics more effectively.
Historically, a majority of ACL's contracts for non-grain cargoes are at a fixed
price, increasing the stability and predictability of operating revenue.
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ACL, through its Jeffboat LLC ("Jeffboat") subsidiary, designs and manufactures
towboats and barges for ACL and third-party customers. Through its American
Commercial Terminals LLC ("ACT") subsidiary, which operates nine river terminal
sites along the Inland Waterways, ACL supports its barging operations with
transfer and warehousing capabilities for steel, bulk, liquid and other general
commodity products moving between barge, truck and rail. Another 14 locations
are owned or operated by Global Materials Services LLC ("GMS"), a joint venture
with an unaffiliated third-party. Through its Louisiana Dock Company LLC ("LDC")
subsidiary, ACL operates 22 facilities throughout the Inland Waterways that
provide fleeting, shifting, cleaning and repair services for both towboats and
barges, primarily to ACL as well as to third-party customers. ACL, through its
Waterway Communications System LLC ("Watercom") subsidiary, is a provider of
automated ship-to-shore voice and data telecommunications services throughout
the Inland Waterways.
ACL's objective is to achieve stable earnings growth in its core barging
business as well as its shipbuilding, terminals and communications operations.
Through effective coordination of its barging, shipbuilding, terminals,
fleeting, repair and communications services, ACL reduces costs while
maintaining each business unit's ability to generate third-party revenue. In
addition, ACL believes it is a technology leader in the barging industry. ACL
has made significant investments that allow it to maximize operating efficiency
through technologies such as real-time cargo tracking. This investment in
technology strengthens ACL's ability to compete by lowering its cost structure
and enhancing the quality of the services and products provided.
Over the past several years, ACL has been able to successfully complete and
integrate multiple large acquisitions, including SCNO Barge Lines, Inc., Hines,
Inc., The Valley Line Company, Continental Grain's barging operations and the
barging operations of National Marine. Based upon the success of these
acquisitions combined with ACL's ability to provide long-term, reliable service
to its customers, ACL believes that it is particularly well-positioned to
continue to grow through strategic acquisitions in its core business lines.
In recent years, ACL also has become the leading provider of river barge
transportation in South America. The international fleet consisted at year end
of 113 covered and 114 open hopper barges, 15 tankers, eight deck barges and 13
towboats. ACL entered the South American market by establishing operations to
serve a new customer's shipping needs along the Orinoco River in Venezuela.
Since then, the focus of ACL's international strategy has been to serve
customers that require reliable, low-cost transportation abroad. ACL works
closely with current and potential customers to establish mutually beneficial
long-term contracts to serve these needs. By following this strategy, ACL has
become the leading provider of barge transportation on the Orinoco River and
Lake Maracaibo in Venezuela and the Parana/Paraguay River system serving
Argentina, Brazil, Paraguay, Uruguay and Bolivia. Because demand for
transportation in South America is expected to grow, ACL has the opportunity to
broaden the scope of its operations.
INDUSTRY
Domestic barging focuses on five core commodity groups: steel and other bulk
commodities, grain, coal and liquids. Because barging provides a low-cost
transportation alternative for high mass/high volume cargoes, many bulk
commodity shippers choose barging as their preferred mode of transportation.
Coal is the barging industry's largest transport commodity from a tonnage
standpoint, while grain is a material driver for the industry's overall freight
rate structure for dry cargo movements due to the effect the varying levels of
grain export demand have on capacity and rates. Chemicals are the primary liquid
cargo handled by liquid barge carriers, along with petroleum products, edible
oils, molasses and ethanol. Safety and quality control are essential factors in
serving this market.
The barging industry uses two types of equipment to move freight: towboats,
providing the power source, and barges, providing the freight capacity. Each
standard dry cargo barge is capable of transporting approximately 1,500 tons of
cargo with the most common tank barges being either 10,000 barrel or 30,000
barrel capacity. The combination of a towboat and barges is called a tow, and
usually consists of one towboat and from five to 40 barges. The number of barges
in a tow will depend upon the horsepower of the towboat, the river conditions,
the load and empty mix of the tow, the direction of travel and the commodity
carried.
Since 1980, the industry has been consolidating as acquiring companies have
moved towards attaining the widespread geographic reach necessary to support
major national customers. ACL's management believes the
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consolidation process will continue. There are currently six major domestic
barging companies that operate more than 1,000 barges. There are also 16
mid-sized operators that operate over 200 barges, and approximately 12% of the
barging capacity remains in the hands of small carriers that operate fewer than
200 barges. As the industry continues to consolidate, ACL believes that it will
be well-positioned to realize cost savings and synergies by merging smaller
operators into its existing network.
COMPANY OPERATIONS
DOMESTIC BARGING
In 1998, ACL maintained its position as the leading provider of barge
transportation in the United States, operating over nearly 11,000 miles of the
Inland Waterways and transporting a wide variety of commodities, including steel
and other bulk commodities, grain, coal and liquids. ACL is ranked first in the
United States in terms of revenues, barges operated and gross tons hauled. In
terms of annual riverborne tonnage, ACL is the leading grain transporter in the
industry, and is the second largest liquids transporter. As of year end, ACL's
domestic fleet consisted of 3,666 dry cargo hopper barges and 456 double-skinned
tankers. ACL operated 744 of these dry cargo hopper barges and 24 of these
tankers pursuant to charter agreements. The charter agreements have expiration
dates ranging from one to ten years. ACL expects generally to be able to renew
or replace such charter agreements as they expire. A significant portion of
ACL's planned capital expenditures include fleet replacement, maintenance,
domestic growth and international expansion.
DOMESTIC FLEET PROFILE BY BARGE TYPE(1)
<TABLE>
<CAPTION>
AVERAGE AGE (YEARS)
-------------------
BARGE TYPES NUMBER OF BARGES ACL INDUSTRY
- ----------- ---------------- --- --------
<S> <C> <C> <C>
Covered Hoppers ........................................ 2,885 18.1 15.2
Open Hoppers ........................................... 781 22.0 13.4
Tankers ................................................ 456 19.9 21.1
----- ---- ----
Total ........................................... 4,122 19.0 15.5
----- ---- ----
----- ---- ----
</TABLE>
(1) Includes both owned and chartered equipment and excludes marine equipment
used in international operations. See below, "International Barging."
In addition, ACL operates 188 towboats with an average age of approximately 23.6
years. No comparative industry data is available with respect to towboats. Of
ACL's 188 towboats, 45 are operated by ACL pursuant to charter agreements. The
charter agreements have expiration dates ranging from one to seven years. ACL
expects to be able to renew such charter agreements as they expire.
The size and diversity of ACL's towboat fleet allows it to deploy the towboats
to the portions of the Inland Waterways where they can most effectively operate.
For example, ACL's towboats that have in excess of 9,000 horsepower operate with
tow sizes of as many as 40 barges along the lower Mississippi River where the
river channels are wider and there are no restricting locks and dams. ACL's
5,600 horsepower towboats operate along the Ohio, upper Mississippi and Illinois
Rivers where the river channels are narrower and restricting locks and dams are
more prevalent. ACL deploys its smaller horsepower towboats for shuttle and
harbor services.
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DOMESTIC TOWBOATS BY HORSEPOWER(1)
<TABLE>
<CAPTION>
HORSEPOWER NUMBER OF TOWBOATS AVERAGE AGE (YEARS)
- ---------- ------------------ ------------------
<S> <C> <C>
6,700 -- 10,500....................... 15 21.4
5,000 -- 6,500....................... 56 24.7
1,950 -- 4,900....................... 33 24.9
1,800 and below......................... 84 22.8
Total.............. 188 23.6
--- ----
--- ----
</TABLE>
(1) Includes both owned and chartered equipment and excludes marine equipment
used in international operations. See below, "International Barging."
ACL's barging operations encompass all five core commodity groups: steel and
other bulk commodities, grain, coal and liquids. In terms of tonnage and
revenue, grain/coal is ACL's largest transport commodity with bulk/steel and
liquid second and third, respectively.
ACL DOMESTIC BARGING OPERATIONS BY COMMODITY
(dollars and tonnage in millions)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ----------------------------- ---------------------------
Revenue % Tonnage % Revenue % Tonnage % Revenue % Tonnage %
----------------------------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Grain/Coal ............ $197 41.9 37 56.8 $208 46.1 37 60.4 $228 47.5 38 61.1
Bulk/Steel ............ 134 28.7 22 33.5 141 31.3 21 33.2 152 31.6 20 32.2
Liquids ............... 76 16.3 6 9.7 56 12.3 4 6.4 57 11.9 4 6.7
Other (1) ............. 62 13.1 -- 0.0 46 10.3 -- 0.0 44 9.0 -- 0.0
----------------------------- ----------------------------- ---------------------------
Total ........ $469 100.0 65 100.0 $451 100.0 62 100.0 $481 100.0 62 100.0
---- ----- -- ----- ---- ----- -- ----- ---- ----- -- -----
---- ----- -- ----- ---- ----- -- ----- ---- ----- -- -----
</TABLE>
(1) Includes towing and demurrage.
To support its domestic barging operations, ACL operates 22 shore-based
facilities throughout the Inland Waterways that provide fleeting, shifting,
cleaning and repair services for both towboats and barges, including five
towboat dry-docks and nine barge dry-docks.
INTERNATIONAL BARGING
ACL launched its international barging operations in South America in 1993. ACL
currently operates on the Orinoco River and Lake Maracaibo, with headquarters in
Puerto Ordaz, Venezuela, and on the Parana/Paraguay River system, with
headquarters in Rosario, Argentina. ACL's capital plan for the next few years
includes expenditures for continued international growth. South American
operations generated 7% of ACL's 1998 operating revenue, and management expects
revenues from South American operations to continue to increase in the coming
years. ACL's expansion in South America has been affected by introducing new
equipment and technology to the South American river systems, transplanting
systems used in the United States and developing new processes to meet local
requirements. ACL expects to use its expertise to expand its barging operations
into new regions.
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INTERNATIONAL FLEET PROFILE BY BARGE TYPE
<TABLE>
<CAPTION>
BARGE TYPES NUMBER OF BARGES AVERAGE AGE (YEARS)
- ----------- ---------------- -------------------
<S> <C> <C>
Covered Hoppers .............. 113 6.0
Open Hoppers ................. 114 17.2
Tankers ...................... 15 10.2
Deck ......................... 8 7.9
--- ----
Total ........... 250 11.4
--- ----
--- ----
</TABLE>
At year end, ACL operated 20 dry cargo barges in its international barge fleet
pursuant to charter agreements with expiration dates of one year. ACL expects
generally to be able to renew such charter agreements as they expire. In
addition, ACL operated 13 towboats in South America. During the first quarter of
1999, ACL repositioned 28 domestic barges to South America and added one towboat
and two tankers to the international fleet.
BARGE AND TOWBOAT DESIGN AND MANUFACTURING
Jeffboat manufactures both towboats and barges for ACL and third-party customers
primarily for inland river service, but also produces equipment for coastal and
offshore markets. Jeffboat has long been recognized as a leader in inland marine
technology, incorporating designs and propulsion systems derived from ongoing
model basin studies. Jeffboat also provides around-the-clock vessel repair
services, including complete dry-docking capabilities, back-up support for
emergency cargo salvage and equipment recovery, and full machine shop facilities
for repair and storage of towboat propellers, rudders and shafts.
ACL is Jeffboat's largest customer. Approximately one-third of Jeffboat's 1999
shipbuilding capacity is committed to ACL's use. ACL believes that the
partnership between its transportation operations and Jeffboat is a competitive
advantage for ACL, permitting optimization of construction schedules and asset
utilization between ACL's internal requirements and sales to third-party
customers. The relationship also gives Jeffboat's engineers an opportunity to
collaborate with ACL's barge operations on innovations that optimize towboat
performance and barge life.
TERMINALS
ACL's terminal subsidiary, ACT, directly operates nine facilities located on the
Inland Waterways at Louisville, KY; Cincinnati, OH; Guntersville, AL; St. Louis,
MO; Memphis, TN; Jeffersonville and Evansville, IN; and Omaha and Nebraska City,
NE. The GMS joint venture between ACT and Mid-South Terminal Company, L.P., an
unaffiliated third party, operates terminals at Memphis, TN; and at Osceola,
Helena, Pine Bluff and Ft. Smith, AR. In February 1999, GMS acquired Arrow
Terminal's properties at Industry, PA; Chicago, IL; Houston, TX; Decatur, AL;
Mingo Junction, OH; Fallonsbee and Brooklyn Junction, WV; as well as a facility
in the Netherlands. The focus of ACT's operations is to support ACL's core
barging business. As a result, ACT primarily pursues opportunities that fit well
with ACL's barging patterns, and the majority of its tonnage is transported by
ACL barges.
SHIP-TO-SHORE TELECOMMUNICATIONS SERVICES
Watercom is a provider of automated ship-to-shore voice and data
telecommunications services throughout the Inland Waterways. Watercom is
comprised of 54 shore stations with approximately 1,000 installed units on
towboats and other vessels throughout the Inland Waterways. Through the Watercom
connection, customers can send and receive both phone calls and faxes, receive
data to on-board computers and maintain radio communications for areas where
there is no phone connection. ACL is able to utilize this technology to
integrate towboat locations with ACL's barge tracking software to obtain
relative tracking of its towboat locations and thereby provide its barging
customers with real-time updates of cargo arrivals.
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CUSTOMERS
ACL's primary domestic barging customers include many of the nation's major
industrial and agricultural companies. ACL enters into a wide variety of short
and long-term contracts with these customers ranging from annual one-year
contracts to multi-year extended contracts with inflation adjustments. ACL's top
25 domestic barging customers accounted for 44% of ACL's fiscal 1998 operating
revenue. At 11%, one customer, Continental Grain Company, accounted for more
than 10% of ACL's fiscal 1998 consolidated operating revenue.'
ACL implemented a 24-hour planning center in the third quarter of 1998, to
provide around-the-clock customer contact and planning capability. In addition
to enhanced customer service, another anticipated benefit of the planning center
is improved communication between vessels and office staff for improved
logistics and asset utilization.
COMPETITION
ACL's barging operations compete on the basis of price, service and equipment
availability. Primary competitors of ACL's barging operations include other
barge lines, railroads, trucks and pipelines. Barge transportation provides the
lowest unit cost of delivery of any major form of transportation for high
volume, bulk products, delivering 12% of the volume of U.S. freight for 2% of
the total U.S. freight cost, according to data available from the U.S.
Department of Transportation. One standard hopper barge has the equivalent
carrying capacity of 15 railcars or 58 trucks. In areas where shippers have
access to water transportation, the rate per ton-mile is significantly less than
rail rates and approximately 10% to 20% of truck rates. While it is generally
less expensive to move large volumes of certain liquids by pipeline when both
the origin and destination have a direct connection to the pipeline, barge
transportation of liquids has greater flexibility with respect to the origins
and destinations that can be served.
Competition within the barging industry for major commodity contracts is
intense. There are a number of companies offering transportation services on the
Inland Waterways. Carriers compete not only on the basis of commodity shipping
rates, but also with respect to value-added services, including more convenient
and flexible scheduling, more timely information and better equipment. ACL
believes its vertical integration provides it with a competitive advantage. ACL
utilizes its tow and barge repair and vessel fleeting facilities, Jeffboat's
shipbuilding capabilities, ACT's geographically broad-based terminals and
Watercom's ship-to-shore voice and data telecommunications services to offer a
combination of competitive pricing and high quality service.
ACL considers Jeffboat's major competitor to be Trinity Industries Inc. which
operates four inland shipyards and which ACL estimates manufactures more than
half of the new supply of inland barges. ACL believes that in addition to
Trinity, Jeffboat's other competitors include Bollinger Machine Shop and
Shipyard, Inc. and Galveston Shipbuilding Company for barges and Halter Marine,
Inc. and Quality Shipyards, Inc. for towboats, all of which are located
primarily on the Gulf of Mexico.
PROPERTIES
ACL operates numerous land-based facilities that support its overall marine
operations. These facilities include a major new construction shipyard, two
repair shipyards, nine terminal facilities for cargo transfer and handling
throughout the river system, 22 facilities for the staging, interchange and
repair of barges and towboats and a corporate office complex in Jeffersonville,
Indiana. An additional 14 terminal locations in the United States and one in the
Netherlands are operated through the GMS joint venture. Seven of these domestic
terminals and the Netherlands location were added as a result of the Arrow
Terminals acquisition by GMS in February 1999.
The significant ACL-owned facilities among these properties include:
- The Jeffboat shipbuilding facility in Jeffersonville, Indiana is the
largest single shipyard facility on the Inland Waterways. It is situated on
86 acres with 5,600 feet of frontage on the Ohio River across from
Louisville, Kentucky. There are 38 buildings on the property comprising a
total of 305,000 square feet under roof.
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- The LDC repair shipyard and office facility in Harahan, Louisiana is
located on 59 acres of property along the Mississippi River immediately
upstream from New Orleans. The facility includes several drydocks and a
machine shop, warehouse and office facility.
- ACL's main office complex is located on 22 acres in Jeffersonville,
Indiana. The main building has approximately 140,000 square feet, and five
outlying buildings have a total of 25,000 square feet.
GOVERNMENT REGULATION
GENERAL
ACL's business is materially affected by government regulation in the form of
international treaties, conventions, national, state and local laws and
regulations, and laws and regulations of the flag nations of its vessels,
including laws relating to the discharge of materials into the environment.
Because such conventions, laws and regulations are regularly reviewed and
revised by the issuing governmental bodies, ACL is unable to predict the
ultimate costs or impacts of compliance. In addition, ACL is required by various
governmental and quasi-governmental agencies to obtain certain permits, licenses
and certificates with respect to its business operations. The kinds of permits,
licenses and certificates required depend upon such factors as the country of
registry, the commodity transported, the waters in which the vessel operates,
the nationality of the vessel's crew, the age of the vessel and the status of
ACL as owner, operator or charterer. ACL believes that it currently has or can
readily attain all permits, licenses and certificates necessary to permit its
vessels to operate in their current trades.
ACL's domestic transportation operations are subject to regulation by the U.S.
Coast Guard, federal laws, state laws and certain international conventions.
ACL's inland tank barges are inspected by the U.S. Coast Guard and carry
certificates of inspection. ACL's towing vessels and dry cargo barges are not
subject to U.S. Coast Guard inspection requirements.
JONES ACT
The Jones Act is a federal cabotage law that restricts domestic marine
transportation in the United States to vessels built and registered in the
United States. Furthermore, the Jones Act requires that the vessels be manned by
U.S. citizens and owned by U.S. citizens. For corporations to qualify as U.S.
citizens for the purpose of domestic trade, 75% of the corporations' beneficial
stockholders must be U.S. citizens. ACL presently meets all of the requirements
of the Jones Act for its owned vessels.
Compliance with U.S. ownership requirements of the Jones Act is very important
to the operations of ACL, and the loss of Jones Act status could have a
significant negative effect for ACL. ACL monitors the citizenship requirements
under the Jones Act of its employees and beneficial equity holders and will take
action as necessary to ensure compliance with the Jones Act requirements.
During the past several years, the Jones Act cabotage laws have been challenged
by interests seeking to facilitate foreign flag competition for trade reserved
for U.S. flag vessels under the Jones Act. These efforts have been consistently
defeated by large margins in the U.S. Congress. ACL believes that continued
efforts may be made to modify or eliminate the cabotage provisions of the Jones
Act. If such efforts are successful so as to permit foreign competition, it
could have an adverse effect on ACL.
USER FEES AND FUEL TAX
Federal legislation requires that inland marine transportation companies pay a
user fee in the form of a tax based on propulsion fuel used by vessels engaged
in trade along inland waterways that are maintained by the U.S. Army Corps of
Engineers. Such user fees are designed to help defray the costs associated with
replacing major components of the waterway system, including dams and locks, and
to build new projects. A significant portion of the Inland Waterways on which
ACL's vessels operate are maintained by the Corps of Engineers.
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ACL presently pays a federal fuel tax of 24.4 cents per gallon. Legislation has
been proposed to repeal a portion (4.3 cents per gallon) of the federal fuel
tax. In the future, existing user fees may be increased, and additional user
fees imposed, to defray the costs of inland waterways infrastructure and
navigation.
ENVIRONMENTAL MATTERS
ACL's operations are subject to 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. ACL devotes resources toward
achieving and maintaining compliance with environmental requirements. ACL
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 ACL. However, there can be no assurance
that ACL will be at all times in material compliance with all environmental
requirements.
As is 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
its properties or vessels, as a result of ACL's current or past operations, or
at a facility to which ACL has shipped wastes, or the existence of historical
contamination at any of its properties, could result in material liability to
ACL. ACL 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 ACL to
potential liability. While the amount of such liability could be material, ACL
endeavors to conduct its operations in a manner that it believes reduces such
risks.
Federal, state and local governments could in the future enact laws or
regulations concerning environmental matters that affect ACL's operations or
facilities, increase its costs of operation, or adversely affect the demand for
ACL's services. ACL cannot predict the effect that such future laws or
regulations could have on its business. Nor can ACL predict what environmental
conditions may be found to exist at its current or past facilities or at other
properties where ACL 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 ACL's business, financial condition and
results of operations.
ACL is involved as a potentially responsible party ("PRP") or interested
party with respect to the clean-up of hazardous waste disposal sites
(Superfund sites) identified under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the federal Superfund
clean-up statute, 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.
- Pursuant to the Recapitalization, ACL assumed liability under an order
from the U.S. Environmental Protection Agency ("EPA") under CERCLA
regarding contamination at the former Dravo Mechling property in Seneca,
Illinois. The order requires performance of site sampling and future
remediation at the site. Based on the investigation of the site to date,
ACL and its consultants have established a remediation plan, subject to
final approval of the EPA, which involves the excavation and removal of
contaminated soil, site grading, seeding the affected area, and the
installation of groundwater monitoring units.
- Jeffboat was named a PRP at the Third Site in Zionsville, Indiana. 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. Currently, the EPA is conducting an environmental site
assessment of this property.
- American Commercial Barge Line LLC ("ACBL") was named as a PRP at the
Southern Shipbuilding facility in Slidell, Louisiana. As of this date, the
EPA has taken no further action to pursue any response costs from ACL as a
PRP.
- Although it has not been named a PRP, ACL 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 ACL's purchase
of such assets from these companies. ACL believes that it is not
responsible for such waste and also believes it is indemnified for
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such claims under the respective asset purchase agreements. ACL has
provided notice of claims for indemnification pursuant to such asset
purchase agreements.
- A group of barge operators, including National Marine, had barges cleaned
at the SBA Shipyard in Houma, Louisiana, which is now conducting voluntary
environmental remediation. Although the SBA Shipyard owner is currently
funding the cleanup effort, the barge operators involved have formed a
group to step in and conclude remediation if the owner is unsuccessful.
Pursuant to the Recapitalization, ACL assumed National Marine's liability
in this matter.
- EPS, Inc., a wholly-owned subsidiary of Vectura, is the owner of Connex
Pipe Systems' closed solid waste landfill located in Marietta, Ohio
("Connex"). Liability for the monitoring and potential clean-up of Connex
was assumed by ACL pursuant to the Recapitalization. In 1986 Connex was
subject to an Ohio consent judgment ("Consent Judgment") whereby it agreed
to remediate and monitor the closed landfill for a period of three years.
Connex complied with the Consent Judgment and in 1994 the Ohio
Environmental Protection Agency ("Ohio EPA") issued a letter confirming
Connex's compliance. However, the Ohio EPA changed its monitoring
requirements in 1997 to require longer periods of monitoring for closed
sites and attempted to apply those new rules to Connex. Connex, and other
similarly situated companies, objected to the new rule which retroactively
changed monitoring requirements. On November 30, 1998, the Ohio EPA issued
a finalized guidance rule ("Final Guidance") applicable to Connex. ACL
believes that the Final Guidance confirmed Connex's position that it had
fully complied with the applicable monitoring requirements and owed no
further monitoring. ACL believes that it has no further monitoring
obligations at Connex and has requested written confirmation from the Ohio
EPA that its monitoring responsibilities have ceased.
Because CERCLA liability is retroactive, it is possible in the future that ACL
may be identified as a PRP with respect to other waste disposal sites, where
wastes generated by ACL have been transported and disposed.
The U.S. Environmental Protection Agency ("EPA") and the U.S. Department of
Justice ("DOJ") had alleged that Mid-South Terminal Company ("MSTC"), the
predecessor to GMS, 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. On December 14, 1998, MSTC
entered into a plea agreement whereby it pleaded guilty to one misdemeanor
violation of the Clean Water Act and was required to pay fines totaling
$150,000.
As of December 25, 1998, ACL had reserves of approximately $3 million for
environmental matters. ACL believes it has established reasonable and adequate
reserves to cover its known environmental liabilities. However, given the
uncertainties associated with such matters, there can be no assurance that
liabilities will not exceed reserves.
OCCUPATIONAL HEALTH AND SAFETY MATTERS
ACL's domestic vessel operations are primarily regulated by the U.S. Coast Guard
for occupational health and safety standards. ACL's domestic shore operations
are subject to the U.S. Occupational Safety and Health Administration
regulations. While there can be no assurance that ACL is at all times in
complete compliance with all such regulations, ACL believes that it is in
material compliance with such regulations, and that any noncompliance is not
likely to have a material adverse effect on ACL. There can be no assurance,
however, that claims will not be made against ACL for work related illness or
injury, or that the further adoption of occupational health and safety
regulations in the United States or in foreign jurisdictions in which ACL
operates will not adversely affect its business, financial condition and results
of operations.
ACL endeavors to reduce employee exposure to hazards incident to its business
through safety programs, training and preventive maintenance efforts. ACL
emphasizes safety performance in all of its operating divisions. ACL believes
that its safety performance consistently places it among the industry leaders as
evidenced by what it believes are lower injury frequency levels than many of its
competitors. ACL participates in the American Waterway Operators Responsible
Carrier Program which is oriented to enhancing safety in vessel operations.
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INTELLECTUAL PROPERTY
ACL registers some of its material trademarks, tradenames and copyrights and has
acquired patent protection for some of its proprietary processes. ACL has
current trademark rights to conduct its business.
INSURANCE
ACL maintains protection and indemnity insurance ("P&I") to cover liabilities
arising out of the ownership and operation of marine vessels. ACL maintains hull
and machinery insurance policies on each of its vessels in amounts related to
the value of each vessel. Each vessel is insured at its current fair market
value; however, hull damage claims are subject to an annual aggregate deductible
of $2.0 million. ACL maintains coverage for shore-side properties, shipboard
consumables and inventory, spare parts, worker's compensation, and general
liability risks. ACL maintains primary insurance and third party guaranty
agreements as to its statutory liabilities for discharges of oil or hazardous
substances under the federal Oil Pollution Act of 1990. In the future, ACL may
elect to self-insure such primary statutory liability amounts; however, ACL
currently maintains and expects to continue to maintain excess coverage for
pollution liability. All insurance policies have been obtained and arranged
through the Aon Insurance Brokerage Syndicate, other brokers or direct placement
with commercial insurers, and maintained with underwriters in the United States,
British and other markets.
Insurance premiums for the coverages described above will vary from year to year
depending upon ACL's loss record and market conditions. In order to reduce
premiums, ACL maintains certain per occurrence deductible, annual aggregate
deductible and self-insured retention levels that it believes are prudent and
generally consistent with those maintained by other shipping companies.
EMPLOYEES
As of December 25, 1998, on a consolidated basis, ACL employed approximately
4,275 individuals. Of this total, 700 individuals were engaged in shore-side
management and administrative functions, 2,290 individuals were employed as boat
officers and crew members on its marine vessels, 1,135 individuals were engaged
in production and repair activities at ACL's shipyard facilities, 75 individuals
were employed by its Watercom communication unit, and 75 individuals were
employed in production and hourly work activities at ACL's terminals.
Approximately 990 of ACL's domestic shore-side employees are represented by
unions. Most of these unionized employees (approximately 945) are represented by
the International Brotherhood of Teamsters at ACL's Jeffboat shipyard facility,
where the contract with the union was renewed in 1998 for a term of three years.
Approximately 205 of ACL's South American employees are represented by unions.
ACL's combined barging operations employ 540 boat officers as pilots and
captains. On April 4, 1998, a labor organization, Pilots Agree, called for an
industry-wide work stoppage. Twenty-eight of ACL's pilots joined the work
stoppage. Since the National Labor Relations Board had previously ruled that
pilots are supervisors and, therefore, not covered by the National Labor
Relations Act, ACL refused to recognize or bargain with Pilots Agree. The work
stoppage terminated in August 1998 and had no material effect on ACL's
operations.
ITEM 2. PROPERTIES.
The information with respect to ACL's properties appearing in Item 1 is
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
ACL 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. ACL
is not aware of any litigation that would be deemed material to the financial
condition, results of operations or liquidity of ACL that is
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not covered by insurance coverages and policies, other than the environmental
matters discussed in "Environmental Matters" included under Item 1 elsewhere
herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
ACL's membership interests are not registered or traded on any stock exchange.
11
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ITEM 6. SELECTED FINANCIAL DATA.
Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------------------------------------------
Dec. 25, Dec. 26, Dec. 27, Dec. 29, Dec. 30,
1998 1997 1996 1995 1994
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA (1):
Operating revenue $638,478 $ 618,233 $ 622,140 $553,582 $448,653
Operating expense 575,729 559,600 521,476 458,126 393,273
Operating income 62,749 58,633 100,664 95,456 55,380
Other expense 587 1,930 2,726 1,808 1,446
Interest expense 40,981 12,472 11,780 11,385 13,712
Earnings before income taxes 21,181 44,231 86,158 82,263 40,222
Income taxes (benefit) (64,263) 18,287 28,733 30,861 15,006
Net earnings 85,444 25,944 57,425 51,402 25,216
OTHER OPERATING DATA:
Towboats (at period end) 201 145 148 127 128
Barges (at period end) 4,372 3,822 3,721 3,228 3,295
Tonnage (thousands, for period ended) 68,749 65,998 64,929 61,055 59,204
OTHER FINANCIAL DATA:
EBITDA (2) $116,457 $97,852 $135,419 $ 126,208 $86,208
Depreciation and amortization 46,337 41,149 37,481 32,560 32,274
Property additions 45,382 51,500 90,551 33,425 11,950
Net cash provided (used) by:
Operating activities 78,665 52,069 113,620 99,080 42,820
Investing activities (62,572) (49,300) (93,655) (36,504) (12,271)
Financing activities 26,338 (20,128) (52,484) (36,226) (26,278)
STATEMENT OF FINANCIAL POSITION DATA:
Cash and cash equivalents $49,356 $ 6,925 $24,284 $56,803 $30,453
Working capital 37,687 7,445 21,005 71,291 57,471
Properties - net 541,415 460,295 449,221 394,717 394,115
Total assets 838,530 640,138 667,095 658,499 607,699
Long-term debt, including current
portion 758,900 48,230 52,714 57,198 61,724
Shareholder's equity/ Member's deficit (130,395) 299,501 292,557 285,932 255,030
</TABLE>
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(1) ACL acquired Continental Grain's barging operations in 1996 and the barging
operations of National Marine in 1998.
(2) EBITDA represents earnings before interest, income taxes, depreciation,
amortization and, in 1998, $7,958 of non-recurring, non-cash compensation
expense related to the Recapitalization. EBITDA is presented because
management believes it is a widely accepted financial indicator used by
certain investors and securities analysts to analyze and compare companies
on the basis of operating performance. EBITDA is not intended to represent
cash flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
ACL understands that while EBITDA is frequently used by securities
analysts in the evaluation of companies, EBITDA, as used herein, is not
necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.
See the historical financial statements of ACL and the related notes
thereto included elsewhere herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
ACL is an integrated marine transportation and service company, providing barge
transportation services. ACL supports its barging operations by providing
towboat and barge design and construction, terminal services and ship-to-shore
voice and data telecommunications services to ACL and third parties. ACL is the
leading provider of river barge transportation throughout the Inland Waterways.
In addition, since expanding its barge transportation operations to South
America in 1993, ACL has become the leading provider of barge transportation
services on the Orinoco River and Lake Maracaibo in Venezuela and the
Parana/Paraguay River system serving Argentina, Brazil, Paraguay, Uruguay and
Bolivia.
ACL derives its revenues primarily from the barge transportation of steel and
other bulk commodities, grain, coal and liquids in the United States and South
America. While ACL's customer base has remained relatively stable and certain of
its operations provide relatively steady rate levels and profit margins, its
results of operations can be impacted by a variety of external factors. These
factors include fluctuations in rates for shipping grain, which in turn affect
rates for shipping other dry cargoes, weather and river conditions and
fluctuations in fuel prices. Although revenues from ACL's international
operations are denominated in U.S. dollars, its results could be impacted by
currency fluctuations.
ACL seeks to enter into multi-year contracts at fixed prices (with
inflation-indexed escalation and fuel adjustment clauses) with its customers.
Approximately 60% of contracts, in tonnage terms, that were in effect as of
December 26, 1998 are for periods of greater than 18 months.
ACL's historical pursuit of growth through strategic acquisitions has
significantly enhanced its results of operations. ACL intends to continue to
pursue a strategy of growth, domestically through acquisitions and
internationally by establishing operations to serve customers along river
systems outside the United States. ACL's acquisitions have included SCNO Barge
Lines, Inc. in 1988, Hines, Inc. in 1991, The Valley Line Company in 1992,
Continental Grain's barging operations in 1996 and National Marine's barging
operations in 1998.
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The size of ACL's fleet over the past three years is as follows:
DOMESTIC AND INTERNATIONAL FLEET
(Number of Barges)
<TABLE>
<CAPTION>
DECEMBER 25, 1998 DECEMBER 26, 1997 DECEMBER 27, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
BARGE TYPES
Covered hoppers ..................... 2,998 2,758 2,615
Open hoppers ........................ 895 811 865
Tankers ............................. 471 249 238
Deck Barges ......................... 8 4 3
----- ----- -----
Total ........................... 4,372 3,822 3,721
----- ----- -----
----- ----- -----
</TABLE>
The average age of ACL's domestic barge fleet is currently 19 years, compared
with an industry average of 15.5 years. These barges have an expected life of
approximately 25 to 30 years. In addition, ACL operates 188 towboats
domestically, with an average age of approximately 23.6 years. A significant
portion of ACL's planned capital expenditures include fleet replacement,
maintenance, domestic growth and international expansion.
ACL's operations are conducted through a limited liability company, as a result
of which ACL will not itself generally be subject to U.S. federal or state
income tax. Taxable income will be allocated to the equity holders of the Parent
and such holders will be responsible for income taxes on such taxable income.
ACL intends to make distributions to the Parent which, in turn, will make
distributions to its equity holders to enable them to meet all or a portion of
their tax obligations with respect to taxable income allocated to them by ACL.
The Amended and Restated Limited Liability Company Agreement of the Parent (the
"LLC Agreement") reduces the amount of tax distributions to CSX (or its
affiliate) during the first nine years, which may make additional funds
available for use by ACL, subject to the discretion of the Parent.
Notwithstanding the foregoing, in certain circumstances the tax distribution
provisions of the LLC Agreement permit distributions which could exceed the
combined federal, state, local and foreign income taxes that would be payable
with respect to taxable income of ACL for any given period if it were a Delaware
corporation filing separate tax returns. Such distributions are permitted under
the Indenture. See Item 13, "Certain Relationships and Related Transactions."
One of ACL's electric utility customers is in proceedings under Chapter 11 of
the U.S. Bankruptcy Code. ACL believes that as the result of these proceedings,
this contract will be restructured by the end of 1999 at reduced rates for a
term of at least five years, or the equipment dedicated to this contract may be
redeployed into other dry bulk transportation services. The revenue otherwise
receivable under such contract or by virtue of redeployment of the equipment
could be reduced by up to $12 to $16 million annually.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 25, 1998 COMPARED WITH YEAR ENDED DECEMBER 26, 1997
OPERATING REVENUE. Operating revenue for the year ended December 25, 1998
increased 3% to $638.5 million from $618.2 million for the year ended December
26, 1997. The revenue increase was due to the combination of National Marine's
barging operations with those of ACL, which produced higher volumes during the
second half of the year. The positive impact from the larger fleet was partially
offset by unfavorable operating conditions caused by three hurricanes in the
Gulf region during September and October and extended periods of high water on
the Mississippi River in early 1998. Domestic barging revenue increased $18.0
million to $469.0 million due to increased volumes partially offset by lower
rates. Increased production within foreign countries reduced demand for U.S.
grain exports, which resulted in lower dry cargo rates in general. The average
rate per ton-mile decreased 3%, reducing domestic revenue $19 million for the
year, with most of the impact occurring in the first half of the year.
International revenues rose $11.3 million to $47.4 million, due to increased
volumes. Revenue at Jeffboat, ACL's marine
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construction subsidiary, fell $3.8 million to $96.9 million, reflecting reduced
hopper barge construction for third-party customers, offset somewhat by higher
construction of tank barges.
OPERATING EXPENSE. Operating expense for the year ended December 25, 1998
rose 3% to $575.7 million from $559.6 million in the year ended December 26,
1997. Domestic barging expenses increased $26.3 million, primarily due to
operating the larger fleet but also because of the adverse operating
conditions discussed above and due to an $8.0 million non-cash, non-recurring
compensation charge in the third quarter of 1998 related to the
Recapitalization, which was payable by CSX to certain executive officers of
ACL. Average fuel prices declined from 62 cents per gallon in 1997 to 46
cents per gallon in 1998. ACL achieved significant progress integrating
National Marine's operations during the second half of 1998. Most of the
duplicate general and administrative costs were eliminated during the third
quarter, including workforce reductions of 65 employees. Other costs were
reduced through eliminating duplicate fleeting facilities and utilizing
excess capacity in certain fleets. International barging expenses rose $11.3
million to $44.4 million, largely due to increased volumes and start-up costs
in Argentina. Jeffboat's expenses declined $4.4 million to $87.9 million, due
to reduced barge construction, improved productivity and lower steel prices.
Elimination of the CSX corporate management fee pursuant to the
Recapitalization reduced 1998 expenses by $8.2 million.
OPERATING INCOME. Operating income for the year increased 7% to $62.7 million
from $58.6 million for 1997, due to the reasons discussed above.
INTEREST EXPENSE. Interest expense for 1998 increased to $41.0 million from
$12.5 million for the same period in 1997. The increase is due to $735 million
of long-term debt obtained by ACL in connection with the Recapitalization.
EARNINGS BEFORE INCOME TAXES. Earnings before income taxes for the year declined
to $21.2 million from $44.2 million in 1997, due to the factors discussed above.
INCOME TAXES (BENEFIT). Income taxes for the year decreased to a benefit of
$64.3 million from an expense of $18.3 million for 1997. ACL's domestic
corporate subsidiaries, except ACL Capital Corp., were converted to limited
liability companies as of June 30, 1998. Due to the change in tax status,
previously recognized deferred income taxes were reversed, resulting in a
benefit of $72 million.
NET EARNINGS. Net earnings for 1998 increased to $85.4 million from $25.9
million in 1997, due to the reasons discussed above.
YEAR ENDED DECEMBER 26, 1997 COMPARED TO YEAR ENDED DECEMBER 27, 1996
OPERATING REVENUE. Operating revenue for the year ended December 26, 1997
decreased $3.9 million, or 1%, to $618.2 million from $622.1 million for 1996.
Domestic barging revenue decreased $30.0 million due to reduced ton-miles and
rate per ton. The decrease in domestic ton-miles, reducing revenue by
approximately $5 million, was due, in part, to adverse river conditions,
including severe flooding on the Ohio River and the Upper Mississippi River
during the first half of 1997 and, in part, to lower volume driven by reduced
U.S. grain exports primarily resulting from increased grain production by
foreign producers. Rates decreased approximately $28 million. During 1997, rates
were negatively impacted by industry-wide vessel over-capacity. The reduction in
grain exports also negatively impacted rate per ton for dry cargo generally. The
decrease in domestic barging revenue was partially offset by $16.0 million in
increased revenues from third-party customers at Jeffboat and an $8.7 million
increase in international revenues, primarily due to start-up in Argentina.
OPERATING EXPENSE. Operating expense for the year ended December 26, 1997
increased $38.1 million, or 7%, to $559.6 million from $521.5 million for 1996.
Domestic barging expense increased $9.8 million primarily due to increased
operating costs as a result of ice and extreme flooding on the Ohio and
Mississippi Rivers, including barge repair, partially offset by improved
productivity resulting from ACL's on-going cost control program and lower fuel
prices. International barging expense increased $16.3 million due to increased
volumes and start-up in Argentina. Jeffboat's expenses increased $11.8 million
primarily due to increased production levels.
OPERATING INCOME. Operating income for the year ended December 26, 1997
decreased $42.1 million, or 42% to $58.6 million from $100.7 million for 1996
due to the reasons discussed above.
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EARNINGS BEFORE INCOME TAXES. Earnings before income taxes for the year ended
December 26, 1997 decreased $42.0 million, or 49% to $44.2 million from $86.2
million for 1996, due to the factors discussed above.
INCOME TAXES. Income taxes for the year ended December 26, 1997 decreased $10.4
million, or 36%, to $18.3 million from $28.7 million for 1996. This decrease was
due to lower domestic earnings before income taxes.
NET EARNINGS. Net earnings for the year ended December 26, 1997 decreased $31.5
million, or 55% to $25.9 million from $57.4 million for 1996, due to the reasons
discussed above.
OUTLOOK
Domestic barging demand and spot rates for grain, bulk and steel are expected to
improve in 1999 as compared to 1998 levels. The U.S. Department of Agriculture
currently forecasts 1999 corn exports of 1.8 billion bushels, an increase of
300 million bushels over 1998 levels. ACL's domestic barging volumes should
also increase due to its larger fleet operating for the full year. However,
adverse weather conditions in early 1999, primarily severe ice on the Illinois
River, will negatively impact domestic barging results in the first quarter.
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, ACL borrowed $47.7 million from
CSX to redeem $28.3 million of U.S. Government Guaranteed Ship Financing Bonds
and to deposit $26.1 million into an escrow fund that will be used to repay
$24.4 million principal of Terminal Revenue Refunding Bonds. CSX contributed to
the capital of ACL all existing debt (approximately $163 million) owed to CSX.
In connection with the Recapitalization, ACL secured $735 million in long-term
debt, including the two Term Loans in the total principal amount of $435 million
and $300 million in Senior Notes. As of December 25, 1998, ACL had outstanding
indebtedness of $734.5 million, including $434.5 million drawn under the Term
Loans and $300.0 million aggregate principal amount of Senior Notes. In
addition, ACL has available borrowings of up to $100.0 million under the
Revolving Credit Facility. At the end of 1998, $4.9 million of letters of credit
had been issued but no revolving loans were outstanding. The outstanding
indebtedness of $734.5 million is net of $24.4 million of Terminal Revenue
Refunding Bonds which were defeased with funds invested in U.S. government
obligations deposited in an irrevocable trust.
The Senior Credit Facilities and the Indenture contain a number of covenants
with specified financial ratios and tests including, with respect to the
Senior Credit Facilities, maximum leverage ratios and minimum interest
coverage ratios. A failure to maintain specified financial ratios could lead
to an event of default which could result in acceleration of the debt, higher
interest rates or other adverse consequences. Compliance with financial
ratios is measured at the end of each quarter. ACL's ability to meet these
financial ratios is affected by adverse weather conditions, seasonality and
other risk factors inherent in its business.
Net cash provided by operating activities totaled $78.7 million, $52.1 million
and $113.6 million for fiscal 1998, 1997 and 1996, respectively. The increase in
net cash from operating activities in 1998 compared with 1997 was primarily due
to the timing of cash receipts and disbursements related to accounts payable and
accounts receivable, while the decrease in net cash from operating activities in
1997 compared with 1996 was primarily due to lower net earnings.
Net cash from operating activities was used primarily for capital expenditures,
repayment of third-party and intercompany debt and to pay dividends to CSX.
Capital expenditures were $45.4 million, $51.5 million and $90.6 million in
1998, 1997 and 1996, respectively. Expenditures included $13.5 million, $24.0
million and $31.0 million for domestic marine equipment and $21.0 million, $18.5
million and $26.0 million for foreign investments in 1998, 1997 and 1996,
respectively. Expenditures in 1996 also included $17.7 million for the purchase
of the barge assets
16
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of Continental Grain. Net cash from operating activities also was used to pay
cash dividends to CSX of $9.5 million in 1998, $19.0 million in 1997 and $36.8
million in 1996. ACL expects capital expenditures in 1999 to be approximately
$60 million primarily for fleet replacement, maintenance and growth, with
possible increase up to $80 million depending upon ACL's performance.
Management believes that cash generated from operations are sufficient to fund
its cash requirements, including capital expenditures for fleet replacement,
maintenance, domestic growth and international expansion, working capital,
interest payments and scheduled principal payments. ACL may from time to time,
borrow under the Revolving Credit Facility.
ACL has various environmental liabilities which could have an impact on its
financial condition and results of operations. These environmental matters are
discussed in Item 1, "Legal Proceedings," contained herein.
BACKLOG
ACL's backlog represents firm orders for barge transportation and marine
equipment. The backlog for barge transportation was approximately $1,536 million
and $1,049 million at December 25, 1998 and December 26, 1997, respectively.
This backlog ranges from one to ten years with approximately 26% expected to be
filled in 1999. The backlog for marine equipment was approximately $111 million
and $72 million at December 25, 1998 and December 26, 1997, respectively. This
backlog is two years with approximately 81% expected to be filled in 1999.
SEASONALITY
ACL's business is seasonal, and its quarterly revenues 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 North American grain harvest. In addition, working
capital requirements fluctuate throughout the year. Adverse market or operating
conditions during the last four months of the year could have a greater effect
on ACL's business, financial condition and results of operations than during
other periods.
YEAR 2000
ACL formed a Year 2000 project team in mid-1997 to identify information
technology and non-information technology systems that require modification for
the Year 2000. A project plan has been developed with goals and target dates.
ACL is aggressively working toward being Year 2000 compliant.
Over the past two years, ACL has developed, upgraded and replaced certain
systems to meet its core business requirements, with the additional benefit of
achieving Year 2000 compliance for those systems. ACL's current Year 2000 effort
encompasses all functions and operations of ACL, including those of American
Commercial Barge Line (domestic barging); Jeffboat (shipyards), American
Commercial Terminals (marine terminals); Louisiana Dock Company (marine
services); American Commercial Lines International (international barging and
marine services); and Waterways Communications System (marine
telecommunications).
The scope of this effort includes all hardware, software and mission critical
business processes. This includes, but is not limited to, mainframe and client
server systems, desktop applications and spreadsheets, mainframe and personal
computer hardware, voice and data communications networks, embedded systems,
electronic interfaces, suppliers, customers, utilities, government agencies,
financial institutions and others. ACL's focus throughout this process has
remained on mission critical systems, trading partners and other third parties
who have been identified as strategically important or necessary to continue its
business into the millenium.
The Year 2000 project team has representatives from senior management and key
areas of its operations. The team provides overall guidance and coordination of
the project through monthly meetings and reports, with more frequent meetings,
as needed for certain sub-team functions. ACL's senior management and the Board
of Managers monitor this effort through periodic status reports.
ACL's business areas are in various stages of its Year 2000 project plan. The
remediation of its mainframe and client server systems are essentially complete.
ACL currently intends to complete remaining remediation of systems
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by the end of April 1999, except for a shore-based boat maintenance and
inventory system, which will be replaced by a target date of the end of July
1999. Documentation of test plans is expected to occur by the end of April 1999.
Testing of mission critical mainframe and client server computer systems is
currently expected to begin in May 1999, with such testing continuing through
1999.
ACL replaces and upgrades its personal computer ("PC") and desktop application
software on a regular basis. Testing and replacement, as needed, of PC hardware
and software is now scheduled for completion by the end of July 1999. ACL also
plans to review and remediate, as deemed necessary, PC-resident spreadsheets and
programs by the end of July 1999. The scheduled completion of testing and
replacement of PC hardware, software and PC-resident spreadsheets and programs
has been delayed from ACL's estimate in the third quarter of 1998 due to
compatibility problems associated with the changes in hardware and software. ACL
does not expect compatibility problems to cause further delays. ACL currently
believes that none of these applications are mission critical.
ACL has completed its assessment of key operating assets, facilities and
telecommunications networks for embedded technology. This assessment includes
marine terminal operations and vessel systems such as electronic navigation
equipment, diesel engine monitoring systems and other emergency monitors and
alarms. ACL currently anticipates no material impairment of its operations due
to embedded technology that cannot be addressed by remediation or contingency
planning, which is scheduled for completion by the end of July 1999.
ACL is currently assessing the consequences of any delays in its Year 2000
initiatives or any remediation effort not being successful, and has begun
planning, including efforts to address disruptions in third-party services, such
as telecommunications and electricity, on which its systems and operations rely.
ACL expects to complete these contingency plans by the end of July 1999. These
plans will include securing alternate or replacement suppliers for goods and/or
services and developing other strategic solutions for mission critical areas
should the need arise.
ACL presently anticipates that its greatest exposure for Year 2000 problems may
result from telecommunication, utility or financial institution failures; rail
service or other equipment failures that hinder loading or unloading at marine
terminals; failures of fuel or other key suppliers, and failures of locks or
dams that impact river navigation by ACL vessels. Contingency plans will be
prepared to address these and other areas of significant risk. However, there
can be no assurances that ACL's contingency plans or its efforts with respect to
third parties will prevent a material adverse effect on its business, results of
operations or financial condition.
ACL has spent $1.3 million to date, related to this project. The remaining cost
of the Year 2000 project is presently estimated at $2.0 million, which will be
expensed as incurred through 2000. The total estimated cost of $3.3 million will
comprise approximately 16% of ACL's total technology budget for the project
period and includes $2.3 million to upgrade and replace software and $1.0
million for hardware. A portion of the total Year 2000 project expense is
represented by existing staff that has been or will be deployed to this project.
ACL has also engaged consultants and contractors to assist in its Year 2000
efforts.
ACL 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 ACL 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, ACL is in communication with its mission
critical suppliers, larger customers and financial institutions and other
significant third parties to assess their Year 2000 readiness. ACL has
identified these businesses and entities based upon revenue generated to ACL and
its dependence for key goods and/or services they supply. ACL has conducted an
initial survey of these key trading partners and is beginning to conduct more
thorough reviews or audits based upon these responses. However, 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.
18
<PAGE>
CHANGES IN ACCOUNTING STANDARDS
In February 1998, the FASB issued Statement No. 132, "Employer's Disclosures
about Pensions and Other Post-retirement 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 Post-retirement Benefits Other Than Pensions." Statement No. 132 eliminates
certain existing disclosure requirements, but at the same time adds new
disclosures. ACL adopted 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. ACL adopted Statement No. 130 in the first
quarter of 1998 but the adoption had no significant impact on its consolidated
financial statements.
In December, 1997, the AICPA issued Statement of Position No. 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments" (SOP 97-3) which provides guidance on recognition, measurement,
and disclosure of liabilities for guaranty-fund and certain other
insurance-related assessments, including workers' compensation second-injury
funds. SOP 97-3 is effective for fiscal years beginning after December 15,
1998. ACL will adopt SOP 97-3 in the first quarter of 1999; however, the
effect of adopting has not yet been determined.
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. ACL 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 its consolidated
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-denominated 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 resulting designation. This statement is
effective for fiscal years beginning after June 15, 1999, but earlier
application is encouraged. ACL has not determined when it will adopt Statement
No. 133, but expects adoption will not have a significant effect on its
consolidated financial statements.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking statements
about ACL's financial position and results of operations. These statements
include words such as "believe," "expect," "anticipate," "intend," "estimate" or
other similar words. Any statements that express or involve discussions as to
expectations, beliefs or plans are not historical facts and 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:
- substantial leverage and ability to service debt;
- changing market, labor, legal and regulatory conditions and trends in
the barge and inland shipping industries;
- 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;
- annual worldwide weather conditions, particularly those affecting
North and South America; and
- the ability of ACL to resolve Year 2000 issues.
19
<PAGE>
As a result of these and other factors discussed in and incorporated by
reference from "Risk Factors," Exhibit 99.1, and incorporated herein by
reference, 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. ACL undertakes no obligation to update or revise any
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ACL is exposed to certain market risks which are inherent in its financial
instruments and which arise from transactions entered into in the normal course
of business. A discussion of ACL's primary market exposures in financial
instruments in presented below.
FUEL PRICE RISK.
Fuel consumed in 1998 represented approximately 8% of ACL's operating expenses.
Most of ACL's long-term contracts contain clauses under which increases in fuel
costs are passed on to customers thereby reducing the fuel price risk. In
addition, ACL has entered into fuel rate swap agreements for short-term
protection. As a result of ACL's fuel hedging strategy, it might not fully
benefit from certain fuel price declines.
Based on ACL's 1999 projected fuel consumption, a one cent change in the average
annual price per gallon of fuel would impact its annual operating income by
approximately $0.1 million, after the effect of escalation clauses in long-term
contracts and fuel rate swap agreements in place as of December 25, 1998. As of
December 25, 1998, ACL had hedged approximately 23% of its projected 1999 fuel
requirements using fuel rate swap agreements. ACL estimates that at December 25,
1998, a 10% change in the price per gallon of fuel would have changed the fair
value of the existing fuel rate swap contracts by $1.1 million. A discussion of
ACL's accounting policies for fuel rate swaps is included in Note 8 to the
Consolidated Financial Statements.
INTEREST RATE RISK.
At December 25, 1998, ACL had $434.5 million of floating rate debt outstanding
which represented the outstanding balance of the Senior Credit Facilities. A 1%
change in interest rates would change interest expense by $4.3 million.
FOREIGN CURRENCY EXCHANGE RATE RISKS.
All of ACL's significant transportation contracts in South America are
denominated in U.S. dollars. However, many expenses incurred in the performance
of such contracts, such as crew wages and fuel, are, by necessity, denominated
in a foreign currency. Therefore, ACL is affected by fluctuations in the value
of the U.S. dollar as compared to certain foreign currencies. Additionally,
ACL's investments in foreign affiliates subjects it to foreign currency exchange
rate and equity price risks. Management does not consider its exposure to
exchange rate risks to be material and considers its investments in foreign
affiliates to be denominated in relatively stable currencies and of a long-term
nature. Accordingly, ACL does not typically manage its related foreign currency
exchange rate and equity price risks through the use of financial instruments.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
AMERICAN COMMERCIAL LINES LLC
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUE $638,478 $ 618,233 $ 622,140
OPERATING EXPENSE
Materials, Supplies and Other 290,504 289,394 267,300
Labor and Fringe Benefits 167,580 150,960 138,341
Fuel 47,454 56,982 58,747
Depreciation and Amortization 46,337 41,149 37,481
Taxes, Other Than Income Taxes 23,854 21,115 19,607
------------ ------------ ------------
575,729 559,600 521,476
------------ ------------ ------------
OPERATING INCOME
62,749 58,633 100,664
OTHER EXPENSE
Interest Expense 36,974 3,720 4,034
Interest Expense, Affiliate - Net 4,007 8,752 7,746
Other, Net 587 1,930 2,726
------------ ------------ ------------
41,568 14,402 14,506
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 21,181 44,231 86,158
INCOME TAXES (BENEFIT) (64,263) 18,287 28,733
------------ ------------ ------------
NET EARNINGS $ 85,444 $ 25,944 $ 57,425
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
21
<PAGE>
AMERICAN COMMERCIAL LINES LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings $85,444 $25,944 $57,425
Adjustments to Reconcile Net Earnings to
Net Cash Provided by (Used in) Operating
Activities:
Depreciation and Amortization 47,737 41,149 37,481
Deferred Income Taxes (70,091) 90 (794)
Other Operating Activities 5,502 3,216 1,526
Changes in Operating Assets and Liabilities:
Accounts Receivable 8,990 10,818 (13,048)
Materials and Supplies (12,762) 14,062 6,301
Accrued Interest 21,619 (135) (135)
Other Current Assets (9,210) (5,157) (273)
Due to Affiliates (13,805) (844) (903)
Other Liabilities 15,241 (37,074) 26,040
------------ ------------ ------------
Net Cash Provided by Operating Activities 78,665 52,069 113,620
INVESTING ACTIVITIES
Property Additions (45,382) (51,500) (90,551)
Proceeds from Property Dispositions 9,675 3,411 1,054
Purchase of Restricted Investments (26,128) -- --
Sale of Restricted Investments 216 -- --
Other Investing Activities (953) (1,211) (4,158)
------------ ------------ ------------
Net Cash Used in Investing Activities (62,572) (49,300) (93,655)
FINANCING ACTIVITIES
Recapitalization Distribution (695,000) -- --
Issuance of Membership Interests 60,047 -- --
Short Term Borrowings 32,000 -- --
Long-Term Debt Issued 735,000 -- --
Financing Costs (27,000) -- --
Short Term Payments (32,000) -- --
Long-Term Debt Repaid (99,330) (4,484) (4,484)
Affiliate Debt Repaid (11,200) (11,200) (11,200)
Cash Dividends Paid (9,500) (19,000) (36,800)
Other Financing (10,612) 8,006 --
Short Term Borrowing from Affiliates 83,933 6,550 --
------------ ------------ ------------
Net Cash Provided by (Used in) Financing
Activities 26,338 (20,128) (52,484)
Net Increase (Decrease) in Cash and Cash Equivalents 42,431 (17,359) (32,519)
Cash and Cash Equivalents at Beginning of Period 6,925 24,284 56,803
------------ ------------ ------------
Cash and Cash Equivalents at End of Period $49,356 $ 6,925 $24,284
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE>
AMERICAN COMMERCIAL LINES LLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $49,356 $6,925
Accounts Receivable, Net 88,556 77,449
Materials and Supplies 39,054 33,526
Deferred Income Taxes -- 1,378
Other Current Assets 19,962 10,167
------------ ------------
Total Current Assets 196,928 129,445
PROPERTIES-Net 541,415 460,295
RESTRICTED INVESTMENTS 25,912 --
NET PENSION ASSET 21,490 19,091
OTHER ASSETS 52,785 31,307
------------ ------------
Total Assets $838,530 $ 640,138
------------ ------------
------------ ------------
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $39,823 $ 21,720
Accrued Payroll and Fringe Benefits 23,166 16,131
Due to Affiliates -- 27,599
Short Term Borrowings from Affiliate -- 6,550
Deferred Revenue 9,459 7,894
Accrued Claims and Insurance Premiums 14,661 6,620
Accrued Interest 22,523 904
Current Portion of Long-Term Debt 2,500 4,484
Other Current Liabilities 47,109 30,098
------------ ------------
Total Current Liabilities 159,241 122,000
LONG-TERM NOTE PAYABLE TO AFFILIATE -- 67,200
DEFERRED INCOME TAXES -- 71,302
LONG-TERM DEBT 756,400 43,746
PENSION LIABILITY 19,347 --
OTHER LONG-TERM LIABILITIES 33,937 36,389
------------ ------------
968,925 340,637
------------ ------------
MEMBER'S DEFICIT / SHAREHOLDER'S EQUITY
Member's Interest / Common Stock, No Par Value, Authorized 2,000
Shares; Issued and Outstanding 1,001 Shares in 1997 220,047 6,006
Other Capital 161,051 165,164
Retained Earnings (Deficit) (511,493) 128,331
------------ ------------
Total Member's Deficit / Shareholder's Equity (130,395) 299,501
------------ ------------
Total Liabilities and Member's Deficit / Shareholder's Equity $838,530 $ 640,138
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
AMERICAN COMMERCIAL LINES LLC
CONSOLIDATED STATEMENT OF MEMBER'S DEFICIT/SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
OUTSTANDING COMMON MEMBER'S OTHER EARNINGS
SHARES STOCK EQUITY CAPITAL (DEFICIT) TOTAL
----------- ------ ------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1995 1,001 $ 6,006 $ -- $ 165,164 $ 114,762 $ 285,932
Net earnings 57,425 57,425
Cash dividends to CSX (36,800) (36,800)
Dividend of net pension assets to CSX (14,000) (14,000)
--------- ------- -------- --------- --------- ----------
Balance at December 27, 1996 1,001 6,006 -- 165,164 121,387 292,557
Net earnings
25,944 25,944
Cash dividends to CSX
(19,000) (19,000)
--------- ------- -------- --------- --------- ----------
Balance at December 26, 1997 1,001 6,006 -- 165,164 128,331 299,501
Net earnings 85,444 85,444
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 171,274 171,274
Recapitalization of ACL's assets and
liabilities (1,001) (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 December 25, 1998 -- $ -- $220,047 $ 161,051 $(511,493) $ (130,395)
--------- ------- -------- --------- --------- ----------
--------- ------- -------- --------- --------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The operations of American Commercial Lines LLC ("ACL") (formerly American
Commercial Lines Inc. which was converted to a limited liability company in
the second quarter of 1998) include barge transportation together with
related terminal, marine construction and repair, and communications services
along inland waterways. Barge transportation services include the movement of
steel and other bulk products, grain, coal, and liquids in the United States
and South America and account for the majority of ACL's revenues. Marine
construction and repair, terminal and communications services are provided to
customers in marine transportation and other related industries in the United
States. ACL has long term contracts with some customers.
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
(the "Parent") completed a recapitalization in a series of transactions in
which the barge business of Vectura Group, Inc. ("Vectura") and its
subsidiaries ("NMI" or the "NMI Contribution") were combined with that of ACL
(See Note 2).
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements reflect the results of operations, cash
flows and financial position of ACL and its majority-owned subsidiaries as a
single entity. All significant intercompany accounts and transactions have been
eliminated. Investments in companies that are not majority-owned are carried at
either cost or equity, depending on the extent of control.
FISCAL YEAR
ACL follows an annual fiscal reporting period, which ends on the last Friday in
December. The financial statements presented are for the fiscal years ended
December 25, 1998 and December 26, 1997 and December 27, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments with a maturity of less
than three months when purchased. ACL has from time to time, cash in banks in
excess of federally insured limits.
ACCOUNTS RECEIVABLE
ACL maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable. Allowances for doubtful accounts of
$2,335 and $1,254 have been applied as a reduction of accounts receivable at
December 25, 1998 and December 26, 1997, respectively.
25
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued
MATERIALS AND SUPPLIES
Materials and Supplies are carried at the lower of cost (average) or market and
consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Raw Materials $ 9,802 $ 5,917
Work in Process 9,829 7,243
Parts and Supplies 19,423 20,366
--------- --------
$ 39,054 $ 33,526
--------- --------
--------- --------
</TABLE>
REVENUE RECOGNITION
Barge transportation revenue is recognized proportionately as shipments move
from origin to destination. Terminal, repair and communication revenue is
recognized as services are provided. Marine construction revenue, and related
expense, is primarily recognized on the completed-contract method, due to the
short-term nature of contracts.
PROPERTIES
Properties, at cost, consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Land $13,620 $ 17,097
Buildings and Improvements 41,641 40,305
Equipment 762,742 639,116
--------- --------
818,003 696,518
Less Accumulated Depreciation 276,588 236,223
--------- --------
$ 541,415 $460,295
--------- --------
--------- --------
</TABLE>
Provisions for depreciation of properties are based on the estimated useful
service lives computed on the straight-line method. Buildings and Improvements
are depreciated from 15 to 45 years. Equipment is depreciated from five to 30
years. Depreciation expense was $44,606 in 1998, $38,675 in 1997 and $36,023 in
1996.
Properties and other long-lived assets are reviewed for impairment whenever
events or business conditions indicate the carrying amount of such assets may
not be fully recoverable. Initial assessments of recoverability are based on
estimates of undiscounted future net cash flows associated with an asset or a
group of assets. Where impairment is indicated, the assets are evaluated for
sale or other disposition, and their carrying amount is reduced to fair value
based on discounted net cash flows or other estimates of fair value.
26
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued
DEBT AMORTIZATION
ACL amortizes debt costs over the term of the debt. Amortization expense was
$1,540 in 1998, $326 in 1997, and $377 in 1996 and is included in interest
expense.
COMPREHENSIVE INCOME
The difference between net income and comprehensive income is not significant.
RESTRICTED INVESTMENTS
Restricted Investments represent U.S. government obligations purchased and
deposited into an escrow fund which together with future income, is to be used
to repay $24.4 million principal of the Terminal Revenue Bonds plus redemption
premium and interest. These investments are classified as held to maturity and
are carried on the balance sheet at cost.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
NOTE 2. BUSINESS COMBINATION
ACL was a wholly owned subsidiary of CSX until June 30, 1998. On June 30, 1998,
the Parent completed a recapitalization in a series of transactions in which
the barge business of Vectura and its subsidiaries was combined with that of
ACL. ACL issued $735 million in new debt, Vectura contributed certain of its
assets and liabilities (referred to as the National Marine Contribution) plus
$60 million in cash, and ACL paid a $695 million distribution to CSX and $75
million of existing liabilities of Vectura. In addition, CSX contributed to the
capital of the Parent approximately $163 million of existing liabilities owed to
CSX. The 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 in taxes. In the third quarter of 1998, ACL recognized non-recurring,
non-cash compensation expense of $7,958 related to the recapitalization and
payable by CSX to certain executive officers of ACL.
The transactions described above have been accounted for as a recapitalization
of ACL with the National Marine Contribution accounted for by the purchase
method of accounting. The purchase price of $5 million was less than the fair
value of the tangible and intangible net assets acquired, which resulted in a
reduction from fair value of long-term assets.
If the recapitalization of ACL and the purchase of National Marine had occurred
as of the beginning of 1997, the unaudited pro forma consolidated results of
operations would have been:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Operating revenue $ 696,676 $ 742,677
Operating income 66,908 78,134
Earnings (loss) before income taxes (4,175) 5,811
Income taxes 4,827 2,127
Net earnings (loss) (9,002) 3,684
</TABLE>
The unaudited pro forma information may not necessarily reflect future results
of operations or what the results of operations would have been had the
transaction been consummated at the beginning of the year proceeding the year of
acquisition.
27
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 3. DEBT
Long-Term Debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C> <C>
$235 million Term Loan $ 234,750 $ --
$200 million Term Loan 199,750 --
$300 million Senior Notes 300,000 --
Terminal Revenue Facilities Refunding Bonds 24,400 24,400
U.S. Government Guaranteed Ship Financing Bonds -- 23,830
---------------------------------
758,900 48,230
Less, current portion 2,500 4,484
---------------------------------
$ 756,400 $43,746
---------------------------------
---------------------------------
</TABLE>
ACL has a Revolving Credit Facility, which provides for revolving loans and
letters of credit not to exceed the aggregate principal amount of $100 million,
maturing in June, 2005, but each loan must be repaid within one year. Although
there were no borrowings on the facility at December 25, 1998, outstanding
letters of credit of $4.9 million reduced the borrowing base.
The $235 million Term Loan matures in 2007 and amortizes at the rate of $1
million per year through 2006 and $227 million in 2007. The $200 million Term
Loan matures in 2006 and amortizes at the rate of $1 million per year through
2003, $20 million in 2004, $75 million in 2005 and $100 million in 2006. The two
Term Loans and the Revolving Credit Facility bear interest at a rate equal to
LIBOR plus a margin based on ACL's performance. The interest rates at December
25, 1998 were 7.94% for the $235 million and 7.69% for the $200 million term
loans. Interest on the Term Loans is payable quarterly. The Senior Notes require
no principal payments until maturity 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 ACL'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.
In June, 1998, ACL 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 ("Revenue Bonds") plus
redemption premium and interest thereon. The Revenue Bonds have a fixed interest
rate of 7.75% and will be repaid in 2000. 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 Revenue Bonds. The
U.S. Government Guaranteed Ship Financing Bonds were repaid on June 30, 1998,
prior to their maturity.
Long-term debt due in the next five years is $2,500 in 1999, $25,900 in 2000,
$2,000 in 2001, $2,000 in 2002, $6,750 in 2003 and $719,750 thereafter.
28
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 4. INCOME TAXES
ACL was included in the consolidated federal income tax return of CSX through
June 30, 1998. The consolidated federal income tax liability was allocated to
ACL as though ACL has filed a separate consolidated return subject to certain
consolidated elections determined by CSX. As of December 26, 1997, federal
income tax payable to CSX was $10,750 and was included in due to affiliates in
the statement of financial position.
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 June
30, 1998 prior to the recapitalization (see Note 2). Due to the change in the
tax status, ACL reversed previously recognized deferred income taxes resulting
in a benefit of $72 million.
Components of income tax expense (benefit) follow:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- --------
Currently payable:
<S> <C> <C> <C>
Federal $ 819 $ 15,040 $ 26,200
State 306 1,030 2,597
Foreign 4,703 2,127 730
--------- ------- --------
5,828 18,197 29,527
--------- ------- --------
Deferred:
Federal 1,784 3 (410)
State 106 87 (384)
--------- ------- --------
1,890 90 (794)
Reversal of previously established deferred income taxes
resulting from change of tax status (71,981) -- --
--------- ------- --------
(70,091) 90 (794)
--------- ------- --------
$ (64,263) $18,287 $ 28,733
--------- ------- --------
--------- ------- --------
</TABLE>
Income tax computed at federal statutory rates reconciled to income tax expense
(benefit) follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Tax at Federal Statutory Rate $ 7,413 $ 15,481 $ 30,155
State Income Taxes, Net 239 726 1,438
Foreign Operations, Net 5,343 3,183 (1,790)
Tax effect of income taxable to member resulting
from change in tax status (4,120) -- --
Reversal of previously established deferred income taxes
resulting from change of tax status (71,981) -- --
Other (1,157) (1,103) (1,070)
--------- -------- --------
Total Income Tax Expense (Benefit) $(64,263) $ 18,287 $ 28,733
--------- -------- --------
--------- -------- --------
</TABLE>
29
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 4. INCOME TAXES, CONTINUED
The significant components of deferred tax assets and liabilities as of
December 25, 1998 and December 26, 1997 follow:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward of foreign
subsidiaries $ 4,186 $ 1,715
Other Post-Retirement Benefits -- 6,910
Other Items -- 8,702
-------- --------
4,186 17,327
Less valuation allowance for foreign net operating
loss carryforwards (4,186) (1,715)
-------- --------
-- 15,612
-------- --------
Deferred Tax Liabilities:
Accelerated Depreciation -- (76,363)
Pension Obligation -- (7,648)
Other Items -- (1,525)
-------- --------
-- (85,536)
-------- --------
Net deferred tax liability $ -- $(69,924)
-------- --------
-------- --------
</TABLE>
ACL has not recorded domestic deferred or additional foreign income taxes
applicable to undistributed earnings of foreign subsidiaries that are considered
to be indefinitely reinvested. Such earnings as of December 25, 1998 and
December 26, 1997 amounted to $12,774 and $11,620 respectively.
At December 25, 1998, certain foreign subsidiaries have accumulated net
operating loss carryovers for income tax purposes of approximately $12,700 which
expire in years 2000 to 2003. Management is unable at this time to project
utilization of such carryforwards, and has established a valuation allowance for
such.
The basis of assets and liabilities for financial reporting purposes is
more(less) than the tax basis of such assets and liabilities at December 25,
1998 as follows:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Assets:
Property & Equipment $ 211,171
Pension Assets 21,728
Other Assets 12,531
---------
$ 245,430
Liabilities:
Pension $ 24,054
Post-Retirement Benefits 17,439
Accrued Liabilities and Other 27,101
---------
$ 68,594
Net $ 176,836
---------
---------
</TABLE>
30
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 5. EMPLOYEE BENEFIT PLANS
ACL sponsors or participates in defined benefit plans covering both salaried and
hourly employees. The plans provide for eligible employees to receive benefits
based on years of service and either compensation rates near retirement or at a
predetermined multiplier factor. Contributions to the plans are sufficient to
meet the minimum funding standards set forth in the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended. Plan assets consist primarily of
common stocks, corporate bonds and cash and cash equivalents.
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 spinoff was completed in June 1998. This transfer of assets
and benefit liabilities resulted in ACL 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 ERISA.
In addition to the defined benefit pension and related plans, ACL has a defined
benefit post-retirement plan covering most full-time employees. The plan
provides medical benefits and is contributory, with retiree contributions
adjusted annually, and contains other cost-sharing features such as deductibles
and coinsurance. The accounting for the health care plan anticipates future
cost-sharing changes to the written plan that are consistent with the ACL's
expressed intent to increase the retiree contribution rate annually.
A summary of the pension and post-retirement plan components at September 30
(valuation date) follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POST-RETIREMENT PLAN
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation, beginning of year $ (19,091) $ (17,773) $ (18,310) $ (18,482)
Service cost (5,177) (661) (558) (839)
Interest cost (6,301) (1,297) (759) (1,373)
Plan participants' contributions -- -- (180) (178)
Amendments (1,272) -- -- --
Actuarial gain -- -- 7,152 1,779
Liability loss (8,797) (392) -- --
Benefits paid 3,043 1,032 963 783
Impact of CSX Plan Spin-off (66,765) -- -- --
--------- --------- --------- ---------
Benefit obligation, end of year $(104,360) $ (19,091) $ (11,692) $ (18,310)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
31
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 5. EMPLOYEE BENEFIT PLANS, CONTINUED
<TABLE>
<CAPTION>
PENSION BENEFITS POST-RETIREMENT PLAN
1998 1997 1998 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning $ 42,694 $ 34,583 $ -- $ --
of year
Actual return on plan assets 4,386 8,762 -- --
Employer contribution 3,535 381 783 604
Plan participants' contributions -- -- 180 179
Benefits paid (3,043) (1,032) (963) (783)
CSX spin-off 51,717 -- -- --
-------- -------- -------- ---------
Fair value of plan assets at end of year $ 99,289 $ 42,694 $ -- $ --
-------- -------- -------- ---------
-------- -------- -------- ---------
FUNDED STATUS:
Funded status $ (5,071) $ 23,603 $(11,692) $(18,310)
Unrecognized transition liability (2,193) (1,424) -- --
Unrecognized net actuarial loss (gain) 12,740 (3,784) (6,057) 405
Unrecognized prior service cost (8,107) 1,025 -- (339)
Net claims during 4th quarter -- -- 310 125
Cash contributions, 10/1 to 12/31 95 -- -- --
Allocation from CSX (265) -- --
-------- -------- -------- ---------
Prepaid (accrued) benefit cost $ (2,536) $ 19,155 $(17,439) $(18,119)
-------- -------- -------- ---------
-------- -------- -------- ---------
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL
POSITION CONSIST OF:
Prepaid benefit cost $ 21,490 $ 19,091 $ -- $ --
Accrued benefit liability (24,026) -- (17,439) (18,119)
Other -- 64 -- --
-------- -------- -------- ---------
Net amount recognized $ (2,536) $ 19,155 $(17,439) $(18,119)
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
32
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 5. EMPLOYEE BENEFIT PLANS, CONTINUED
COMPONENTS OF NET PERIODIC BENEFIT COST:
<TABLE>
<CAPTION>
PENSION PLANS POST-RETIREMENT PLAN
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 5,177 $ 661 $ 3,796 $ 558 $ 839 $ 782
Interest cost 6,301 1,297 5,279 759 1,373 1,296
Expected return on plan assets (8,187) (3,104) (8,161) -- -- --
Transition obligation amortization (1,237) (475) (1,237) -- -- --
Amortization of prior service costs (738) 144 (699) (339) (568) (319)
Gain/loss Amortization 113 78 863 -- -- --
CSX Adjustment -- 1,600 (273) -- -- --
Recognized net actuarial loss (gain) -- -- -- (580) 67 --
------- ------- ------- ------- ------- -------
Net periodic benefit cost $ 1,429 $ 201 $ (432) $ 398 $ 1,711 $ 1,759
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF SEPTEMBER 30
Discount rate 6.75% 7.50% 7.50% 7.50% 7.50% 7.50%
Expected return on plan assets 9.50% 9.50% 9.50% NA NA NA
Rate of compensation increase 5.00% 5.00% 5.00% NA NA NA
</TABLE>
The net post-retirement benefit obligation was determined using the assumption
that the health care cost trend rate for retirees was 9.0% for 1998-1999,
decreasing gradually to a 5.5% trend rate by 2006 and remaining at that level
thereafter. A 1% increase in the assumed health care cost trend rate would have
increased the accumulated post-retirement benefit obligation as of December 25,
1998 by $1,290 and the aggregate of the service and interest cost components of
net periodic post-retirement benefit expense for 1998 by $169.
ACL also sponsors certain contributory defined contribution plans covering
eligible employee groups. Contributions to such plans are based upon a
percentage of employee contributions and were $1,799, $1,649 and $1,530 in 1998,
1997 and 1996, respectively.
Certain employees are covered by union-sponsored, collectively-bargained,
multi-employer defined benefit pension plans. Contributions to such plans, which
are based upon union contracts, were approximately $98, $87 and $161 in 1998,
1997 and 1996, respectively.
33
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 6. LEASE OBLIGATIONS
ACL leases buildings, data processing hardware and operating equipment under
various operating leases and charter agreements which expire from 1999 to 2015
and which generally have renewal options at similar terms. Certain vessel leases
also contain purchase options at prices approximating fair value of the leased
vessels. Rental expense under continuing obligations was approximately $42,681
in 1998, $40,585 in 1997, and $35,201 in 1996.
At December 25, 1998, minimum future lease payments under non-cancelable
operating leases total $30,063 for 1999, $25,641 for 2000, $18,438 for 2001,
$11,204 for 2002, $9,004 for 2003 and $23,220 thereafter.
NOTE 7. RELATED PARTIES
Prior to July 1, 1998, ACL was a wholly-owned subsidiary of CSX and participated
in the CSX cash management plan. Short-term borrowings from an affiliate of
$6,550 at December 26, 1997 reflect the amount due to CSX for participation in
the plan. Under this plan, excess cash was advanced to CSX for investment and
CSX made cash funds available to its subsidiaries as needed for use in their
operations. The subsidiaries were charged for borrowings or compensated for
investments based on returns earned by the plan portfolio. Interest income
(expense) related to ACL's investment in/borrowings from the plan was $(1,052),
$(1,889), and $97 in 1998, 1997 and 1996, respectively.
As of December 26, 1997, ACL had an outstanding loan with a CSX affiliate with a
principal balance of $78,400. This loan had a balance of $67,200 at June 30,
1998 and was contributed by CSX in the recapitalization.
ACL maintains insurance coverage which transfers substantially all risk of
loss, subject to coverage limits, related to various personal injury and
property damage claims, to an insurance company. Prior to July 1, 1998, ACL
maintained coverage with an insurance company owned by CSX. Accordingly, loss
reserve accruals for such claims are not required, except for minimal per
claim deductible amounts. ACL paid premiums of approximately $3,560, $6,350,
and $7,215 to a CSX affiliate during 1998, 1997, and 1996, respectively.
Included in Materials, Supplies and Other operating expenses are amounts related
to a management service fee charged by CSX of $7,410, $15,024 and $15,228 in
1998, 1997 and 1996, respectively. Also included is $717 in 1998 for charter
expense related to a new equipment charter effective July 1, 1998 with a
subsidiary of CSX.
ACL also leases certain barges from JEM Transportation, Inc. on a year-to-year
basis. An executive officer of ACL is a principal in JEM Transportation, Inc.
Charter expense included in Materials, Supplies and Other operating expenses
were $347, $489 and $543 in 1998, 1997 and 1996, respectively.
In the third quarter of 1998, ACL recognized non-recurring, non-cash,
compensation expense of $7,958 related to the recapitalization and payable by
CSX to certain executive officers of ACL.
34
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
ACL's restricted investments, long-term debt and long-term note payable to
affiliate and fuel hedge agreement are the only financial instruments with a
fair value significantly different than their carrying amounts.
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets:
Restricted Investments $ 25,912 $ 26,077 $ -- $ --
Liabilities:
$235 million Term Loan $ 234,750 $ 234,750 $ -- $ --
$200 million Term Loan 199,750 199,750 -- --
$300 million Senior Notes 300,000 295,567 -- --
Terminal Revenue Facilities Refunding Bonds 24,400 24,400 24,400 27,008
U.S. Government Guaranteed Ship Financing Bonds -- -- 23,830 25,119
Long-Term Note Payable to Affiliate -- -- 78,400 85,630
Off-balance sheet financial instruments:
Net unrealized loss on fuel hedge agreement $ -- $ (2,016) $ -- $ --
</TABLE>
The fair values of the Restricted Investments and Senior Notes payable are based
on quoted market values. The carrying values of the Term Loans, all of which
bear interest at floating rates, approximate their fair values. The fair value
of the Terminal Revenue Refunding Bonds and the U.S. Government Guaranteed Ship
Financing Bonds have been estimated using discounted cash flow analyses based on
ACL's current incremental borrowing rates for similar types of borrowing
arrangements.
ACL enters into fuel rate swaps, to reduce the effects of fluctuations in fuel
prices and does not use them for trading purposes. At December 25, 1998, ACL had
a fuel rate swap agreement with a major financial institution. Under this
agreement, ACL will pay a fixed price of $.4075 per gallon. Since the agreement
qualifies as a hedge and correlates to price movement of fuel, any gains or
losses resulting from market changes are recognized as fuel expense. As of
December 25, 1998 there were 26,800,000 gallons remaining on the contract. The
agreement terminates November 30, 1999. Because of the institution's high credit
rating, management believes that this agreement does not present significant
credit risk to ACL.
35
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Pursuant to the Recapitalization (see Note 2), CSX contributed to the capital of
the Parent $163.3 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 of barges and $7.3 million in
net assets in certain terminal operations. The National Marine 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). In the
third quarter of 1998, ACL recognized non-recurring, non-cash compensation
expense of $7,958 related to the recapitalization and payable by CSX to certain
executive officers of ACL.
Cash interest payments on debt amounted to $ 13,715, $ 3,855 and $ 4,169 in
1998, 1997 and 1996, respectively.
ACL made federal income tax payments to CSX of $12,983 in 1998, $12,765 in 1997
and $28,919 in 1996. ACL made state income tax payments of $1,595 in 1998,
$1,807 in 1997 and $2,575 in 1996.
NOTE 10. 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.
One of ACL's electric utility customers is in proceedings under Chapter 11 of
the U.S. Bankruptcy Code. ACL believes that as a result of these proceedings,
this contract will be restructured by the end of 1999 at reduced rates for a
term of at least five years, or the equipment dedicated to this contract may be
redeployed into other dry bulk transportation services. The revenue otherwise
receivable under such contract or by virtue of redeployment of the equipment
could be reduced by up to $12 to $16 million annually.
NOTE 11. BUSINESS SEGMENTS
ACL has two reportable business segments - barging and construction. ACL's
barging segment includes barge transportation operations in North and South
America and domestic fleeting facilities that provide fleeting, shifting,
cleaning and repair services at various locations along the inland waterways.
The construction segment constructs marine equipment for ACL's domestic and
international fleets as well as external customers.
Management evaluates performance based on segment earnings, which is defined as
operating income, before income taxes and excluding the management services fee
paid to CSX. The accounting policies of the reportable segments are consistent
with those described in the summary of significant accounting policies.
Intercompany sales are transferred at cost.
36
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 11. BUSINESS SEGMENTS, CONTINUED
Reportable segments are business units that offer different products or
services. The reportable segments are managed separately because they provide
distinct products and services to internal and external customers.
<TABLE>
<CAPTION>
REPORTABLE SEGMENTS
------------------------ ALL OTHER
BARGING CONSTRUCTION SEGMENTS TOTAL
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 25, 1998
Revenues from external customers $516,422 $ 96,932 $ 25,124 $638,478
Intersegment revenues -- 15,844 4,741 20,585
Depreciation expense 39,397 1,837 3,372 44,606
Segment earnings 52,889 9,073 8,197 70,159
Segment assets 704,748 65,355 68,427 838,530
Property additions 42,995 1,958 429 45,382
YEAR ENDED DECEMBER 26, 1997
Revenues from external customers $487,106 $100,711 $ 30,416 $618,233
Intersegment revenues -- 33,263 4,204 37,467
Depreciation expense 32,982 1,569 4,124 38,675
Segment earnings 56,832 8,507 8,318 73,657
Segment assets 537,307 50,907 51,924 640,138
Property additions 47,827 2,635 1,038 51,500
YEAR ENDED DECEMBER 27, 1996
Revenues from external customers $508,435 $ 84,729 $ 28,976 $622,140
Intersegment revenues -- 33,172 3,397 36,569
Depreciation expense 30,913 929 4,181 36,023
Segment earnings 104,298 4,327 7,267 115,892
Segment assets 548,982 64,692 53,421 667,095
Property additions 82,667 6,663 1,221 90,551
</TABLE>
Financial data for all other 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.
37
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 11. BUSINESS SEGMENTS, CONTINUED
The following is a reconciliation of revenues from external customers and
segment earnings to consolidated totals.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Total revenues from external customers $ 638,478 $ 618,233 $ 622,140
Intersegment revenues 20,585 37,467 36,569
Elimination of intersegment revenues (20,585) (37,467) (36,569)
--------- --------- ---------
Operating revenue $ 638,478 $ 618,233 $ 622,140
--------- --------- ---------
--------- --------- ---------
PROFITS
Total segment earnings $ 70,159 $ 73,657 $ 115,892
Unallocated amounts:
Management services fee charged by CSX (7,410) (15,024) (15,228)
Interest expense (36,974) (3,720) (4,034)
Interest expense, affiliate - net (4,007) (8,752) (7,746)
Other, net (587) (1,930) (2,726)
--------- --------- ---------
Earnings before income taxes $ 21,181 $ 44,231 $ 86,158
--------- --------- ---------
--------- --------- ---------
</TABLE>
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
REVENUES PROPERTIES - NET
----------------------------------- ----------------------
1998 1997 1996 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
United States $591,080 $582,185 $594,783 $471,911 $406,709
South America 47,398 36,048 27,357 69,504 53,586
-------- -------- -------- -------- --------
Total $638,478 $618,233 $622,140 $541,415 $460,295
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
Revenues are attributed to countries based on the location of the service
provided. Properties represent the only long lived assets of ACL.
MAJOR CUSTOMER
Revenues from one customer of the barging segment represented approximately 11%
in 1998, 11% in 1997, and 12% in 1996 of consolidated revenues.
38
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 12. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------
1st 2nd 3rd 4th Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Revenue $ 116,811 $ 150,047 $ 180,601 $ 191,019 $ 638,478
Operating Income 6,008 11,184 10,269 35,288 62,749
Net Earnings (Loss) 682 71,980 (1,589) 14,371 85,444
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
1st 2nd 3rd 4th Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Revenue $ 124,001 $ 151,422 $ 166,611 $ 176,199 $ 618,233
Operating Income (Loss) (688) 14,239 15,875 29,207 58,633
Net Earnings (Loss) (2,754) 6,862 8,747 13,089 25,944
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
1st 2nd 3rd 4th Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Revenue $131,187 $158,310 $164,056 $168,587 $622,140
Operating Income 15,006 25,541 27,451 32,666 100,664
Net Earnings 7,966 13,914 16,157 19,388 57,425
</TABLE>
ACL's business is seasonal, and its quarterly revenues and profits historically
are 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 North American grain harvest. The second quarter
1998 results include a one time tax benefit from the conversion of taxable
corporations to limited liability companies. The third and fourth quarters of
1998 reflect ACL's recapitalization and the acquisition of National Marine, both
on June 30, 1998. The third quarter of 1998 includes non-recurring, non-cash
compensation expense of $8 million related to the recapitalization and payable
by CSX to certain executive officers of ACL.
39
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 13. CHANGES IN ACCOUNTING STANDARDS
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. ACL adopted 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. ACL adopted Statement No. 130 in the first
quarter of 1998, but the adoption had no significant impact on its consolidated
financial statements.
In December, 1997, the AICPA issued Statement of Position No. 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments" (SOP 97-3) which provides guidance on recognition, measurement,
and disclosure of liabilities for guaranty-fund and certain other
insurance-related assessments, including workers' compensation second-injury
funds. SOP 97-3 is effective for fiscal years beginning after December 15,
1998. ACL will adopt SOP 97-3 in the first quarter of 1999; however, the
effect of adopting has not yet been determined.
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. ACL 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 its consolidated
financial statements.
40
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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. ACL
has not determined when it will adopt statement No. 133, but expects adoption
will not have a significant effect on its consolidated financial statements.
NOTE 14. GUARANTOR FINANCIAL STATEMENTS
The $735 million of debt issued by ACL, and the Revolving Credit Facility, are
guaranteed by ACL'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 ACL without substantial assets or operations
(collectively 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, combining statements of financial
position, statements of earnings and statements of cash flows for the Subsidiary
Guarantors, non-guarantor subsidiaries and for ACL as of December 25, 1998 and
December 26, 1997 and for the fiscal years ended December 25, 1998, December 26,
1997 and December 27, 1996.
41
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 25, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 591,080 $ 47,398 $ -- $ 638,478
OPERATING EXPENSE
Materials, Supplies and Other 264,587 25,917 -- 290,504
Labor and Fringe Benefits 158,331 9,249 -- 167,580
Fuel 44,199 3,255 -- 47,454
Depreciation and Amortization 41,504 4,833 -- 46,337
Taxes, Other Than Income Taxes 23,691 163 -- 23,854
--------- --------- --------- ---------
532,312 43,417 -- 575,729
--------- --------- --------- ---------
OPERATING INCOME 58,768 3,981 -- 62,749
OTHER EXPENSE (INCOME)
Interest Expense 36,974 -- -- 36,974
Interest Expense, Affiliate - Net 4,007 3,715 (3,715) 4,007
Other, Net (5,220) 2,092 3,715 587
--------- --------- --------- ---------
35,761 5,807 -- 41,568
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 23,007 (1,826) -- 21,181
INCOME TAXES (BENEFIT) (67,568) 3,305 -- (64,263)
--------- --------- --------- ---------
NET EARNINGS (LOSS) $ 90,575 $ (5,131) $ -- $ 85,444
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
42
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 582,185 $ 36,048 $ -- $ 618,233
OPERATING EXPENSE
Materials, Supplies and Other 270,050 19,344 -- 289,394
Labor and Fringe Benefits 143,844 7,116 -- 150,960
Fuel 53,698 3,284 -- 56,982
Depreciation and Amortization 37,809 3,340 -- 41,149
Taxes, Other Than Income Taxes 21,114 1 -- 21,115
--------- --------- -------- ---------
526,515 33,085 -- 559,600
--------- --------- -------- ---------
OPERATING INCOME 55,670 2,963 -- 58,633
OTHER EXPENSE (INCOME)
Interest Expense 3,720 -- -- 3,720
Interest Expense, Affiliate - Net 8,752 2,026 (2,026) 8,752
Other, Net (3,445) 3,349 2,026 1,930
--------- --------- -------- ---------
9,027 5,375 -- 14,402
--------- --------- -------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 46,643 (2,412) -- 44,231
INCOME TAXES 16,209 2,078 -- 18,287
--------- --------- -------- ---------
NET EARNINGS (LOSS) $ 30,434 $ (4,490) $ -- $ 25,944
--------- --------- -------- ---------
--------- --------- -------- ---------
</TABLE>
43
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 27, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
--------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 594,783 $ 27,357 $ -- $ 622,140
OPERATING EXPENSE
Materials, Supplies and Other 257,934 9,366 -- 267,300
Labor and Fringe Benefits 134,366 3,975 -- 138,341
Fuel 56,550 2,197 -- 58,747
Depreciation and Amortization 36,241 1,240 -- 37,481
Taxes, Other Than Income Taxes 19,607 -- -- 19,607
--------- --------- ------- ---------
504,698 16,778 -- 521,476
--------- --------- ------- ---------
--------- --------- ------- ---------
OPERATING INCOME 90,085 10,579 -- 100,664
OTHER EXPENSE (INCOME)
Interest Expense 4,034 -- -- 4,034
Interest Expense, Affiliate - Net 7,746 1,333 (1,333) 7,746
Other, Net (878) 2,271 1,333 2,726
--------- --------- ------- ---------
10,902 3,604 -- 14,506
--------- --------- ------- ---------
EARNINGS BEFORE INCOME TAXES 79,183 6,975 -- 86,158
INCOME TAXES 28,095 638 -- 28,733
NET EARNINGS $ 51,088 $ 6,337 $ -- $ 57,425
--------- --------- ------- ---------
--------- --------- ------- ---------
</TABLE>
44
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 25, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings (Loss) $ 90,575 $ (5,131) $ -- $ 85,444
Adjustments to Reconcile Net Earnings (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 42,904 4,833 -- 47,737
Deferred Income Taxes (70,098) 7 -- (70,091)
Other Operating Activities 5,724 (222) -- 5,502
Changes in Operating Assets and Liabilities:
Accounts Receivable 10,941 (1,951) -- 8,990
Materials and Supplies (12,905) 143 -- (12,762)
Accrued Interest 21,619 -- -- 21,619
Other Current Assets (17,905) 8,695 -- (9,210)
Due to Affiliates (13,805) -- -- (13,805)
Other Liabilities 13,202 2,039 -- 15,241
------- ------- ----- -------
Net Cash Provided by Operating Activities 70,252 8,413 -- 78,665
INVESTING ACTIVITIES
Property Additions (26,598) (18,784) -- (45,382)
Proceeds from Property Dispositions 9,526 149 -- 9,675
Purchase of Restricted Investments (26,128) -- -- (26,128)
Sale of Restricted Investments 216 -- -- 216
Other Investing Activities (12,420) 1,624 9,843 (953)
------- ------- ----- -------
Net Cash Used in Investing Activities (55,404) (17,011) 9,843 (62,572)
FINANCING ACTIVITIES
Recapitalization Distribution (695,000) -- -- (695,000)
Issuance of Membership Interests 60,047 -- -- 60,047
Short Term Borrowings 32,000 -- -- 32,000
Debt Issued -- Long Term 735,000 -- -- 735,000
Financing Costs (27,000) -- -- (27,000)
Short Term Payments (32,000) -- -- (32,000)
Debt Repaid -- Long Term (99,330) -- -- (99,330)
Affiliate Debt Repaid (11,200) (4,598) 4,598 (11,200)
Cash Dividends Paid (9,500) (4,345) 4,345 (9,500)
Other Financing (10,612) 14,786 (14,786) (10,612)
Borrowings from Affiliates 83,933 4,000 (4,000) 83,933
------- ------- ----- -------
Net Cash Provided by Financing Activities 26,338 9,843 (9,843) 26,338
Net Increase in Cash and Cash Equivalents 41,186 1,245 -- 42,431
Cash and Cash Equivalents at Beginning of Period 2,868 4,057 -- 6,925
------- ------- ----- -------
Cash and Cash Equivalents at End of Period $ 44,054 $ 5,302 $ -- $ 49,356
------- ------- ----- -------
------- ------- ----- -------
</TABLE>
45
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
---------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings (Loss) $ 30,434 $ (4,490) $ -- $ 25,944
Adjustments to Reconcile Net Earnings (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 37,809 3,340 -- 41,149
Deferred Income Taxes 103 (13) -- 90
Other Operating Activities 1,918 1,298 3,216
Changes in Operating Assets and Liabilities:
Accounts Receivable 5,952 4,866 -- 10,818
Materials and Supplies 14,248 (186) -- 14,062
Accrued Interest (135) -- -- (135)
Other Current Assets (5,820) 663 -- (5,157)
Due to Affiliates (844) -- -- (844)
Other Liabilities (35,790) (1,284) -- (37,074)
------- ------ ------- -------
Net Cash Provided by Operating Activities 47,875 4,194 -- 52,069
INVESTING ACTIVITIES
Property Additions (26,114) (25,386) -- (51,500)
Proceeds from Property Dispositions 3,452 (41) -- 3,411
Restricted Investments -- -- -- --
Other Investing Activities (21,435) (1,228) 21,452 (1,211)
------- ------ ------- -------
Net Cash Used in Investing Activities (44,097) (26,655) 21,452 (49,300)
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) (4,000) 4,000 (11,200)
Cash Dividends Paid (19,000) (2,370) 2,370 (19,000)
Other Financing Activities 8,006 3,838 (3,838) 8,006
Borrowings from Affiliates 6,550 23,984 (23,984) 6,550
------- ------ ------- -------
Net Cash Provided by (Used in) Financing Activities (20,128) 21,452 (21,452) (20,128)
Net Decrease in Cash and Cash Equivalents (16,350) (1,009) -- (17,359)
Cash and Cash Equivalents at Beginning of Period 19,218 5,066 -- 24,284
------- ------ ------- -------
Cash and Cash Equivalents at End of Period $ 2,868 $ 4,057 $ -- $ 6,925
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
46
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 27, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 51,088 $ 6,337 $ -- $ 57,425
Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 36,241 1,240 -- 37,481
Deferred Income Taxes (800) 6 -- (794)
Other Operating Activities (10) 1,536 1,526
Changes in Operating Assets and Liabilities:
Accounts Receivable (6,127) (6,921) -- (13,048)
Materials and Supplies 8,206 (1,905) -- 6,301
Accrued Interest (135) -- (135)
Other Current Assets 180 (453) -- (273)
Due to Affiliates (903) -- -- (903)
Other Liabilities 23,080 2,960 -- 26,040
------- ------- ------ -------
Net Cash Provided by Operating Activities 110,820 2,800 -- 113,620
INVESTING ACTIVITIES
Property Additions (59,472) (31,079) -- (90,551)
Proceeds from Property Dispositions 1,054 -- -- 1,054
Restricted Investments -- -- -- --
Other Investing Activities (36,626) 913 31,555 (4,158)
------- ------- ------ -------
Net Cash Used in Investing Activities (95,044) (30,166) 31,555 (93,655)
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) (3,945) 3,945 (11,200)
Cash Dividends Paid (36,800) (2,765) 2,765 (36,800)
Other Financing Activities -- 17,638 (17,638) --
Borrowings from Affiliates -- 20,627 (20,627) --
------- ------- ------ -------
Net Cash Provided by (Used in) Financing Activities (52,484) 31,555 (31,555) (52,484)
Net Increase (Decrease) in Cash and Cash Equivalents (36,708) 4,189 -- (32,519)
Cash and Cash Equivalents at Beginning of Period 55,926 877 -- 56,803
------- ------- ------ -------
Cash and Cash Equivalents at End of Period $ 19,218 $ 5,066 $ -- $ 24,284
------- ------- ------ -------
------- ------- ------ -------
</TABLE>
47
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF FINANCIAL POSITION AT DECEMBER 25, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
---------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 44,054 $ 5,302 $ -- $ 49,356
Accounts Receivable -- Net 78,390 10,166 -- 88,556
Materials and Supplies 36,589 2,465 -- 39,054
Deferred Income Taxes -- -- -- --
Other Current Assets 30,767 (7,891) (2,914) 19,962
--------- --------- --------- ---------
Total Current Assets 189,800 10,042 (2,914) 196,928
PROPERTIES -- NET 471,911 69,504 -- 541,415
RESTRICTED INVESTMENTS 25,912 -- -- 25,912
NET PENSION ASSET 21,490 -- -- 21,490
OTHER ASSETS 109,157 18,933 (75,305) 52,785
--------- --------- --------- ---------
TOTAL ASSETS $ 818,270 $ 98,479 $ (78,219) $ 838,530
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 37,602 $ 2,221 $ -- $ 39,823
Accrued Payroll and Fringe Benefits 23,149 17 -- 23,166
Due to Affiliates -- 2,914 (2,914) --
Short Term Borrowings from Affiliate -- -- -- --
Deferred Revenue 9,459 -- -- 9,459
Accrued Claims and Insurance Premiums 14,661 -- -- 14,661
Accrued Interest 22,523 -- -- 22,523
Current Portion of Long--Term Debt 2,500 -- -- 2,500
Other Current Liabilities 39,364 7,745 -- 47,109
--------- --------- --------- ---------
Total Current Liabilities 149,258 12,897 (2,914) 159,241
LONG--TERM NOTE PAYABLE TO AFFILIATE -- 41,286 (41,286) --
DEFERRED INCOME TAXES 16 (16) -- --
LONG--TERM DEBT 756,400 -- -- 756,400
PENSION LIABILITY 19,347 -- -- 19,347
OTHER LONG--TERM LIABILITIES 23,644 10,293 -- 33,937
--------- --------- --------- ---------
948,665 64,460 (44,200) 968,925
--------- --------- --------- ---------
MEMBER'S DEFICIT
Member's Interest 220,047 -- -- 220,047
Other Capital 161,051 44,777 (44,777) 161,051
Deficit (511,493) (10,758) 10,758 (511,493)
--------- --------- --------- ---------
Total Member's Deficit (130,395) 34,019 (34,019) (130,395)
--------- --------- --------- ---------
Total Liabilities and Member's Deficit $ 818,270 $ 98,479 $ (78,219) $ 838,530
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
48
<PAGE>
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMBINING STATEMENT OF FINANCIAL POSITION AT DECEMBER 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 2,868 $ 4,057 $ -- $ 6,925
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 117,774 15,691 (4,020) 129,445
PROPERTIES-NET 406,709 53,586 -- 460,295
NET PENSION ASSET 19,091 -- -- 19,091
OTHER ASSETS 80,611 20,183 (69,487) 31,307
--------- --------- --------- ---------
TOTAL ASSETS $ 624,185 $ 89,460 $ (73,507) $ 640,138
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 18,357 $ 3,363 -- $ 21,720
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
Current Portion of Long-Term Debt 4,484 -- -- 4,484
Other Current Liabilities 23,868 6,230 -- 30,098
--------- --------- --------- ---------
Total Current Liabilities 112,255 13,765 (4,020) 122,000
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
OTHER LONG-TERM LIABILITIES 30,165 6,224 -- 36,389
--------- --------- --------- ---------
324,684 49,695 (33,742) 340,637
--------- --------- --------- ---------
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 $ 624,185 $ 89,460 $ (73,507) $ 640,138
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Managers
American Commercial Lines LLC
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
consolidated financial position of American Commercial Lines LLC at December
25, 1998 and the results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
In addition, in our opinion, the consolidated financial statement schedule for
the year ended December 25, 1998 listed in the index appearing under Item
14(a)(2) presents fairly, in all material respects the information set forth
therein when read in conjunction with the related consolidated financial
statements. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit. We conducted
our audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Louisville, Kentucky
March 24, 1999
50
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Managers
of American Commercial Lines LLC
We have audited the accompanying consolidated statements of financial
position of American Commercial Lines LLC (formerly American Commercial
Lines, Inc.) and subsidiaries as of December 26, 1997, and the related
consolidated statements of earnings, cash flows and Member's
deficit/stockholder's equity for each of the two fiscal years in the period
ended December 26, 1997. Our audits also included the financial statement
schedule listed in the index as Item 14(a)(2). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Commercial Lines LLC and subsidiaries at December 26, 1997, and the
consolidated results of their operations and their cash flows for each of the
two fiscal years in the period ended December 26, 1997, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
Louisville, Kentucky
January 30, 1998
51
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Charges Other Writeoffs Balance at End of
Beginning of to Expense Period
Period
- ------------------------------------------------------------------------------------------------------------------
1998:
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible $1,254 $1,055 $631(1) $(605) $2,335
accounts
Valuation allowance for $1,715 $2,471 $4,186
foreign net operating loss
carryforwards
1997:
Allowance for uncollectible $1,496 $288 $(530) $1,254
accounts
Valuation allowance for $ 429 $1,286 $1,715
foreign net operating loss
carryforwards
1996:
Allowance for uncollectible $1,487 $169 $(160) $1,496
accounts
Valuation allowance for $36 $393 $ 429
foreign net operating loss
carryforwards
</TABLE>
(1) Purchase of National Marine
52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no disagreements with accountants during 1997 or 1998.
Pursuant to the Recapitalization, the independent accounting firm of Ernst &
Young LLP was replaced as ACL's principal accountant. None of the financial
statements prepared by Ernst & Young LLP in the past two years contained an
adverse opinion or disclaimer of opinion, and none of Ernst & Young LLP's
reports on ACL's financial statements was qualified or modified as to
uncertainty, audit scope or accounting principles. During ACL's two most recent
fiscal years there were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreement(s), if not resolved to the satisfaction
of Ernst & Young LLP, would have caused it to make reference to the subject
matter of the disagreement(s) in connection with its report. Ernst & Young LLP
did not advise ACL: (i) that internal controls necessary to develop reliable
financial statements were absent; (ii) that it could no longer rely on
management's representations or that it was unwilling to be associated with the
financial statements prepared by management; (iii) that it needed to expand the
scope of its audit or that it obtained information that might have materially
impacted the fairness or reliability of a previously issued audit report or
underlying financial statements or caused it to be unwilling to rely on
management's representations or be associated with ACL's financial statements,
and because of its dismissal did not expand the scope of its audit; or (iv) that
information that it concluded materially impacts the fairness or reliability of
a previously issued audit report or underlying financial statement which, due to
its dismissal, was not resolved to its satisfaction prior to dismissal.
Following the Recapitalization, Ernst & Young LLP was replaced by the
independent accounting firm of PricewaterhouseCoopers LLP as ACL's principal
accountant. The decision to replace Ernst & Young LLP with
PricewaterhouseCoopers LLP was approved by the Board of Managers of the Parent.
ACL did not consult with PricewaterhouseCoopers LLP regarding the application of
accounting principles to a specified transaction or as to any disagreement
during its previous two fiscal years.
PricewaterhouseCoopers LLP has reviewed the disclosures in this Item 9 and
concurs with the statements regarding PricewaterhouseCoopers LLP. ACL has
also provided Ernst & Young LLP with a copy of the disclosures made herein
and Ernst & Young LLP has furnished a letter to the Securities and Exchange
Commission agreeing with the statements made in this disclosure. A copy of
this letter is attached as Exhibit 16.
53
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
EXECUTIVE OFFICERS OF THE PARENT AND ACL; BOARD OF MANAGERS OF THE PARENT
The Executive Officers of ACL and the Parent are:
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael C. Hagan ................................... 52 President and Chief Executive Officer
Paul S. Besson .................................... 45 Sr. Vice President-Human Resources
Robert W. Greene III .............................. 59 President-Jeffboat and American
Commercial Terminals
Michael A. Khouri ................................. 49 Sr. Vice President-Corporate Services
Daniel J. Marquitz ................................. 56 Sr. Vice President-Marketing and
Distribution Services
Martin K. Pepper .................................. 45 Sr. Vice President-International
William N. Whitlock ................................ 57 Sr. Vice President-Transportation Services
James J. Wolff ..................................... 41 Sr. Vice President-Finance/Administration
and Chief Financial Officer
</TABLE>
The members of the Board of Managers of the Parent (the "Board of Managers") are
as follows.
BOARD OF MANAGERS OF THE PARENT
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David Wagstaff III .................................... 60 Chairman
Steven A. Anderson .................................... 51 Member
Mark G. Aron .......................................... 56 Member
David H. Baggs ........................................ 39 Member
Ellen M. Fitzsimmons .................................. 38 Member
Paul R. Goodwin ....................................... 56 Member
Ernest A. Haberli ..................................... 50 Member
Michael C. Hagan ...................................... 52 Member
Richard E. Mayberry, Jr ............................... 46 Member
David F. Thomas ....................................... 49 Member
</TABLE>
MICHAEL C. HAGAN is President and Chief Executive Officer and joined ACL in
1970. He has served as President and Chief Executive Officer since 1991. Prior
to that, he held a series of positions of increasing responsibility with ACL and
CSX.
PAUL S. BESSON joined ACL in November 1998 as Senior Vice President - Human
Resources. Prior to joining ACL, he was most recently Director, Talent
Negotiations and Labor Relations with the National Broadcasting Company, Inc.
("NBC"), a wholly-owned subsidiary of General Electric Company, and earlier
held several other human resource positions at NBC since 1984.
54
<PAGE>
ROBERT W. GREENE III serves as President of Jeffboat and ACT. Mr. Greene began
his career with ACL in 1968. In 1980 he was named President of Jeffboat and was
appointed President-Chief Operating Officer of American Commercial Marine
Service Company (now ACT) in 1986.
MICHAEL A. KHOURI was named Senior Vice President - Corporate Services in August
1998. He had served as Senior Vice President and General Counsel since 1990. He
has served as chief legal officer since 1988. Prior to joining ACL in 1979, he
worked at the Crounse Corporation.
DANIEL J. MARQUITZ serves as Senior Vice President - Marketing and Distribution
Services. Mr. Marquitz joined ACL as chief sales and marketing officer in 1992
after serving with several commodity and transportation companies. From 1987
until he came to ACL, he was the President of The Valley Line Company--Sequa
Corporation.
MARTIN K. PEPPER was appointed Senior Vice President - International Business
Development in August 1998. Prior to joining ACL in 1997 as vice president for
fleet maintenance, he served for sixteen years as an operations officer with
Canal Barge Line and served in sales and marketing for Tidewater Barge Line from
1990 to 1997.
WILLIAM N. WHITLOCK is Senior Vice President - Transportation Services. Prior to
joining ACL in 1979 Mr. Whitlock devoted fifteen years of his career to the U.S.
Army Corps of Engineers in positions of increasing authority. He has served as
ACL's chief transportation officer since 1982.
JAMES J. WOLFF serves as Senior Vice President - Finance/Administration and
Chief Financial Officer. Mr. Wolff was with Texas Gas Exploration, a former CSX
subsidiary, from 1979 to 1986. In 1986, he joined CSX and transferred to ACL in
1992 as Senior Vice President-Finance. He was appointed chief of international
business development in 1996 and returned to the CFO position in August 1998.
DAVID WAGSTAFF III has served as President and Chief Executive Officer of
Vectura since 1993. He was previously the Principal in a private consulting
business and has worked in various executive capacities at the Equitable Life
Assurance Company and Citicorp. He is currently a director of Great Lakes Dredge
and Dock Company and a number of private companies.
STEVEN A. ANDERSON has served as President and Chief Executive Officer of
Hancor, Inc., a manufacturer of plastic drainage pipes, and has served as a
turnaround consultant to various Citicorp Venture Capital, Ltd. portfolio
companies since 1993. Prior to that, he served as a Director, Credit Officer in
the Capital Markets and Treasury Group for Swiss Bank Corporation from 1992 to
1993. He has also served as Vice President for the North America Business Risk
Review and as Vice President for the Investment Banking Group of Citibank, N.A.
from 1990 to 1992 and from 1974 to 1986, respectively. From 1986 to 1990, Mr.
Anderson served as Corporate Vice President responsible for the Fixed Income
Credit Department in Drexel, Burnham and Lambert's London office. He is
currently a director of National Machinery Company.
MARK G. ARON is Executive Vice President-Law and Public Affairs for CSX. He has
served in various executive positions with CSX since 1981.
DAVID H. BAGGS has served as Assistant Vice President-Corporate Strategy since
August 1994. He has held various finance and planning positions with CSX since
1985.
ELLEN M. FITZSIMMONS has been General Counsel-Corporate of CSX since September
1997. She has served in various legal positions with CSX since 1991.
PAUL R. GOODWIN has been Executive Vice President-Finance and Chief Financial
Officer of CSX since April 1995. From February to April, 1995, he was Executive
Vice President, Finance & Administration of CSX's principal subsidiary, CSX
Transportation, Inc. ("CSXT"), which provides rail transportation services.
Prior thereto he served as Senior Vice President - Finance of CSXT since 1991.
ERNEST A. HABERLI has been Executive Vice President and Chief Financial Officer
of Fort James Corporation since the 1997 merger of Fort Howard Corporation and
James River Corporation. Prior to the merger, he was Senior Vice
55
<PAGE>
President, Strategy, for James River, since 1996. From 1990 to 1995, he served
as President of Pet International. He also held various executive positions in
strategic planning and development and international business management with
Kraft General Foods, Kraft International and Kraft, Inc. since 1985. He is
currently a director of Fort James Corporation.
RICHARD E. MAYBERRY, JR. has been a Managing Director of Citicorp Capital
Investors, Ltd. for over five years. Mr. Mayberry is currently a director of
Brunner Mond Group plc and a number of private companies.
DAVID F. THOMAS has been President of 399 Venture Partners, Inc. since December
1994. In addition, Mr. Thomas has been a Managing Director of Citicorp Venture
Capital, Ltd., an affiliate of 399 Venture Partners, Inc., for over five years.
Mr. Thomas is currently a director of Lifestyles Furnishings International Ltd.,
Galey & Lord, Inc., Anvil Knitwear, Inc., Stage Stores, Inc., Neenah Foundry
Company, Plainwell, Inc. and a number of private companies.
56
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-term
compensation for services in all capacities to ACL or its predecessor for 1998
and 1997 of those persons who served as (i) the chief executive officer during
1998 and (ii) the other four most highly compensated executive officers of ACL
or its predecessor for 1998 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
OTHER AWARDS
ANNUAL SECURITIES PAYOUTS
NAME AND PRINCIPAL COMPEN- UNDERLYING LTIP PLAN ALL OTHER COMPEN-
POSITION YEAR SALARY BONUS (1) SATION(2) OPTIONS (3) PAYOUTS (4) SATION (5)
- ------------------ ---- -------- ---------- --------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Hagan 1998 $315,000 $649,872(6) $7,580 20,000 $112,664 $35,085
President and CEO 1997 300,000 0 7,190 20,000 347,625 19,863
Daniel J. Marquitz 1998 $203,125 $407,459 $5,594 11,000 N/A $23,086
Sr. Vice President - 1997 187,000 0 5,935 11,000 $138,181 4,624
Marketing and
Distribution
William N. Whitlock 1998 $161,000 $332,157 $5,117 9,000 N/A $ 9,150
Sr. Vice President - 1997 152,000 0 5,097 9,000 $114,137 8,262
Transportation
Michael A. Khouri 1998 $145,400 $293,164 $9,010 8,500 N/A $ 1,546
Sr. Vice President - 1997 132,600 0 8,340 7,700 $ 80,823 1,446
Corporate Services
James J. Wolff 1998 $144,000 $285,737 $8,340 8,700 N/A $ 1,757
Sr. Vice President - 1997 132,000 0 7,816 8,000 $ 87,486 1,514
Finance and CFO
</TABLE>
(1) 1998 Bonus amounts consist entirely of bonus payments made by CSX in
connection with the Recapitalization. CSX will pay an additional amount
up to the same amount in July 1999. The Named Executive Officers did not
earn bonuses for 1997. However, bonuses were paid in 1997 that were earned
in 1996 in the following amounts: Mr. Hagan - $225,000; Mr. Marquitz
-$130,000; Mr. Whitlock - $90,000; Mr. Wolff - $70,000; and Mr. Khouri
-$70,000. These persons are eligible to receive bonuses for 1998
performance under ACL's employee bonus program, the amounts of which
have not yet been determined.
(2) Consists of automobile payments and medical examinations.
(3) Represents options to acquire CSX Shares granted during 1998 and 1997.
(4) Long-term incentive plan payouts ("LTIP Plan Payouts") for 1998 represent
the fair market value of $40.9688 per share of performance shares awarded
for the 1996-1998 performance cycle on February 10, 1999, pursuant to the
CSX 1987 Long-Term Performance Stock Plan. Mr. Hagan was the only ACL Named
Executive Officer
57
<PAGE>
eligible to participate in 1998 LTIP Plan Payouts. LTIP Plan Payouts were
paid in 1997 that were earned in 1996 in the following amounts: Mr. Hagan -
$304,854; Mr. Marquitz - $130,487; Mr. Whitlock - $110,856; Mr. Khouri -
$76,214; and Mr. Wolff - $86,916.
(5) Amounts shown do not include payments made in 1998 pursuant to a settlement
agreement with CSX whereby each Named Executive Officer accepted a cash
payment in return for relinquishing his rights under the CSX Stock Purchase
and Loan Plan. On a pre-tax basis, those amounts were: for Mr. Hagan,
$1,516,916; for Mr. Marquitz, $784,234; for Mr. Whitlock, $679,223; for Mr.
Khouri, $422,954; and for Mr. Wolff, $534,963. Amounts shown include the
above-market portion of earnings on a CSX deferred compensation program
available to Mr. Hagan and Mr. Whitlock. For 1998, those amounts were
$16,359 for Mr. Hagan and $4,552 for Mr. Whitlock. Amounts shown also
include life insurance premium payments made on behalf of the Named
Executive Officers in the following amounts for 1998: for Mr. Hagan, $6,062;
for Mr. Marquitz, $5,758; for Mr. Whitlock, $4,598; for Mr. Khouri, $1,546;
and for Mr. Wolff, $1,757. Amounts shown also include matching
contributions made by ACL in 1998 in conjunction with deferrals of salary
or bonuses to a supplementary savings plan on behalf of Mr. Hagan of
$12,644, and Mr. Marquitz of $17,328.
(6) Pursuant to an employment agreement with CSX, the Recapitalization triggered
certain payment obligations by CSX to Mr. Hagan aggregating approximately
$3.75 million.
The following table sets forth option grants to the Named Executive Officers for
fiscal 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
-------------------------------- ----------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRA- GRANT DATE
NAME GRANTED (1) FISCAL YEAR (2) PRICE TION DATE PRESENT VALUE(3)
- ------------------- ----------- ----------------- -------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Michael C. Hagan 20,000 1.45% $52.6563 4/27/08 $252,000
Daniel J. Marquitz 11,000 0.8% $52.6563 4/27/08 $138,600
William N. Whitlock 9,000 0.7% $52.6563 4/27/08 $113,400
Michael A. Khouri 8,500 0.6% $52.6563 4/27/08 $107,100
James J. Wolff 8,700 0.6% $52.6563 4/27/08 $109,620
</TABLE>
(1) Represents options to acquire CSX Shares granted April 28, 1998. Under the
terms of the CSX 1987 Long-Term Performance Stock Plan, such grant amounts
were prorated for the period April 28, 1998 through June 30, 1998 in
connection with the Recapitalization. As a result of the proration each of
the Named Executive Officers had cancellations of options in the following
amounts: for Mr. Hagan, 16,667 shares; for Mr. Marquitz, 9,167 shares; for
Mr. Whitlock, 7,500 shares; for Mr. Khouri, 7,084 shares, and for Mr. Wolff,
7,251 shares. In addition, the option expiration dates for Mr. Hagan, Mr.
Khouri and Mr. Wolff were changed to June 30, 2001.
(2) Represents percent of total options granted by CSX to its and its
subsidiaries' employees.
(3) Grant date value has been determined using the Black-Scholes pricing model.
The following table sets forth the number of securities underlying unexercised
options held by each of the Named Executive Officers and the value of such
options at the end of fiscal 1998:
58
<PAGE>
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END (1)
SHARES ACQUIRED VALUE YEAR-END EXERCISABLE/
NAME ON EXERCISE REALIZED EXERCISABLE/ UNEXERCISABLE (2)
UNEXERCISABLE
- ------------------- --------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
Michael C. Hagan 18,440 $704,465 105,168/23,331 $574,905/0
Daniel J. Marquitz 44,534/12,699 $ 95,927/0
William N. Whitlock 45,400/10,500 $165,264/0
Michael A. Khouri 1,260 $ 36,658 42,454/8,782 $299,614/0
James J. Wolff 28,600/9,181 $ 54,860/0
</TABLE>
(1) Represents options to purchase CSX Shares.
(2) Value of unexercised options at fiscal year-end represents the difference
between the exercise price of any outstanding in-the-money options and
$41.1563, the mean value of CSX Shares on December 24, 1998.
Each of the Named Executive Officers and certain other management employees of
ACL are beneficiaries of a severance pay plan of ACL (the "Severance Plan")
pursuant to which those employees under certain circumstances will receive
either one year or two years' of base salary, bonus and benefits upon their
termination of employment with ACL. This plan by its terms will remain in effect
until April 17, 2000. ACL also has a salary continuation plan (the "Salary
Continuation Plan") whereby supplemental retirement benefits are paid as a
function of final pay, some of which are paid in lieu of a former life insurance
benefit.
Prior to the Recapitalization, the Named Executive Officers, and other eligible
employees, were beneficiaries of certain benefit plans established by CSX. ACL
intends to continue these benefit plans, which consist of (i) a special
retirement plan (the "Special Retirement Plan") whereby certain employees have
certain additional compensation covered, and can obtain past or extra service
credits for purposes of the qualified pension plan described below in the
"Pension Plan Table;" and (ii) a supplementary savings plan (the "Supplementary
Savings Plan") which permits deferrals of excess compensation not allowed by the
U.S. Internal Revenue Service and a portion of salary and bonus payments and
matching contributions for those deferrals.
Mr. Marquitz has entered into an employment agreement with ACL which provides
for an annual base salary of $220,000, a fixed annual bonus of $300,000 for each
of 1999 and 2000, and an opportunity for a performance based bonus.
PENSION PLANS
The pension plan table provided below sets forth estimated annual benefits
payable, before offset for the Social Security annuity, by ACL to any officer or
salaried employee upon retirement at the normal retirement age after selected
periods of service and in specified compensation groups.
59
<PAGE>
PENSION PLAN TABLE (1)
<TABLE>
<CAPTION>
FIVE CONSECUTIVE YEAR YEARS OF SERVICE
AVERAGE COMPENSATION 15 20 25 30 35
- --------------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 125,000 $28,125 $37,500 $46,875 $56,250 $65,625
150,000 33,750 45,000 56,250 67,500 78,750
175,000 39,375 52,500 65,625 78,750 91,875
200,000 45,000 60,000 75,000 90,000 105,000
225,000 50,625 67,500 84,375 101,250 118,125
250,000 56,250 75,000 93,750 112,500 131,250
275,000 61,875 82,500 103,125 123,750 144,375
300,000 67,500 90,000 112,500 135,000 157,500
325,000 73,125 97,500 121,875 146,250 170,625
350,000 78,750 105,000 131,250 157,500 183,750
375,000 84,375 112,500 140,625 168,750 196,875
400,000 90,000 120,000 150,000 180,000 210,000
425,000 95,625 127,500 159,375 191,250 223,125
450,000 101,250 135,000 168,750 202,500 236,250
475,000 106,875 142,500 178,125 213,750 249,375
500,000 112,500 150,000 187,500 225,000 262,500
</TABLE>
(1) Retirement benefits from ACL's funded and unfunded non-contributory pension
plans are based on both length of service and compensation. The compensation
covered by the pension plans is compensation paid by ACL to a participant on
a regular monthly or annual salary basis, including bonuses or similar
awards for personal services rendered in a position that is not under the
scope of a labor agreement. Compensation items listed in the Summary
Compensation Table covered by the pension plans are base salary and bonus.
In the case of employees who elect to receive their bonus in stock, the
amount of the bonus for pension plan computations is the cash value of the
bonus prior to addition of the premium for receipt of bonus in stock. The
benefits are computed at the time of retirement under a defined benefit
formula based on years of service and average salary and bonus for the
highest 60 consecutive months of service, computed without regard to
additional payments in stock. The pension plans provide for normal
retirement at age 65 and, subject to certain eligibility requirements, early
retirement beginning at age 55 is permitted with reduced pension payments.
The above table sets forth the estimated annual benefits payable, before
offset for the Social Security annuity, by ACL to any officer or salaried
employee upon retirement at the normal retirement age after selected periods
of service and in specified compensation groups. The normal form of the
benefit is a straight-life annuity. As of April 1, 1999, the individuals
named in the Summary Compensation Table had the following credited years of
service: Mr. Hagan, 28.64 years; Mr. Marquitz, 6.86 years; Mr. Whitlock,
19.88 years; Mr. Khouri, 19.65 years; and Mr. Wolff, 19.57 years.
The U.S. Internal Revenue Code imposes certain limitations on compensation
and benefits payable from tax-qualified pension plans. Pension amounts in
excess of such limitations are payable from the non-qualified pension plan,
which is not funded.
BENEFIT PLANS
ACL maintains various qualified and non-qualified benefit plans for its
employees. All salaried, full time employees are covered or will be covered by
an ERISA qualified defined benefit retirement plan and are eligible to
participate in a 401(k) savings plan that includes a partial company match
feature. Hourly employees with certain of ACL's subsidiaries have separate ERISA
qualified defined benefit plans and are eligible to participate in separate
401(k) savings plans.
60
<PAGE>
ACL maintains a self-insured general welfare health plan for employees. The plan
has appropriate levels of employee deductible, and maximum benefit levels.
Employees may elect to participate in certain approved HMO plans in lieu of ACL
sponsored plan.
ACL has provided to certain members of management various non-qualified benefit
and deferred compensation plans. These plans include deferred salary plans,
deferred bonus plans, salary continuation with whole life plans and, prior to
the Recapitalization, participation in certain CSX stock bonus plans, stock
option plans and stock purchase/loan plans.
ACL reserves the right to add, amend, change, tie off and/or terminate any or
all qualified or non-qualified benefit plans at any time and to alter, amend,
add to and/or restrict employee participation to the extent permitted by
applicable federal or state law or regulation.
COMPENSATION OF BOARD OF MANAGERS
ACL will reimburse members of the Board of Managers for any out-of-pocket
expenses incurred by them in connection with services provided in such capacity.
In addition, ACL may compensate members of the Board of Managers for services
provided in such capacity. Mr. Wagstaff received a salary from ACL for duties
performed as an employee during 1998.
61
<PAGE>
ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERSHIP AND MANAGEMENT.
SECURITY OWNERSHIP
The Parent owns all of the outstanding equity interests of ACL. The following
table sets forth certain information regarding the approximate beneficial
ownership of the Parent's equity interests at year end held by (i) each person
(other than members of the Board of Managers and executive officers of ACL)
known to ACL to on more than 5% of the outstanding membership interests of the
Parent and (ii) members of the Board of Managers of ACL (giving effect to
membership interests beneficially owned by Management Investors).
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
NON-VOTING NON-VOTING NON-VOTING NON-VOTING NON-VOTING NON-VOTING NON-VOTING NON-VOTING
SENIOR SENIOR JUNIOR JUNIOR SENIOR SENIOR JUNIOR JUNIOR
PREFERRED PREFERRED PREFERRED PREFERRED COMMON COMMON COMMON COMMON
NAME AND ADDRESS OF MEMBERSHIP MEMBERSHIP MEMBERSHIP MEMBERSHIP MEMBERSHIP MEMBERSHIP MEMBERSHIP MEMBERSHIP
BENEFICIAL OWNER INTERESTS INTERESTS INTERESTS INTERESTS INTERESTS INTERESTS INTERESTS INTERESTS
- ------------------- ---------- ---------- ---------- ------------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vectura Group LLC --- --- 5,945,455 59.1% --- --- 52,967 55.9%
National Marine LLC --- --- 150,000 1.5% 338,909 100.0% 10,770 11.4%
CSX Corporation 11,500,000 100.0% 3,965,636 39.4% --- --- 30,963 32.7%
Management Investors --- --- --- --- --- --- --- ---
Independent Investors --- --- --- --- --- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
VOTING OF VOTING
JUNIOR JUNIOR
COMMON COMMON
NAME AND ADDRESS OF MEMBERSHIP MEMBERSHIP
BENEFICIAL OWNER INTERESTS INTERESTS
- ------------------- ------------ ------------
<S> <C> <C>
Vectura Group LLC 1,579 15.8%
National Marine LLC 321 3.2%
CSX Corporation 3,400 34.0%
Management Investors 1,700 17.0%
Independent Investors 3,000 30.0%
</TABLE>
62
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AFFILIATE AGREEMENTS
ACL has entered into agreements or arrangements with CSX, subsidiaries of CSX
and Vectura. These agreements and business arrangements are for the purpose of
either providing or obtaining rail services for multi-modal transportation
packages, real estate and office lease arrangements, charter and lease
arrangements for certain river barges and provision of certain transitional
administrative services, as described herein. Also, ACL leases certain barges
from JEM Transportation, Inc. on a year-to-year basis. Daniel J. Marquitz, an
executive officer of ACL, is a principal in JEM Transportation, Inc.
ACL's arrangement with Vectura and its lease with JEM Transportation, as well as
ACL's multi-modal arrangements with CSX and its subsidiaries and ACL's
transition services agreement with CSX, are each on terms and conditions that
ACL believes are in the aggregate not materially more burdensome to ACL than
would be obtained on an arm's-length basis among unaffiliated parties.
PARENT LIMITED LIABILITY COMPANY AGREEMENT
Upon the consummation of the Recapitalization, CSX and other investors
(collectively, the "Members") entered into the LLC Agreement. The LLC Agreement
governs the relative rights and duties of the Members. The following description
summarizes certain terms of the LLC Agreement. The following description does
not purport to be complete and is qualified in its entirety by reference to the
LLC Agreement.
The business and affairs of the Parent are managed by a Board of Managers having
duties comparable to a corporate board of directors. The Board of Managers is
composed of ten individuals as follows: four shall be designated by CSX, two
shall be designated by Vectura and National Marine collectively (the "Vectura
Parties"), one shall be the current CEO of the Parent, one shall be the current
CEO of Vectura and two shall be independent of CSX and Vectura (and their
affiliates) designated by holders of a majority of the voting Junior Common
Membership Interests. CSX's and the Vectura Parties' rights to designate
individuals to the Board of Managers is dependent in part on such party's
continuing to hold membership interests of the Parent in specified amounts.
As long as CSX holds specified amounts of Parent membership interests, CSX is
entitled to veto rights with respect to the following transactions, howsoever
directly or indirectly structured, subject to certain exceptions: (i) any merger
or other acquisition transaction (other than the acquisition of new capital
assets as part of the regular capital budgeting process) involving consideration
of $250 million or more; (ii) any transaction through which the Parent, ACL or
its subsidiary would become a Subchapter C corporation (other than certain
specified transactions); (iii) any amendment to the limited liability company
agreement of the Parent, ACL or its subsidiary which would adversely affect CSX;
(iv) any definition of "Excess Cash Flow," "Restricted Payments" and "Change of
Control" (and related definitions regarding the Senior Preferred Membership
Interests) in financing agreements; and (v) transactions with affiliates.
As long as the Vectura Parties hold specified amounts of Parent membership
interests and subject to CSX's veto rights described above, the Vectura Parties
are entitled to veto rights with respect to the following transactions,
howsoever directly or indirectly structured, subject to certain exceptions: (i)
certain material financings, acquisitions, divestitures, public equity offerings
or capital expenditures; (ii) equity investment programs for management of the
Parent and its subsidiaries; and (iii) transactions with affiliates. In
addition, the Vectura Parties will have the right, subject to CSX's veto rights,
to cause an Initial Public Offering or Sale of ACL (each as defined in the LLC
Agreement).
MEMBERSHIP INTERESTS. The Parent issued Senior Preferred Membership Interests,
Junior Preferred Membership Interests, Senior Common Membership Interests and
Junior Common Membership Interests in amounts sufficient to consummate the
Recapitalization. The Senior Preferred Membership Interests and the Junior
Preferred Membership Interests are collectively referred to as the "Preferred
Membership Interests" and the Senior Common Membership Interests and the Junior
Common Membership Interests are collectively referred to as the "Common
Membership
63
<PAGE>
Interests." The Junior Common Membership Interests are divided into voting
membership interests and non-voting membership interests of the Parent, and
collectively represent the residual future profits interests in the Parent. The
holders of non-voting Junior Common Membership Interests may at any time, by a
majority vote of such holders, convert all such interests into voting Junior
Common Membership Interests. Holders of the Preferred Membership Interests are
entitled to return of capital contributions prior to any distributions made to
holders of the Common Membership Interests. Each Preferred Membership Interest
has an initial Redemption Value of $100, which compounds annually at the rate
per year of 11.02% (the "Preferred Rate"). The Senior Common Membership
Interests represent an aggregate capital interest of $3,389,091 and an aggregate
future profits interest in the Parent of $32,500,000 (subject to certain
adjustments) and accrue a compounded annual yield at the Preferred Rate on a
notional principal amount of $35,889,091. As to dividends, distributions and
liquidations, except as otherwise provided and except with respect to
redemptions of Membership Interests held by Management Investors upon their
termination, Senior Preferred Membership Interests rank senior to Junior
Preferred Membership Interests, Junior Preferred Membership Interests rank
senior to Senior Common Membership Interests and Senior Common Membership
Interests rank senior to Junior Common Membership Interests. At the Parent's
option, Senior Preferred Membership Interests may be exchanged into current-pay
subordinated notes containing the same features as such Membership Interests at
any time contemporaneously with or following the Parent's conversion to a
Subchapter C corporation. Senior Preferred Membership Interests have the benefit
of covenants respecting restricted payments (providing that the Parent may pay
no cash in respect of any membership interests ranking junior in priority to the
Senior Preferred Membership Interests until all Senior Preferred Membership
Interests have been redeemed, except with respect to redemptions of membership
interests held by Management Investors upon their termination or tax
distributions pursuant to the LLC Agreement), affiliate transactions, no
issuance of membership interests senior in priority to the Senior Preferred
Membership Interests and delivery of financial statements. Junior Common
Membership Interests are allocated into voting and non-voting interests. All
other classes of membership interests will be non-voting, except as otherwise
explicitly provided or as provided by law. The Parent will mandatorily redeem
all Senior Preferred Membership Interests and Junior Preferred Membership
Interests in year 15 at the amount of the Redemption Value (plus accrued and
unpaid yield thereon) of such membership interests at such time. Optional
redemptions of such membership interests and Senior Common Membership Interests
shall be permitted at the Parent's option at any time, subject to the priority
of such membership interests (other than in certain cases), without premium or
penalty, provided that CSX's consent will be required to redeem its Senior
Preferred Membership Interests in certain cases. Holders of Preferred Membership
Interests have the option to have such interests redeemed at the Redemption
Value as defined in the LLC Agreement (plus accrued but unpaid yield thereon)
upon consummation of a Change of Control.
In addition, the LLC Agreement: (i) restricts the transfer of the equity
interests of the Parent; (ii) grants tag-along rights on certain transfers of
equity interests of the Parent (as described below); (iii) requires CSX and the
Investors to consent to a sale of the Parent to an independent third party if
such sale is approved by the Board of Managers of the Parent (as described
below); and (iv) grants preemptive rights on certain issuances of equity
interests of the Parent. Certain of the foregoing provisions of the LLC
Agreement will terminate upon the consummation of a Qualified Public Offering or
a Sale of ACL (each as defined in the LLC Agreement).
The Vectura Parties and CSX may participate pro rata (based on ownership of
Junior Common Membership Interests) in any sale or transfer of Parent equity
securities by the other (other than certain specified transactions) and in any
control transaction howsoever structured, subject to certain limitations. In
addition, CSX may participate pro rata (based on ownership of Junior Preferred
Membership Interests) in any sale or transfer of Junior Preferred Membership
Interests by the Vectura Parties, subject to certain limitations. In the event
of a sale of all of the Parent approved by its Board of Managers (whether by
sale of membership interests, all or substantially all assets or businesses,
merger or otherwise), each holder of membership interests shall consent to,
approve and participate in such transaction on the same terms and conditions.
Any such transaction shall also be a Change of Control, and any such transaction
which would not also otherwise trigger tag-along rights shall trigger a
liquidation of the Parent.
DISTRIBUTIONS. The holders of Senior Preferred Membership Interests are entitled
to receive distributions from the Parent in an amount equal to the Redemption
Value (plus accrued and unpaid yield thereon) of such interests prior to
distributions (other than Tax Distributions described below) in respect of any
other membership interests of the Parent. The holders of Junior Preferred
Membership Interests are entitled to receive distributions from the Parent in an
amount equal to the Redemption Value (plus accrued and unpaid yield thereon) of
such interests prior to
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<PAGE>
distributions (other than Tax Distributions described below) in respect of any
other membership interests of the Parent, except Senior Preferred Membership
Interests.
Subject to certain restrictions contained in the LLC Agreement and any
restrictions contained in any financing agreements to which the Parent is a
party, and subject to the requirement of quarterly Tax Distributions described
below, the Board of Managers may make distributions, whether in cash, property
or securities of the Parent, at any time or from time to time, in the following
order of priority: first, to the holders of Senior Preferred Membership
Interests, an amount determined by the Redemption Value (plus accrued and unpaid
yield thereon) of such interests (as defined and described in the LLC
Agreement); second, to the holders of Junior Preferred Membership Interests, an
amount determined by the Redemption Value (plus accrued and unpaid yield
thereon) of such interests (as defined and described in the LLC Agreement);
third, pro rata to the holders of the Senior Common Membership Interests to the
extent of any unpaid yield (based on a notional principal amount of $35.9
million) and principal (based on a notional principal amount of $35.9 million)
thereon; and fourth, thereafter, pro rata in accordance with Capital Accounts
(as defined in the LLC Agreement) or a cash waterfall producing identical
results.
ACL's operations are conducted in the form of a limited liability company. As a
result, in general, neither ACL nor the Parent is subject to U.S. federal or
state income taxes. Instead, taxable income from the operations of ACL and its
noncorporate subsidiaries are allocated to the equity holders of the Parent, and
such holders are directly liable for income taxes on such income. The LLC
Agreement requires the Parent to make quarterly distributions ("Tax
Distributions") to its members to enable each member to satisfy some or all of
its tax liability resulting from its equity interest in the Parent. Tax
Distributions to each member generally will be computed by multiplying the
taxable income allocated to the member from the Parent by the assumed tax rate
applicable to that member. The assumed tax rate (i) for a corporate member will
be the highest marginal federal income tax rate applicable to a corporation plus
2.3%, and (ii) for each other member will be an assumed highest marginal blended
federal, state and local income tax rate applicable to an individual. Such
distributions are permitted under the Indenture.
Tax Distributions otherwise payable to CSX under the above formula may be
reduced (to not below zero) in three ways. First, CSX's tax distributions will
be reduced by $4.0 million in each of ACL's first five years of operation and by
$6 million in each of its following four years of operation (the "Annual
Exclusion"). Second, any income allocated by the Parent to CSX in respect of the
accruing yield on the Senior Preferred Membership Interests held by CSX will be
excluded from the computation of CSX's tax distributions. Third, taxes incurred
by CSX attributable to the recognition of Built-In Gain (through asset sales or
otherwise) will in some circumstances be excluded from the computation of CSX's
tax distributions. For this purpose, "Built-In Gain" means the excess of the
fair market value of the assets originally contributed by CSX to ACL as of the
date of the Recapitalization over the tax basis of those assets measured as of
the date of contribution. In general, subject to certain exceptions and
limitations, upon the recognition of any Built-In Gain by CSX, the Parent may
elect to either (i) accelerate the Annual Exclusion to the extent of any
resulting tax in inverse chronological order beginning with year nine, (ii)
distribute to CSX in the year in which the Built-In Gain is recognized an
additional Tax Distribution equal to one-half of the resulting tax to CSX, or
(iii) make additional distributions to CSX on its Senior Preferred Membership
Interests (in the amount of the resulting Built-In Gain tax) by accelerating
prior to year nine the time at which such distributions would otherwise be
required to commence under the LLC Agreement.
CSX is also entitled to Tax Distributions in such amount as is required so that
CSX's "unreimbursed tax amount" does not exceed $85.0 million. CSX's
unreimbursed tax amount is the excess of its taxes at the assumed corporate tax
rate on taxable income allocated to CSX by the Parent (excluding allocations in
respect of the accruing yield on the Senior Preferred Membership Interests and
allocations of Built-In Gain arising by reason of certain extraordinary
transactions) over Tax Distributions. In addition, CSX is entitled to Tax
Distributions equal to the tax at the assumed corporate tax rate on any Built-In
Gain arising from a sale-leaseback transaction. Further, as part of the tax
distribution provisions of the LLC Agreement, the Senior Preferred Membership
Interests are entitled to distributions beginning at the end of year nine in an
amount equal to the product of the assumed corporate tax rate and the Senior
Preferred Membership Interest annual accrual, including the full annual accrual
for year nine.
In certain circumstances, it is possible that the distributions referred to in
the foregoing paragraphs could exceed the combined federal, state, local and
foreign income taxes that would be payable with respect to taxable income of ACL
for any given period if it were a Delaware corporation filing separate tax
returns. Such distributions are permitted under the Indenture.
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The Senior Preferred Membership Interests are entitled to distributions
beginning in year six equal to the lesser of excess cash flow and an annual
limit. The annual limit is $7.5 million in each of years six through ten and $10
million in each of years 11 through 15, increased in any year by the excess, if
any, of the annual limit for prior years over the amounts distributed in such
prior years as described in this paragraph.
Liquidating distributions will be made among the members pro rata in accordance
with capital accounts or a cash waterfall producing identical results.
PARENT REGISTRATION RIGHTS AGREEMENTS
The Parent, CSX Brown Corp. ("CSX Brown"), an affiliate of CSX, and the
Investors, entered into a registration rights agreement (the "Parent
Registration Rights Agreement"). Under the Parent Registration Rights Agreement,
CSX Brown and the Vectura Parties have the right, subject to certain conditions,
to require the Parent to register any or all of their common equity interests of
the Parent under the U.S. Securities Act of 1933, as amended (the "Securities
Act") at the Parent's expense. In addition, all holders of registrable
securities are entitled to request the inclusion of any Common Membership
Interests of the Parent subject to the Parent Registration Rights Agreement in
any registration statement (excluding certain registration statements, including
any registration statement in connection with an Initial Public Offering (as
defined in the Parent Registration Rights Agreement)) at the Parent's expense
whenever the Parent proposes to register any of its Common Membership Interests
under the Securities Act. In connection with all such registrations, the Parent
has agreed to indemnify all holders of registrable securities against certain
liabilities, including liabilities under the Securities Act.
TRANSITION SERVICES AGREEMENT
ACL and CSX entered into a transition services agreement (the "Transition
Services Agreement"), pursuant to which CSX provided to ACL certain services
that it had previously provided to its predecessor. Such transitional services
have been provided since the Recapitalization and have included general
accounting, legal and computer systems support, tax planning and benefits
administration, as well as various other transitional services.
OTHER ARRANGEMENTS
ACL, CSX and Vectura and their respective affiliates have agreed to indemnify
each other with respect to liabilities related to their respective businesses
pursuant to the Recapitalization.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
(1) CONSOLIDATED FINANCIAL STATEMENTS:
Included in Part II of this report:
Consolidated Statement of Earnings, for the years ended December 25,
1998, December 26, 1997 and December 27, 1996.
Consolidated Statement of Cash Flows, for the years ended December 25,
1998, December 26, 1997 and December 27, 1996.
Consolidated Statement of Financial Position as of December 25, 1998
and December 26, 1997.
Consolidated Statement of Member's Deficit/Stockholder's Equity, for
the years ended December 25, 1998, December 26, 1997 and December 27,
1996.
Notes to Consolidated Financial Statements, for the years ended
December 25, 1998, December 26, 1997, and December 27, 1996.
Report of PricewaterhouseCoopers LLP, Independent Accountants, on the
consolidated financial statements of American Commercial Lines LLC for
the year ended December 25, 1998.
Report of Ernst & Young LLP, Independent Public Accountants, on the
financial statements of American Commercial Lines LLC for the years
ended December 27, 1996 and December 26, 1997.
(2) FINANCIAL STATEMENT SCHEDULE
Included in Part II of this report:
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
significant or not required, or because the required information is
included in the financial statement notes thereto.
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
+2.1 Recapitalization Agreement dated as of April 17, 1998 by and
among CSX, Vectura, the Parent, ACL and National Marine
(incorporated by reference to Exhibit 2.1 of the registrant's
Registration Statement on Form S-4, as amended (Registration
No. 333-62227)).
+3.1 Certificate of Formation of the Parent (incorporated by
reference to Exhibit 3.1 of the registrant's Registration
Statement on Form S-4, as amended (Registration No.
333-62227)).
+3.2 Form of Certificate of Formation of ACL and the Subsidiary
Guarantors (incorporated by reference to Exhibit 3.1 of the
registrant's Registration Statement on Form S-4, as amended
(Registration No. 333-62227)).
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
+3.3 Form of Limited Liability Company Agreement for the Subsidiary
Guarantors (incorporated by reference to Exhibit 3.1 of the
registrant's Registration Statement on Form S-4, as amended
(Registration No. 333-62227)).
+3.4 Amended and Restated Limited Liability Company Agreement of
the Parent (incorporated by reference to Exhibit 3.1 of the
registrant's Registration Statement on Form S-4, as amended
(Registration No. 333-62227)).
+3.5 Amended and Restated Limited Liability Company Agreement of
ACL (incorporated by reference to Exhibit 3.1 of the
registrant's Registration Statement on Form S-4, as amended
(Registration No. 333-62227)).
+3.6 Certificate of Incorporation of ACL Capital (incorporated by
reference to Exhibit 3.1 of the registrant's Registration
Statement on Form S-4, as amended (Registration No.
333-62227)).
+3.7 By-laws of ACL Capital (incorporated by reference to Exhibit
3.1 of the registrant's Registration Statement on Form S-4, as
amended (Registration No. 333-62227)).
+4.1 Indenture dated as of June 30, 1998 by and among ACL, ACL
Capital and the Subsidiary Guarantors and the United States
Trust Company of New York, as trustee (incorporated by
reference to Exhibit 3.1 of the registrant's Registration
Statement on Form S-4, as amended (Registration No.
333-62227)).
+4.2 Purchase Agreement dated as of June 23, 1998 among ACL, ACL
Capital and the Subsidiary Guarantors, Wasserstein Perella
Securities, Inc. and Chase Securities Inc. (incorporated by
reference to Exhibit 3.1 of the registrant's Registration
Statement on Form S-4, as amended (Registration No.
333-62227)).
+4.3 Registration Rights Agreement dated as of June 23, 1998 by and
among ACL, ACL Capital and the Subsidiary Guarantors,
Wasserstein Perella Securities, Inc. and Chase Securities Inc.
(incorporated by reference to Exhibit 3.1 of the registrant's
Registration Statement on Form S-4, as amended (Registration
No. 333-62227)).
+4.4 Registration Rights Agreement dated as of June 30, 1998 by and
among ACL, Vectura, National Marine, CSX Brown, Stuart
Agranoff and Steven Anderson and each Person whose name is set
forth on Schedule I therein (incorporated by reference to
Exhibit 3.1 of the registrant's Registration Statement on Form
S-4, as amended (Registration No. 333-62227)).
+10.1 Credit Agreement dated as of June 30, 1998 among ACL, the
Parent, the Lenders (as defined therein) and The Chase
Manhattan Bank, as issuing bank, as administrative agent, as
security trustee and as collateral agent (incorporated by
reference to Exhibit 3.1 of the registrant's Registration
Statement on Form S-4, as amended (Registration No.
333-62227)).
*+10.2 Employment Agreement between ACL and Daniel J. Marquitz dated
October 19, 1998 (incorporated by reference to Exhibit 3.1 of
the registrant's Registration Statement on Form S-4, as
amended (Registration No. 333-62227)).
*10.3 Employment Agreement between CSX and Michael C. Hagan dated
February 1, 1995.
*+10.4 Stock Purchase and Loan Plan, as amended (incorporated by
reference to Exhibit 10.14 of CSX's 1998 Annual Report on Form
10-K dated March 3, 1999 (File No. 333-28523)).
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
*+10.5 1987 Long-Term Performance Stock Plan, as amended
(incorporated by reference to Exhibit 10.15 of CSX's 1998
Annual Report on Form 10-K dated March 3, 1999 (File No.
333-28523)).
*+10.6 1985 Deferred Compensation Program for Executives of CSX
Corporation and Affiliated Companies, as amended (incorporated
by reference to Exhibit 10.16 of CSX's 1998 Annual Report on
Form 10-K dated March 3, 1999 (File No. 333-28523)).
*+10.7 Supplementary Savings Plan and Incentive Award Deferral Plan
for Eligible Executives of CSX Corporation and Affiliated
Companies, as amended (incorporated by reference to Exhibit
10.17 of CSX's 1998 Annual Report on Form 10-K dated March 3,
1999 (File No. 333-28523)).
*+10.8 Special Retirement Plan of CSX Corporation and Affiliated
Companies, as amended (incorporated by reference to Exhibit
10.18 of CSX's 1998 Annual Report on Form 10-K dated March 3,
1999 (File No. 333-28523)).
*+10.09 Supplemental Retirement Plan of CSX Corporation and
Affiliated Companies, as amended (incorporated herein by
reference to Exhibit 10.19 of CSX "Annual Report on Form
10K dated March 3, 1998 (File No. 333-28523)).
*10.10 American Commercial Lines, Inc. Severance Pay Plan.
*10.11 American Commercial Barge Line Company Salary Continuation
Plan, as amended.
16.1 Letter Regarding Change in Certifying Accountant.
21.1 Subsidiaries of ACL.
27.1 Financial Data Schedule.
99.1 Risk Factors.
</TABLE>
+ Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
Regulations under the Securities and Exchange Act of 1934, reference is made to
the document previously filed with the Commission.
* Management Contract or Compensatory Plan or Arrangement.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended December 25, 1998.
(c) Exhibits: See Exhibit Index
(d) All financial statements and schedules except those items listed under Item
14(a)(1) and (2) above are omitted because they are not applicable, or are not
required, or because the required information is included in the financial
statements or notes thereto.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
American Commercial Lines LLC
(Registrant)
By: /s/ Michael C. Hagan
----------------------------------
Michael C. Hagan
President and Chief Executive Officer
March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 25, 1999. <TABLE> <CAPTION>
NAME TITLE
- ---- -----
<S> <C>
/s/ Michael C. Hagan President, Chief Executive Officer, and Member
- ---------------------------- of Board of Representatives of the Parent
Michael C. Hagan (Principal Executive Officer)
/s/ James J. Wolff Senior Vice President - Finance and Administration,
- ---------------------------- Chief Financial Officer (Principal Financial and
James J. Wolff Accounting Officer)
/s/ David Wagstaff III
- ----------------------------
David Wagstaff III Chairman of Board of Representatives of Parent
/s/ Steven Anderson
- ---------------------------- Member of Board of Representatives of Parent
Steven Anderson
/s/ Mark G. Aron Member of Board of Representatives of Parent
- ----------------------------
Mark G. Aron
/s/ David H. Baggs Member of Board of Representatives of Parent
- ----------------------------
David H. Baggs
/s/ Ellen M. Fitzsimmons Member of Board of Representatives of Parent
- ----------------------------
Ellen M. Fitzsimmons
/s/ Ernest A. Haberli Member of Board of Representatives of Parent
- ----------------------------
Ernest A. Haberli
/s/ Paul R. Goodwin Member of Board of Representatives of Parent
- ----------------------------
Paul R. Goodwin
/s/ Richard E. Mayberry, Jr. Member of Board of Representatives of Parent
- ----------------------------
Richard E. Mayberry, Jr.
/s/ David F. Thomas Member of Board of Representatives of Parent
- ----------------------------
David F. Thomas
</TABLE>
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.3 Employment Agreement between CSX and Michael C.
Hargan dated February 1, 1995.
10.10 American Commercial Lines, Inc. Severance Pay Plan.
10.11 American Commercial Barge Line Company Salary
Continuation Plan, as amended.
16.1 Letter regarding change in Certifying Accountant.
21.1 Subsidiaries of ACL.
27.1 Financial Data Schedule.
99.1 Risk Factors.
</TABLE>
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT BETWEEN CSX AND MICHAEL C. HAGAN
DATED FEBRUARY 1, 1995
EMPLOYMENT AGREEMENT
AGREEMENT by and between CSX CORPORATION, a Virginia corporation (the
"Company"), and Michael C. Hagan (the "Executive"), dated as of the first day of
February, 1995.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
a. The "Effective Date" shall mean the first date during the Term (as
defined in Section 1(b)) on which a Change of Control (as defined in
Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is
terminated by the Company without Cause prior to the date on which the
Change of Control occurs or the Executive ceases to be an officer of the
Company, and if it is reasonably demonstrated by the Executive that such
termination of employment or cessation of status as an officer (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then, in each such case, for all
purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment or
cessation of status as an officer.
b. The "Term" shall mean the period commencing on the date hereof and
ending on the earlier to occur of (i) the third anniversary of such date or
(ii) the first day of the month next following the Employee's normal
retirement date ("Normal Retirement Date") under the principal pension plan
in which the Executive participates (the "Retirement Plan"); provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Term shall be automatically extended so as to
terminate three years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give notice to the Executive that the
Term shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
a. STOCK ACQUISITION. The acquisition by any individual, entity or
group (within the meaning of Section 13(d) (3) or 14(d) (2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding
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<PAGE>
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); PROVIDED,
HOWEVER, that for purposes of this subsection (a) the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or
(iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i) (ii) and (iii) of subsection (c) of this Section
2; or
b. BOARD COMPOSITION. Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; PROVIDED, HOWEVER, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
c. BUSINESS COMBINATION. Approval either (x) by the shareholders of
the Company of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company or its
principal subsidiary or (y) by the shareholders or the Board of the Company
of a reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of American Commercial Lines,
Inc. ("ACL") (a "Business Combination") that is not subject, as a matter of
law or contract, to approval by the Interstate Commerce Commission or any
successor agency or regulatory body having jurisdiction over such
transactions (the "Agency"), in each case, UNLESS, following such Business
Combination:
(i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or its principal subsidiary or ACL or all or substantially
all of the assets of the Company or its principal subsidiary or ACL
either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination; and
(iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for
such Business Combination; or
d. REGULATED BUSINESS COMBINATION. Approval by the shareholders or the
Board, as the case may be, of the Company of a Business Combination that is
subject, as a matter of law or contract, to
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<PAGE>
approval by the Agency (a "Regulated Business Combination") UNLESS such
Business Combination complies with clauses (i) (ii) and (iii) of
subsection(c) of this Section 2; or
e. LIQUIDATION OR DISSOLUTION. Approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company or its
principal subsidiary.
If any Change of Control is a Regulated Business Combination, but its
implementation involves another "Change of Control" that is not a Regulated
Business Combination within the meaning of this Section 2, then for all purposes
of this Agreement, such Change of Control shall not be deemed to be a Regulated
Business Combination, the provisions governing a Regulated Business Combination
shall not apply, and the provisions governing such other Change in Control shall
apply.
3. EMPLOYMENT PERIOD.
a. GENERALLY. Subject to Section 3(b), the Company hereby agrees to
continue the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company subject to the terms and conditions of
this Agreement, for the period commencing on the Effective Date and ending
on the third anniversary of such date (the "Employment Period").
b. REGULATED BUSINESS COMBINATION. Notwithstanding the foregoing, in
the case of a Change of Control that is a Regulated Business Combination,
then for all purposes of this Agreement, the "Employment Period" shall mean
the longer of (i) the period commencing on the Effective Date and ending on
the third anniversary of such date or (ii) the period commencing on the
Effective Date and ending thirteen months from the effective date of a
final decision by the Agency on the proposed Regulated Business Combination
("Final Regulatory Action"), PROVIDED, HOWEVER, that (x) if the Final
Regulatory Action is a denial of the Regulated Business Combination then
for all purposes of this Agreement the "Employment Period" shall end upon
the sixtieth (60th) day following such Final Regulatory Action and (y) if
the Final Regulatory Action is an approval of the Regulated Business
Combination, but the Regulated Business Combination is not consummated by
the first anniversary of the Final Regulatory Action, then for all purposes
of this Agreement the "Employment Period" shall end upon such first
anniversary of the Final Regulatory Action.
4. TERMS OF EMPLOYMENT.
a. POSITION AND DUTIES.
(i) During the Employment Period: (A) the Executive's position
(including status, offices, titles and reporting requirements)
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date, and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly
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<PAGE>
understood and agreed that to the extent that any such activities have
been conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of
the Executive's responsibilities to the Company.
b. COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any
base salary which has been earned but deferred, to the Executive
by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the
last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase, and the term
Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement,
the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the
Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during
the Employment Period, an annual bonus (the "Annual Bonus") in
cash at least equal to the Executive's highest cash bonus under
the Company's annual incentive plans, or any comparable bonus
under any predecessor or successor plan, for the last three full
fiscal years prior to the Effective Date (annualized in the event
that the Executive was not employed by the Company for the whole
of such fiscal year) (the "Recent Annual Bonus"). Each such
Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices,
policies and programs applicable generally to other peer
executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide
the Executive with incentive opportunities (measured with respect
to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings
opportunities and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs
as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period,
the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in
effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its
affiliated companies.
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(v) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect for the Executive
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits, including,
without limitation, tax and financial planning services, payment
of club dues, and, if applicable, use of an automobile and
payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any
time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least
equal to the most favorable of the foregoing provided to the
Executive by the Company and its affiliated companies at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as provided
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company
and its affiliated companies as in effect for the Executive at
any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
a. DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative.
b. CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer
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of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith or without reasonable belief that
the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or a senior officer of the Company or based upon
the advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in the best
interests of the Company. The cessation of employment of the Executive
shall not be deemed to be for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is
given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
c. GOOD REASON. The Executive's employment may be terminated by the
Executive during the Employment Period for Good Reason. For purposes of
this Section 5(c), any good faith determination of "Good Reason" made by
the Executive shall be conclusive. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities1 excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a) (i) (B)
hereof or the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required immediately
prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(vi) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
Anything in this Agreement to the contrary notwithstanding, a termination
by the Executive for any reason shall be deemed to be a termination for
Good Reason for all purposes of this Agreement if such termination occurs
(i) in the case of a Change of Control that is not a Regulated Business
Combination, during the 30-day period immediately following the first
anniversary of the Effective Date, (ii) in the case of a Change of Control
that is a Regulated Business Combination consummated pursuant to Final
Regulatory Action, during the 30-day period immediately following the first
anniversary of the Final Regulatory Action (it
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being understood that the Executive will have no rights under this
paragraph in the case of a Change of Control that is a Regulated Business
Combination (x) denied by the Agency or (y) for any other reason not
consummated within one year of Final Regulatory Action).
d. REGULATED BUSINESS COMBINATION. Notwithstanding the foregoing, in
the case of a Change of Control that is a Regulated Business Combination,
then for all purposes of this Agreement, during that portion of the
Employment Period prior to Final Regulatory Action, the Executive may not
exercise his rights to terminate his employment under this Agreement for
"Good Reason." The Executive may only terminate his employment under this
Agreement if he is "Constructively Terminated" by the Company. Moreover,
except to the extent expressly set forth in the definition of "Constructive
Termination," the Executive shall have no remedy for any breach by the
Company of the provisions of Section 4; PROVIDED, HOWEVER, that any failure
of the Company to comply in any material respect with the provisions of
Section 4 shall create a rebuttable presumption that a Constructive
Termination has occurred.
For purposes of this Agreement, a "Constructive Termination" shall mean:
(i) substantial diminution of the Executive's duties or
responsibilities as contemplated by Section 4(a) of this Agreement,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) either (x) a reduction in the Executive's cash compensation
(which shall mean his Annual Base Salary or Annual Bonus) or (y) a
discriminatory reduction in the Executive's other incentive
opportunities, benefits or perquisites described in Section 4 (b)
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a) (i) (B)
hereof; or
(iv) any purported termination by the Company of the Executive's
employment otherwise than for Cause.
During that portion of the Employment Period after Final Regulatory Action,
the Executive may terminate his Employment under this Agreement for "Good
Reason".
e. NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by the Executive for Good Reason or Constructive Termination, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of
such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason, Cause or
Constructive Termination shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
f. DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason or Constructive Termination, the date of receipt
of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by the
Company other than for Cause or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of such termination
and (iii) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall
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be the date of death of the Executive or the Disability Effective Date, as
the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
a. GOOD REASON OR CONSTRUCTIVE TERMINATION; OTHER THAN FOR CAUSE,
DEATH OR DISABILITY. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason or Constructive
Termination:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (2)
the product of (x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred (and
annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less
than twelve full months), for the most recently completed fiscal
year during the Employment Period, if any (such higher amount
being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to
the extent not theretofore paid (the sum of the amounts described
in clauses (1), (2), and (3) shall be hereinafter referred to as
the "Accrued Obligations") ; and
B. the amount equal to the product of (1) three and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified defined
benefit retirement plan (the "Retirement Plan") (utilizing
actuarial assumptions no less favorable to the Executive than
those in effect under the Company s Retirement Plan immediately
prior to the Effective Date), and any excess or supplemental
retirement plan in which the Executive participates (together,
the "SERP") which the Executive would receive if the Executive's
employment continued for three years after the Date of
Termination assuming for this purpose that all accrued benefits
are fully vested, and, assuming that the Executive's compensation
in each of the three years is that required by Section 4(b) (i)
and Section 4 (b) (ii), over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under the
Retirement Plan and the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's employment
had not been terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their
families, PROVIDED, HOWEVER, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other
welfare benefits under another employer provided plan, the medical and
other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained
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employed until three years after the Date of Termination and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies,
including earned but unpaid stock and similar compensation (such other
amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
b. DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term
Other Benefits as utilized in this Section 6(b) shall include, without
limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated
companies under such plans, programs, practices and policies relating to
death benefits, if any, as in effect with respect to other peer executives
and their beneficiaries at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive's
estate and/or the Executive's beneficiaries, as in effect on the date of
the Executive's death with respect to other peer executives of the Company
and its affiliated companies and their beneficiaries.
c. DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than
for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in
this Section 6(c) shall include, and the Executive shall be entitled after
the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to
other peer executives and their families at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any time
thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
d. CAUSE; OTHER THAN FOR GOOD REASON OR CONSTRUCTIVE TERMINATION. If
the Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, (y)
the amount of any compensation previously deferred by the Executive, and
(z) Other Benefits, in each case to the extent theretofore unpaid. If the
Executive voluntarily terminates employment during the Employment Period,
excluding a termination for Good Reason or Constructive Termination, this
Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations and the timely payment or provision of
Other Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
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7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. FULL SETTLEMENT. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f) (2) (A) of the Internal Revenue
Code of 1986, as amended (the "Code").
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
a. Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section 9) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive
of all taxes (including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding
the foregoing provisions of this Section 9 (a), if it shall be determined
that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not
give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
b. Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young or such other certified public accounting firm as may
be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of
Control, the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as
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determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
c. The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; PROVIDED, HOWEVER, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
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d. If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior
to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. SUCCESSORS.
a. This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
b. This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
c. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
12. MISCELLANEOUS.
a. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia, without reference to
principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
b. All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
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IF TO THE EXECUTIVE:
Michael C. Hagan
8503 Westover Drive
Prospect, Kentucky 40059
IF TO THE COMPANY:
CSX Corporation
One James Center
Richmond, Virginia 23219
Attention: General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
c. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
d. The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
e. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for
Good Reason or Constructive Termination pursuant to Section 5 of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
f. The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company
is "at will" and, subject to Section 1(a) hereof, prior to the Effective
Date, the Executive's employment and/or this Agreement may be terminated by
either the Executive or the Company at any time prior to the Effective
Date, in which case the Executive shall have no further rights under this
Agreement. From and after the Effective Date this Agreement shall supersede
any other agreement between the parties with respect to the subject matter
hereof.
13. OTHER AGREEMENTS UNAFFECTED. Except as otherwise expressly provided
herein, this Agreement shall have no affect on any other agreement between the
Executive and the Company or any of its affiliates, and any such agreement is
ratified and confirmed in all respects and shall remain in full force and effect
in accordance with its terms.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Michael C. Hagan
--------------------------------------------
Michael C. Hagan
CSX CORPORATION
By: /s/ John W. Snow
--------------------------------------------
John W. Snow, Chairman
President and Chief
Executive Officer
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EXHIBIT 10.10
AMERICAN COMMERCIAL LINES, INC.
SEVERANCE PLAN
1. PURPOSE OF PLAN
The American Commercial Lines, Inc. Severance Pay Plan ("Plan") is
provided for certain employees of American Commercial Lines, Inc. and its
subsidiaries ("ACL"). The plan provides severance benefits to those employees
under the specific circumstances described in the Plan. The adoption and
continuation of the Plan is voluntary on the part of ACL and is not intended to
nor shall it be construed as creating a contract of employment between ACL or
its successors and its employees nor shall it be construed as a condition of
employment. The Plan supersedes any and all other severance arrangements,
whether communicated orally or in writing with respect to Eligible Employees.
The Plan is intended to be a "welfare plan," but not a "pension plan,"
as defined in ERISA Sections 3(1) and 3(2), respectively. The Plan must be
interpreted and administered in a manner that is consistent with that intent.
2. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective upon (and not effective until) the earlier
of: (i) execution by ACL or CSX Corporation of an agreement for the disposition
of substantially all, or an interest in substantially all of the stock or assets
of ACL or (ii) receipt by the President of American Commercial Lines, Inc. of
written notice from CSX Corporation that the Plan shall become effective. Any
Eligible Employee whose employment is Involuntarily Terminated or Terminated
with Good Reason more than two years after the Effective Date shall not be
eligible for a benefit under this Plan.
3. GENERAL DEFINITIONS
As used in the Plan, the following words and phrases shall have the
following meanings, respectively, unless the context otherwise requires:
a. "Affiliated Company" means any corporation which is a member of a
controlled group of corporations, as determined under SEC 1563(a) of
the Internal Revenue Code without regard to SEC 1563(a)(4) and SEC
1563(e)(3)(c), which also includes American Commercial Lines, Inc.
b. "Administrator" means American Commercial Lines, Inc. through the
Vice President - Human Resources.
c. "Administrative Committee" means the CSX Administrative Committee.
The Administrative Committee is appointed by the chief executive
officer of CSX Corporation.
d. "Base Salary" means the Eligible Employee's annual base salary in
effect on the Effective Date.
e. "Bonus" means the highest annual cash bonus awarded to the Eligible
Employee by ACL or an Affiliated Company during the three year period
which ends in the year of the Effective Date. The amount of cash bonus
awarded shall be determined prior to any cash bonus deferrals.
f. "Cause" means the willful engaging by the Eligible Employee in
illegal conduct or gross misconduct which is demonstrably injurious to
the Company. For purposes of this Plan, no act or failure to act shall
be considered "willful" unless it is done, or omitted to be done, by
the Eligible Employee in bad faith or without reasonable belief that
the Eligible Employee's action or omission was in the best interests of
the Company.
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g. "Company" means American Commercial Lines, Inc. and/or its
subsidiaries and any successors thereto.
h. "Eligible Employee" means an employee of ACL who is designated by
the President of American Commercial Lines, Inc. to participate in the
Plan.
i. "ERISA" means the Employee Retirement Income Security Act of 1974
and any amendments thereto.
j. "Involuntary Termination" means the termination of the Eligible
Employee's employment with the Company which his initiated by the
Company and that is not for Cause.
k. "Release" means a broad, general release executed by an Eligible
Employee which absolutely extinguishes any past or present claims he
may have against the Company including any claims arising out of the
Eligible employee's employment and separation from Employment.
l. "Separation Pay" means the benefit calculated in accordance with the
provisions of Section 5 of the Plan.
m. "Termination with Good Reason" means, unless and to the extent
otherwise waived in writing by the Eligible Employee, the termination
of the Eligible Employee's employment with the Company which is
initiated by the Eligible Employee and that occurs within 90 days of
any of the following events (excluding for this purpose, isolated,
insubstantial and inadvertent actions not taken in bad faith which are
remedied by the Company promptly after receipt of notice thereof given
by Eligible Employee):
(i) a decrease in the Eligible Employee's aggregate Base
Salary and Incentive opportunity or a significant opportunity
or a significant reduction in the amount of additional
benefits or perquisites provided to the Eligible Employee as
of the Effective Date;
(ii) any action by the Company which decreases the Eligible
Employee's authority, duties or responsibilities as determined
on the Effective Date; or
(iii) the assignment of duties to the Eligible Employees that
are inconsistent with the duties and responsibilities of the
Eligible Employee on the Effective Date.
4. PARTICIPATION
To participate in the Plan, an individual must be an Eligible Employee.
To receive a severance benefit, an Eligible Employee must satisfy the
requirements of Section 5 of this Plan.
5. PLAN BENEFITS
a. Separation Pay: Eligible Employees who qualify for Separation Pay
because of an involuntary Termination or a Termination with Good Cause
Reason and who execute a Release, in accordance with Section 5.f.,
shall be entitled to Separation Pay equal to [one] [two] years of Base
Salary and Bonus.
b. Payment Option: Each eligible Employee will have two options for
receiving Separation Pay:
(1) equal monthly payments for one year determined by dividing
the amount of Separation Pay by 12; or (2) a single sum payment equal
to the amount of the Separation Pay. This election must be stated in
the Release and it may not subsequently be changed other than in
accordance with the provision of Sections 5.d. and 5.3. below. All
applicable federal, state, local and foreign taxes will be withheld
from Separation Pay to the extent required by law.
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c. Other Benefits: Eligible Employees who elect to receive Separation
Pay in monthly payments shall also be entitled to continue
participating in the medical, dental and life insurance plans which are
in effect for active employees during the period of the monthly
payments. Eligible Employees will be required to make the same
contributions to these plans as active employees and the Company
reserves the right to amend or terminate any of these plans during the
period any Eligible Employee is participating therein. Eligible
Employees who elect to receive Separation Pay in one lump-sum payment,
will not be eligible for continued medical, dental and life insurance
benefits.
d. Re-employment: An Eligible Employee who is receiving monthly
payments and beings any other full-time employment which provides
benefits comparable to those referenced in Section 5.c. will receive
the balance of the monthly payments in a lump-sum. Benefit entitlements
as described in section 5.c. will cease as of the date of
re-employment. It is the Eligible Employee's responsibility to notify
the Company of such re-employment. If such notice is not furnished in a
timely manner, the Company reserves the right to recover from the
Eligible Employee any amounts associated with providing benefit
coverages after the date of re-employment.
e. Payment on death: If an Eligible Employee dies before receiving all
amounts due under the Plan, any Separation Pay due and owing will be
paid in a lump-sum to his or her estate or designated beneficiary.
f. Release of Claims: An Eligible Employee who otherwise qualifies for
Separation Pay will be provided with a Release which must be executed
as a condition of receiving any benefit under this Plan. Each Eligible
Employee will be granted an appropriate period of time to consider the
actual Release document and to determine if he wishes to execute it. No
payment(s) will be made or other benefits provided under the Plan
unless the Eligible Employee executes the Release.
g. Subsequent Re-Employment with any CSX Affiliated Company: An
Eligible Employee who accepts Separation Pay under the Plan and who,
within five (5) years of his or her terminated date, applies for and/or
accepts employment with CSX Corporation or an Affiliated Company shall
have an obligation promptly to repay all of the Separation Pay to the
Company, net of the taxes that were paid when the Eligible Employee
received the Separation Pay. In administering this provision, the
Company may offer to establish a reasonable repayment schedule which
will take into consideration the amount of repayment required. If an
Eligible Employee elects monthly payments and accepts re-employment
while payments are still owing, the payments otherwise owing for the
balance of the period and after the re-employment date but as yet not
paid will be paid or payable and the Eligible Employee will be
obligated to repay the monthly payments already received.
6. SUCCESSORS
This Plan shall be binding on the Company and its successors and
assigns. The Company, its successors and assigns shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
and any other purchaser or transferee of any assets of the Company expressly to
assume this Plan if such purchaser employs the Eligible Employee in connection
with such purchase.
7. AMENDMENT AND TERMINATION
Prior to the Effective Date, ACL may amend, modify or terminate the
Plan for any reason or no reason. On and after the Effective Date, the Plan may
not be amended, modified, or terminated in any way that adversely affects the
Eligible Employees right to a benefit under the Plan or the circumstances of
eligibility therefore without the written consent of the Eligible Employee.
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8. CLAIMS PROCEDURE
a. Filing a Claim: Any individual believing himself to be entitled to a
benefit under this Plan shall be entitled to a benefit under this Plan
shall be entitled to file a written claim for benefits with the
Administrator setting forth the benefits to which he feels entitled and
the reasons therefor. Within ninety (90) days after receipt of such
claim for benefits, the Administrator shall determine the claimant's
right to the benefits claimed. However, if special circumstances
require any extension of the period of time for the Administrator to
make its determination, the ninety (90) day period can be extended for
any additional ninety (90) days by the Administrator's giving the
claimant written notice of the extension and the reason that the
extension is necessary.
If the claim is denied in whole or in part, the claimant will be
provided with a written notice of the denial, setting forth, in a
manner calculated to be understood by the claimant:
- the specific reason or reasons for the denial;
- specific references to pertinent Plan provisions on which the
denial is based;
- a description of any additional material or information necessary
for him to perfect the claim and an explanation of why the
material or information is necessary; and
- an explanation of the Plan's claim appeal procedure.
If the Administrator fails to respond to the claim in a timely manner,
the claimant may treat the claim as having been denied by the
Administrator.
b. Review Procedure: If a claimant does not agree with the
Administrator's decision, he may request that the Administrative
Committee review the Administrator's decision by filing a written
request for a review within sixty (60) days after receiving notice that
the claim has been denied. The claimant can also present written
statements which explain why he believes that he is entitled to the
benefit claimed. The claimant can review all pertinent Plan documents.
The Administrative Committee may request the claimant to provide
additional information to assist the Administrative Committee in
reviewing the claim. Any claims which are not pursued through the
appeals stage of the procedure shall be irrevocably waived.
Generally, the Administrative Committee will review the Administrator's
decision within sixty (60) days after receiving a request for review.
However, if special circumstances require a delay, the review may take
up to one hundred twenty (120) days. (If a decision cannot be made
within the sixty (60) days period, the claimant will be so notified in
writing.) The Administrative Committee will give the claimant written
notice of its decision and will explain the reasons for the decision by
making specified reference to the Plan provisions on which the decision
was based.
9. PLAN ADMINISTRATION
a. Duties of the Administrator: The Administrator shall be responsible
for the general administration and management of the Plan. The
administrator shall have all powers and duties necessary to fulfill its
responsibilities including, but not limited to, the following powers
and duties:
- To construe and interpret the Plan as it, in its sole discretion,
determines to be appropriate; and
- To determine all questions relating to the eligibility of persons
to participate or receive benefits as it, in its sole discretion,
deems to be appropriate.
b. Effect of Fiduciary Action: The Plan shall be interpreted by the
Administrator and the Administrative Committee in accordance with the
terms of the Plan and their intended meaning. The Administrator and the
Administrative Committee shall, however, have the discretion to make
any findings of fact required in the administration of the Plan and
shall have the discretion to interpret or construe
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ambiguous, unclear or implied (but omitted) terms in any fashion in
which they, in their sole judgment, deem to be appropriate. The
validity of any such findings of fact, interpretation, construction or
decision shall not be given DE NOVO review if challenged in court,
through arbitration or in any other forum, and shall be upheld unless
clearly arbitrary or capricious.
To the extent the Administrator or the Administrative Committee has
been granted discretionary authority under the Plan, the
Administrator's or Administrative Committee's prior exercise of such
authority shall not obligate either of them to exercise authority in a
like fashion thereafter.
If, due to errors in drafting, any Plan provision does not accurately
reflect its intended meaning, as demonstrated by consistent
interpretations or other evidence of intent, the provision shall be
considered ambiguous and shall be interpreted by the Administrator and
the Administrative Committee in a fashion consistent with its intent.
All actions taken and all determinations made in good faith by the
Administrative Committee shall be final and binding upon all persons
claiming any interest in or under the Plan.
10. GENERAL INFORMATION
a. Vice President - Human Resources: Information about this Plan may be
obtained from American Commercial Lines, Inc., c/o Vice President -
Human Resources, 1701 East Market Street, P.O. Box 610, Jeffersonville,
Indiana 47131-0610.
b. Plan Sponsor and Identification Number: American Commercial Lines,
Inc., a Delaware corporation, is the Plan sponsor. The employer
identification number of the Company is 53-1098232 and the Plan Number
is 509.
c. Agent for Service of Process: The Administrative Committee shall be
the agent for service of process on the Plan. The address of the
Administrative Committee is CSX Administrative Committee, c/o CSX
Benefits Department, P.O. Box 44055, Jacksonville, Florida 32231.
d. Governing Law: To the extent that ERISA or the terms of any other
federal law do not preempt state law, this Plan shall be interpreted
pursuant to the laws of the State of Indiana.
e. Headings: The headings as to the contents of particular sections or
paragraphs of this Plan are inserted for convenient or reference only
and shall not be construed as part of this Plan, nor be considered in
construing the terms hereof.
f. Number and Gender: Unless the context clearly indicates to the
contrary, reference in this document to the singular shall include a
plural and the masculine shall include the feminine.
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EXHIBIT 10.11
CONSENT AND AGREEMENT TO
DIRECTORS' ACTION WITHOUT MEETING
AMERICAN COMMERCIAL BARGE LINE COMPANY
A DELAWARE CORPORATION
The undersigned, being all of the members of the Board of Directors of
American Commercial Barge Line Company, a Delaware corporation (the "Company"),
hereby consent to the adoption of the following resolutions without a meeting:
AMENDMENT OF SALARY CONTINUATION PLAN
WHEREAS, heretofore the Company adopted the "American Commercial Barge
Line Company Salary Continuation Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company wishes to amend the Plan
to provide that in the event that the employment relationship of an employee
participant in the Plan (the "Employee") and the Company is terminated other
than by reason of retirement on or after age 55, death or total and permanent
disability, the Employee may elect to continue in the Plan and defer lump sum
distribution at any time prior to age 69; and
WHEREAS, the Board of Directors of the Company further wishes to amend
the Plan to delete Section 5, the change of control provision of the Plan.
NOW THEREFORE, BE IT RESOLVED, that Section 4 of the Plan be, and it
hereby is, amended to read in its entirety as follows:
"4. In the event that the employment relationship between the
Employee and the Company is terminated other than by reason of
retirement on or after age 55, death or total and permanent disability,
the current value of the principal amount of the pre-retirement
termination benefit under the Salary Continuation Plan on the last day
of the month in which such termination occurs (as set forth in Column 7
and described and treated in report B hereof) shall be paid to the
Employee in a lump sum at any time prior to age 69, at the election of
the Employee, such payment to be made within sixty (60) days of the
election, provided, however, that in the event that such termination of
employment is voluntary on the part of the Employee, and the Employee
has not completed ten (10) years of employment by the Company at the
time of termination, the termination benefit payable shall be reduced
by ten percent (10%) for each year or portion thereof remaining to the
completion of such ten (10) years of employment."
RESOLVED FURTHER, that Section 5 of the Plan be, and it hereby is,
deleted in its entirety.
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RESOLVED FURTHER, that the officers of the Company be, and they hereby
are, authorized, empowered and directed to execute all such documents and
instruments and to take all such other actions as they may deem to be necessary
or appropriate to effect the foregoing resolutions.
Dated: June 26, 1998.
/S/ Anita P. Beier
---------------------------------
Anita P. Beier
/S/ Michael C. Hagan
---------------------------------
Michael C. Hagan
/S/ Michael A. Khouri
---------------------------------
Michael A. Khouri
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CONSENT AND AGREEMENT TO DIRECTORS'
ACTION WITHOUT MEETING
AMERICAN COMMERCIAL BARGE LINE COMPANY
A DELAWARE CORPORATION
The undersigned, being directors of the above corporation, hereby
consent and agree to the adoption of the following resolution without a meeting
of the directors:
AMENDMENT OF SALARY CONTINUATION PLAN
WHEREAS, heretofore American Commercial Barge Line Company, (the
"Company") adopted and established the American Commercial Barge Line
Company Salary Continuation Plan, effective January 1, 1989 (the
"Plan"); and
WHEREAS, the Board of Directors of the Company wish to amend the Plan
to specifically provide for the designation by employees of one or more
beneficiaries designated to receive benefits under the Plan that would
otherwise be payable to the employee, except for the prior death of
such employee;
NOW, THEREFORE, BE IT RESOLVED, that the Plan is amended by adding a new Section
5.9 as follows:
"5.9" BENEFICIARY DESIGNATION
(a) A participant may designate any person to receive benefits
as may become payable after the death of such participant,
provided, however, that the beneficiary of a married
participant is the participant's spouse, unless the spouse
consents in writing to the designation of some other person,
which consent shall be acknowledged by a Plan representative,
or by a Notary Public.
(b) If a benefit becomes payable upon the death of a
participant, and no beneficiary has been properly designated,
or if the beneficiary designated shall have predeceased the
participant, the benefit shall be payable, in the sole
discretion of the Board of Directors, either to the personal
representative of the deceased participant, if such personal
representative qualifies within six months following the death
of the participant, and furnishes satisfactory legal evidence
within such six month period, to the Board of Directors of
such qualification, or to the spouse of the deceased
participant, if living, and, if not, then to the participant's
heirs at law under the laws of the state of the legal
residence of the participant at the time of death, as
determined by the Board of Directors after reasonable
investigation. The determination of the Board of Directors in
this connection shall be final and conclusive, and the Board
of Directors shall be fully protected in paying such benefit
to such deceased participant's personal representative,
spouse, or heirs at law, as so determined, irrespective of
whether payments are actually made to a person or persons who,
in fact, are not the personal representative, spouse, or heirs
at law of the deceased participant.
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Dated May 8, 1991.
/s/ H.J. Bobzien, Jr. /s/ M.A. Khouri
- ---------------------------- -------------------------
H.J. Bobzien, Jr. M.A. Khouri
/s/ M.C. Hagan /s/ K.W. Peters
- ---------------------------- -------------------------
M.C. Hagan K.W. Peters
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AMERICAN COMMERCIAL BARGE LINE COMPANY
SALARY CONTINUATION PLAN
ARTICLE I - ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. American Commercial Barge Line Company (the
"Company"), established effective as of January 1, 1989, an unfunded plan known
as the "AMERICAN COMMERCIAL BARGE LINE SALARY CONTINUATION PLAN" (the "plan").
1.2 PURPOSE. The general purpose of this plan is to provide
nonqualified supplemental retirement and death benefits to certain highly
compensated employees or members of management.
ARTICLE II - CONSTRUCTION
2.1 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology when used in the plan shall also include the feminine
gender, and the definition of any term in the singular shall also include the
plural.
2.2 SEVERABILITY. In the event any provision of the plan shall be held
invalid or illegal for any reason, any illegality or invalidity shall not affect
the remaining parts of the plan, but the plan shall be construed and enforced as
if the illegal or invalid provision had never been inserted, and the Company
shall have the privilege and opportunity to correct and remedy such questions of
illegality or invalidity by amendment as provided in the plan.
2.3 APPLICABLE LAW. This plan shall be governed and construed in
accordance with the laws of the state of Indiana.
2.4 PLAN NOT AN EMPLOYMENT CONTRACT. This Agreement does not constitute
a contract of employment between the Employee and the Company, and the Company
reserves the right to terminate the Employee's employment for any reason, at any
time, notwithstanding the existence of this Agreement. Conversely, this
Agreement does not obligate the Employee to remain in the employ of the Company,
and he reserves the right, at any time, to terminate his employment for any
reason.
ARTICLE III - PARTICIPATION
3.1 PARTICIPANTS. The Board of Directors of the Company, in its sole
discretion, shall select those employees who are eligible to participate in the
Plan (the "Participants").
ARTICLE IV - BENEFITS
4.1 RETIREMENT BENEFIT. The Company agrees that upon the retirement of
the Participant, if such retirement occurs on or after the 55th birthday of the
Participant, it shall pay to the Participant in a lump sum within sixty (60)
days of such retirement.
(a) the then current value of the principal amount of
retirement benefit for the Participant as set forth in Column 2 and described in
footnote 2 of Supplement B of the Participant's Salary Continuation Plan
Agreement on the date of retirement, with the payment being tax effected at the
highest marginal federal and state personal income tax rates in effect for
earned income at the time of retirement using the following formula:
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Highest marginal personal federal + state tax rates
----------------------------------------------------
1 - Highest marginal personal federal + state tax rates
(b) an amount equal to the Participant's annualized final
salary at retirement discounted from age 76 back to the Participant's retirement
age using the Pension Benefit Guaranty Corporation's interest rate for immediate
annuities on the date of distribution. This payment shall be tax effected using
the formula stated in 4.1(a) above.
In the event that the Participant's death occurs subsequent to
retirement and prior to the receipt of the aforesaid amount, payment shall be
made to the Participant's designated beneficiary or in the absence of a
designated beneficiary, to the Participant's estate.
4.2 PRE-RETIREMENT DEATH BENEFIT. In the event of the Participant's
death prior to retirement, the larger of the benefit payable under Article 4.1
hereof or the principal amount of the death benefit for the Participant
determined at the date of death as set forth in Column 1 of Supplement B of the
Participant's Salary Continuation Plan Agreement shall be paid to the
Participant's designated beneficiary or estate in a lump sum, with such payment
being tax effected at the highest marginal federal and state personal income tax
rates in effect for earned income at the time of retirement using the following
formula:
Highest marginal personal federal + state tax rates
----------------------------------------------------
1 - Highest marginal personal federal + tax rates
Payment under this Paragraph 4.2 shall be made within sixty (60) days following
the date of the Participant's death.
The principal amount of the death benefit to which the Participant is
entitled will be adjusted, effective on the date of any salary change, to
provide a death benefit based on the Participant's base annual salary in effect
at a time of death in accordance with the formula set forth in Supplement C of
the Participant's Plan Agreement. Base annual salary means the effective annual
rate of base compensation from the Company, as of any date, exclusive of any
other payment.
4.3 TERMINATION BENEFIT. In the event that the employment relationship
between the Participant and the Company is terminated other than by reason of
retirement on or after age 55, death or total and permanent disability, the
current value of the principal amount of the pre-retirement termination benefit
for the Participant on the last day of the month in which such termination
occurs (as set forth in Column 3 and described and treated in footnotes 2 and 3
of Supplement B of the Participant's Plan Agreement) shall be paid to the
Participant in a lump sum within sixty (60) days following termination of
employment, provided, however, that in the event that such termination of
employment is voluntary on the part of the Participant, and the Participant has
not completed ten (10) years of employment by the Company at the time of
termination, the termination benefit otherwise payable shall be reduced by ten
percent (10%) for each year and portion thereof remaining to the completion of
such ten (10) years of employment. A termination benefit under this Article 4.3
is not payable to a Participant who is entitled to receive or has received a
benefit under Article 4.5 of this Plan.
4.4 DISABILITY BENEFIT. In the event that the Participant becomes
totally and permanently disabled (as determined by the Company) prior to
retirement, this Agreement shall remain in full force and effect with benefits
payable as provided herein, unless the Participant and the Company shall
otherwise mutually agree in writing.
4.5 CHANGE OF CONTROL BENEFIT. In the event of a change of control of
CSX Corporation (the Parent Company), the Company shall pay to the Participant
within seven (7) days of the effective date of such change of control a lump sum
amount equal to the benefits payable under Article 4.1 of the Plan using the
benefit formula, tax gross-up and discounting method described in said Article
and disregarding whether the Participant has attained age 55 and whether or not
the Participant elects to retire at the time. For purposes of this Plan, change
of control shall mean any of the following:
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(a) The acquisition, other than from CSX Corporation, by any
individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either the then outstanding
shares of common stock of CSX Corporation or the combined
voting power of the then outstanding voting securities of CSX
Corporation entitled to vote generally in the election of
directors, but excluding for this purpose, any such
acquisition by CSX Corporation or any of its subsidiaries, or
any employee benefit plan (or related trust) of CSX
Corporation or its subsidiaries, or any corporation with
respect to which, following such acquisition, more than 50%
of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by the individuals
and entities who were the beneficial owners, respectively, of
the common stock and voting securities of CSX Corporation
immediately prior to such acquisition in substantially in the
same proportion as their ownership, immediately prior to such
acquisition, of the then outstanding voting securities of CSX
Corporation entitled to vote generally in the election of
directors, as the case may be; or
(b) Individuals who, as of the date hereof, constitute the
Board of Directors of CSX Corporation (as of the date hereof
the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose
election or nomination for election by the shareholders of CSX
Corporation was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of the Directors of CSX Corporation (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act); or
(c) Approval by the stockholders of CSX Corporation of a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities were the
respective beneficial owners of the common stock and voting
securities of CSX Corporation immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
direct or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the CSX Corporation resulting from such reorganization,
merger or consolidation, or a complete liquidation or
dissolution of CSX Corporation or of its sale or other
disposition of all or substantially all of the assets of CSX
Corporation.
ARTICLE V - ADMINISTRATION
5.1 ADMINISTRATION. The plan shall be administered by the Board of
Directors of the Company.
5.2 FINALITY OF DETERMINATION. The determination of the Board of
Directors as to any disputed questions arising under this plan, including
questions of construction and interpretation, shall be final, binding, and
conclusive upon all persons.
5.3 EXPENSES. The expenses of administering the plan shall be borne by
the Company.
5.4 INDEMNIFICATION AND EXCULPATION. The members of the Board of
Directors, its agents, and officers, directors, and employees of the Company and
its affiliates shall be indemnified and held harmless by the Company against and
from any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may be
involved by reason of any action taken or failure to act under this plan and
against and from any
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and all amounts paid by them in settlement (with the Company's written approval)
or paid by them in satisfaction of a judgment in any such action, suit, or
proceeding. The foregoing provision shall not be applicable to any person if the
loss, cost, liability, or expense is due to such person's gross negligence or
willful misconduct.
5.5 FUNDING. All amounts under this plan shall be paid in cash from the
general assets of the Company. Benefits shall be reflected on the accounting
records of the Company but shall not be construed to create, or require the
creation of, a trust, custodial or escrow account. No employee shall have any
right, title, or interest whatever in or to any investment reserves, accounts,
or funds that the Company may purchase, establish, or accumulate to aid in
providing the benefits described in this plan. Nothing contained in this plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust or a fiduciary relationship of any kind between the Company and
an employee or any other person. Neither an employee or a beneficiary of an
employee shall acquire any interest greater than that of an unsecured creditor.
5.6 TAX WITHHOLDING. The Company may withhold from a payment any
federal, state, or local taxes required by law to be withheld with respect to
such payment and such sum as the Company may reasonably estimate as necessary to
cover any taxes for which the Company may be liable and which may be assessed
with regard to such payment.
5.7 EFFECT ON OTHER PLANS. Amounts accrued or paid under this plan
shall not be considered compensation for the purpose of a Company's retirement,
thrift, or life insurance plans.
5.8 ASSIGNMENT AND NONTRANSFERABILITY. The Employee or his designated
beneficiary or estate shall not have any right to commute, sell, assign,
transfer or otherwise convey or encumber the right to receive any payments
hereunder, which payments and all the rights thereto are expressly declared to
be non-assignable and non-transferable, and in the event of any attempted
assignment or transfer, the Company shall have no further liability hereunder.
No benefit shall, in any manner, be subject to garnishment, attachment,
execution, levy, debts, contracts, liabilities, engagements or torts of the
person or estate entitled to such benefits.
ARTICLE VI - CLAIMS PROCEDURE
6.1 WRITTEN CLAIM. Benefits shall be paid in accordance with the
provisions of this Plan. The participant, or a designated recipient or any other
person claiming through the participant shall make a written request for
benefits under this Plan. This written claim shall be mailed or delivered to the
President of the Company who shall be the named fiduciary of the Plan. Such
claim shall be reviewed by the named fiduciary or his delegate.
6.2 DENIED CLAIM. If the claim is denied, in full or in part, the named
fiduciary shall provide a written notice within ninety (90) days setting forth
the specific reasons for denial, and any additional material or information
necessary to perfect the claim, and an explanation of why such material or
information is necessary, and appropriate information and explanation of the
steps to be taken if a review of the denial is desired.
6.3 REVIEW PROCEDURE. If the claim is denied and a review is desired,
the participant (or beneficiary) shall notify the named fiduciary in writing
within sixty (60) days (a claim shall be deemed denied if the named fiduciary
does not take any action within the aforesaid ninety (90) day period after
receipt of the written notice of denial. In requesting a review, the participant
or his beneficiary may request a review of the plan document or other pertinent
documents with regard to the employee benefit plan created under this agreement,
may submit any written issues and comments, may request an extension of time for
such written submission of issues and comments, and may request that a hearing
be held, but the decision to hold a hearing shall be within the sole discretion
of the committee.
6.4 BOARD OF DIRECTORS REVIEW. The decision on the review of the denied
claim shall be rendered by the Board of Directors (excluding a Director whose
claim is being reviewed) within sixty (60) days after the receipt of the request
for review (if no hearing is held) or within sixty (60) days after the hearing
if one is held. The
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decision shall be written and shall state the specific reasons for the decision
including reference to specific provisions of this plan on which the decision is
based.
ARTICLE VII - AMENDMENT AND TERMINATION
7.1 AMENDMENT AND TERMINATION. The Board of Directors of the Company
reserves the right to amend or terminate the Plan or any agreement under the
Plan at any time, provided that the exercise of such right shall not have the
effect of (1) terminating the obligation of the Company as expressly provided in
Article 4.5 hereof, or (2) terminating the obligation of the Company to pay the
Employee the termination benefit as specified in Column 3 of Supplement B of the
Participant's Plan Agreement as of any effective date.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer on this 8th day of August, 1989,
effective as of the first day of January, 1989.
AMERICAN COMMERCIAL BARGE
LINE COMPANY
By: /s/ H.J. Bobzien, Jr.
--------------------------------
H.J. Bobzien, Jr.
President
ATTEST:
By: /s/ Lisa L. Fleming
----------------------------------
Lisa L. Fleming
Assistant Secretary
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EXHIBIT 16.1
LETTER REGARDING CHANGE IN CERTIFYING ACCOUNTANT
March 25, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read Item 9 of Form 10-K dated March 25, 1999, of American Commercial
Lines LLC and are in agreement with the statements contained in paragraph two
therein. We have no basis to agree or disagree with the other statements of
the registrant contained therein.
Very truly yours,
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
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EXHIBIT 21.1
SUBSIDIARIES OF ACL
American Commercial Barge Line LLC
American Commercial Lines International LLC
American Commercial Terminals LLC
American Commercial Terminals - Memphis LLC
ACBL Argentina, Ltd.
ACBL Castle Harbour Ltd.
ACBL de Venezuela, C.A.
ACBL Hidrovias S.A.
ACBL Hidrovias, Ltd.
ACBL Venezuela, Ltd.
ACL Capital Corp.
ACL Venezuela, Ltd.
Bolivar Terminal Company
Breen TAS LLC
Bullard TAS LLC
Garven, C.A.
Houston Fleet LLC
Jeffboat LLC
Jeffco, Ltd.
Lemont Harbor & Fleeting Services LLC
Louisiana Dock Company LLC
Global Materials Services LLC
Orinoco TASA LLC
Orinoco TASV LLC
River Terminal Properties LP
Shelton TAS LLC
Venco, Ltd.
Waterway Communications System LLC
100
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> DEC-25-1998
<CASH> 49,356
<SECURITIES> 0
<RECEIVABLES> 90,891
<ALLOWANCES> (2,335)
<INVENTORY> 39,054
<CURRENT-ASSETS> 196,928
<PP&E> 818,003
<DEPRECIATION> (276,588)
<TOTAL-ASSETS> 838,530
<CURRENT-LIABILITIES> 159,241
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (130,395)
<TOTAL-LIABILITY-AND-EQUITY> 838,530
<SALES> 0
<TOTAL-REVENUES> 638,478
<CGS> 0
<TOTAL-COSTS> 575,729
<OTHER-EXPENSES> 587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,981
<INCOME-PRETAX> 21,181
<INCOME-TAX> (64,263)
<INCOME-CONTINUING> 85,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,444
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
RISK FACTORS
RISK FACTORS
The following risk factors could have a material adverse effect on ACL's
business, financial condition and results of operations. Refer to Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 7A, "Quantitative and Qualitative Disclosures About Market
Risk" contained herein above, which are incorporated by reference, for specific
information regarding the extent to which these risk factors could affect ACL's
business, financial condition and results of operations.
COMPANY-SPECIFIC RISKS
RISKS OF ADVERSE WEATHER AND RIVER CONDITIONS
ACL's barging operations are affected by weather and river conditions. Varying
weather patterns can affect river levels and cause ice in Northern United States
river areas. For example, the Upper Mississippi River closes annually from
approximately mid-December to mid-March and ice conditions can hamper navigation
on the upper reaches of the Illinois River during the winter months. In
addition, adverse river conditions affect towboat speed, tow size and loading
drafts and can delay barge movements. Lock outages due to lock maintenance
and/or other interruptions in normal lock operation can also delay barge
movements. Jeffboat's waterfront location is subject to occasional flooding.
Jeffboat's manufacturing operations that are conducted outdoors are also subject
to weather conditions, which may adversely impact production schedules.
Terminals may also experience operational interruptions as a result of weather
and river conditions. It is likely that ACL's operations will be subject to
adverse weather or river conditions in the future and there can be no assurance
that such weather or river conditions will not have a material adverse effect on
ACL's business, financial condition and results of operations.
EXPOSURE TO GRAIN EXPORTS
ACL's dry cargo barging business in North America is significantly affected by
the level of grain export volume handled through the Gulf of Mexico ports. Grain
exports can vary due to, among other things, crop harvest yield levels in the
United States and abroad. Overseas grain shortages can increase demand for U.S.
grain, while worldwide over-production can decrease the demand for U.S. grain.
This variable nature of grain exports can result in temporary barge oversupply
which can drive down freight rates. There can be no assurance that historical
levels of North American grain export volume will be maintained in the future
and, to the extent supply imbalances were to prevail for a significant period of
time, they could have a material adverse effect on ACL's business, financial
condition and results of operations.
SEASONALITY
ACL's business is seasonal, and its quarterly revenues 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 North American grain harvest. In addition, working
capital requirements fluctuate throughout the year. Adverse market or operating
conditions during the last four months of the year could have a greater effect
on ACL's business, financial condition and results of operations than during
other periods.
VARIABILITY
Freight transportation rates may fluctuate from season to season and year to
year, which could result in varying levels of cash flow. The level of dry and
liquid cargoes requiring transportation on the Inland Waterways will vary due to
numerous factors, including global economic conditions and business cycles,
domestic agricultural production/demand as well as international agricultural
production/demand and the value of the U.S. dollar relative to other currencies.
In addition, the number of barges and towboats in the overall industry fleet
available to
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transport these cargoes will vary from year to year as older vessels are retired
and scrapped and new vessels are constructed and placed into service. The
resulting relationship between available cargoes and available vessels will vary
with periods of low vessel availability and high cargo demand causing higher
freight rates and periods of high vessel availability and low cargo demand
causing lower freight rates. Significant periods of high vessel availability and
low cargo demand could have a material adverse effect on ACL's business,
financial condition and results of operations.
The foregoing factors can also affect market rates. As contracts expire and
terms are renegotiated at then current market rates, the level of revenue can
vary relative to prior years. This has become more evident as the industry has
shifted to shorter term contracts. The impact of these factors could be material
and there can be no assurance that the rates at which contracts are renewed will
not have a material adverse effect on ACL's business, financial condition or
results of operations.
COMPETITION
The barge business is highly competitive and there are few significant barriers
to entry. Certain of ACL's principal competitors have greater financial
resources and/or are less leveraged than ACL and may be better able to withstand
and respond to adverse market conditions within the barging industry. There can
be no assurance that such competition will not have a material adverse effect on
ACL's business, financial condition or results of operations or that ACL will
not encounter increased competition in the future, which also could have a
material adverse effect on its business, financial condition or results of
operations.
EXPOSURE TO INTERNATIONAL ECONOMIC AND POLITICAL FACTORS
ACL's operations may be affected by actions of foreign governments and global or
regional economic developments. For example, global economic events such as
foreign import/export policy or currency fluctuations, could affect the level of
imports and exports. Foreign agricultural subsidies can also impact demand for
U.S. agricultural exports. In addition, foreign trade agreements and each
country's adherence to the terms of such agreements can raise or lower demand
for U.S. imports and exports. National and international boycotts and embargoes
of other countries' or U.S. imports and/or exports together with the raising or
lowering of tariff rates will affect the level of cargoes requiring
transportation on the Inland Waterways. Changes in the value of the U. S. dollar
relative to other currencies will raise or lower demand for U.S. exports as well
as U.S. demand for foreign produced raw materials and finished good imports.
Such actions or developments could have a material adverse effect on ACL's
business, financial condition and results of operations.
RISK OF PROVIDING SERVICES ABROAD
Demand for ACL's services may be affected by economic and political conditions
in each of the countries in which ACL provides services. ACL's foreign
operations are also subject to other risks of doing business abroad, including
fluctuations in the value of currencies (which may affect demand for products
priced in U.S. dollars as well as local labor and supply costs), import duties,
changes to import and export regulations (including quotas), possible
restrictions on the repatriation of capital and earnings, labor or civil unrest,
long payment cycles, greater difficulty in collecting accounts receivable and
the burdens and cost of compliance with a variety of foreign laws, changes in
citizenship requirements for purposes of doing business and government
expropriation of operations and/or assets. There can be no assurance that
foreign governments will not adopt regulations or take other actions that would
have a direct or indirect adverse impact on the business or market opportunities
of ACL or that the political, cultural or economic climate outside the United
States will be favorable to ACL's operations and growth strategy.
EXPOSURE TO FUEL PRICES
Fuel prices are subject to fluctuation as a result of domestic and international
events. There can be no assurance that ACL will not experience increased fuel
prices in the future, which could have a material adverse effect on its
business, financial condition and results of operations.
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REPLACEMENT NEEDS
Barge and towboat replacement represents a significant cost for ACL, and ACL
expects to replace an average of 140 barges per year during the next five years.
Due to the variable nature of the barging industry and the freight
transportation industry in general and the relatively long life of marine
equipment, it is difficult for ACL and other barge companies to accurately
predict equipment requirements. Accordingly, no assurance can be given that ACL
will have sufficient equipment to satisfy market demand or that the industry
will not have an oversupply of equipment. An oversupply of equipment could have
a material adverse effect on ACL's business, financial condition and results of
operations.
COMBINED OPERATIONS
Pursuant to its strategy to pursue synergistic acquisitions in its core business
lines, ACL may expend substantial management time and financial and other
resources for the acquisition and integration of other barging operations. These
acquisitions may pose risks with respect to operations, customer service and
customer acceptance. While ACL's management has successfully combined other
barging operations and it believes that it has sufficient financial and
management resources to accomplish the rationalization and integration of other
barging operations, there can be no assurance that such operations can be
integrated successfully or that ACL will not experience difficulties with
customers, personnel or others. In addition, although ACL believes that the
other barging operations will enhance the competitive position and business
prospects of ACL, there can be no assurance that such benefits will be fully
realized.
DEPENDENCE ON KEY PERSONNEL
ACL is dependent on the continued services of its senior management team. The
loss of such key personnel could have a material adverse effect on ACL's
business, financial condition and results of operations
LABOR RELATIONS
Although ACL believes that its relations with its employees and with the
recognized labor unions are generally good, there can be no assurance that ACL
will not be subject to work stoppages or other labor disruption and, if such
events were to occur, that there would not be a material adverse effect on ACL's
business, financial condition and results of operations.
ENVIRONMENTAL, HEALTH AND SAFETY REQUIREMENTS
ACL'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. A release of
oil, hazardous waste, hazardous substances or other pollutants into the
environment at or by ACL's properties or vessels, as a result of ACL's current
or past operations, or at a facility to which ACL has shipped wastes, or the
existence of historical contamination at any of its properties, could result in
material liability to ACL. ACL has been identified as a potentially responsible
party ("PRP") with respect to the cleanup of certain waste disposal sites.
Federal, state and local governments could in the future enact laws or
regulations concerning environmental matters that affect ACL's operations or
facilities, increase its costs of operation, or adversely affect the demand for
its services. ACL cannot predict the effect that such future laws or regulations
could have on ACL. Nor can ACL predict what environmental conditions may be
found to exist at its current or past facilities or at other properties where
ACL 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 ACL's business, financial condition and results of operations.
ACL's domestic vessel operations are primarily regulated by the U.S. Coast Guard
for occupational health and safety standards. ACL's domestic shore operations
are subject to the U.S. Occupational Safety and Health Administration
regulations. There can be no assurance that claims will not be made against ACL
for work related illness or injury, or that the further adoption of occupational
health and safety regulations in the United States or in
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foreign jurisdictions in which ACL operates will not adversely affect its
business, financial condition and results of operations.
OTHER GOVERNMENT REGULATION
ACL's barging operations are subject to various laws and regulations, including
international treaties, conventions, national, state and local laws and
regulations and the laws and regulations of the flag nations of ACL's vessels,
all of which are subject to amendment or changes in interpretation. Further, ACL
is required by various governmental and quasi-governmental agencies to obtain
and/or maintain certain permits, licenses and certificates respecting its
operations. ACL's domestic towboats are in certain circumstances subject to a
significant federal fuel use tax, which may be increased. Any significant
changes in laws or regulations affecting ACL's operations, or in the
interpretation thereof, could have a material adverse effect on ACL's business,
financial condition and results of operations.
RISKS RELATING TO ACL'S DEBT OBLIGATIONS
SUBSTANTIAL LEVERAGE
ACL incurred significant debt in connection with the Recapitalization. The
degree to which ACL is leveraged could have important consequences to ACL's
business, including, but not limited to: (i) making it more difficult for ACL to
satisfy its obligations with respect to the Senior Notes; (ii) increasing ACL's
vulnerability to general adverse economic and industry conditions; (iii)
limiting ACL's ability to obtain additional financing to fund future working
capital, capital expenditures and other general corporate requirements; (iv)
requiring the dedication of a substantial portion of ACL's cash flow from
operations to the payment of principal of, and interest on, its indebtedness,
thereby reducing the availability of such cash flow to fund working capital,
capital expenditures or other general corporate requirements; (v) limiting ACL's
flexibility in planning for, or reacting to, changes in its business and the
industry in which it competes; and (vi) placing ACL at a competitive
disadvantage compared to less leveraged competitors. In addition, the Indenture
and the Senior Credit Facilities contain financial and other restrictive
covenants that limit the ability of ACL to, among other things, borrow
additional funds. Failure by ACL to comply with such covenants could result in
an event of default which, if not cured or waived, could have a material adverse
effect on ACL's business, financial condition and results of operations. If ACL
cannot generate sufficient cash to meet its obligations as they become due or
refinance such obligations, ACL may have to sell assets or reduce capital
expenditures. In addition, the degree to which ACL is leveraged could prevent it
from repurchasing all of the Senior Notes tendered to it upon the occurrence of
a change of control under the Indenture.
POTENTIAL INABILITY TO REPAY DEBT
ACL's ability to make scheduled payments of principal of, or to pay the premium,
if any, interest or liquidated damages, if any, on, or to refinance, its
indebtedness (including the Senior Notes), or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. There can be no assurance that
ACL's business will generate sufficient cash flow from operations, that
anticipated revenue growth and operating improvements will be realized or that
future borrowings will be available under the Senior Credit Facilities or
otherwise in an amount sufficient to enable ACL to service its indebtedness,
including the Senior Notes, or to fund its other liquidity needs. ACL may be
required to refinance all or a portion of the principal of the Senior Notes on
or prior to maturity. There can be no assurance, however, that such refinancing
would be available on commercially reasonable terms or at all.
RESTRICTIONS IMPOSED BY THE SENIOR CREDIT FACILITIES AND THE INDENTURE
The Senior Credit Facilities and the Indenture limit ACL's financial flexibility
in a number of ways. The Senior Credit Facilities and Indenture require ACL to
maintain specified financial ratios and tests, among other obligations,
including a minimum interest expense coverage ratio, a maximum leverage ratio, a
minimum fixed charge coverage ratio and a minimum net worth test. In addition,
the Senior Credit Facilities restrict, among other things, ACL's ability to
incur additional indebtedness, sell assets, create liens or other encumbrances,
incur guarantee obligations, repay the Senior Notes or amend the Indenture, make
certain payments, including dividends or other distributions,
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make investments, loans or advances and make acquisitions and capital
expenditures beyond a certain level. A failure to maintain specified financial
ratios or otherwise to comply with the restrictions contained in the Senior
Credit Facilities could lead to an event of default thereunder, which could
result in an acceleration of such indebtedness. In such event, the lenders under
the Senior Credit Facilities could elect to declare all amounts outstanding
thereunder, together with accrued and unpaid interest, to be immediately due and
payable, and, if ACL were unable to repay such amounts, such lenders would have
the right to proceed against the collateral granted to them to secure such
indebtedness and other amounts (which is expected to be substantially all of the
assets of ACL). Such an acceleration would constitute an event of default under
the Indenture relating to the Senior Notes. In addition, the Indenture
restricts, among other things, ACL's ability to incur additional indebtedness,
sell assets, create liens or other encumbrances, make certain payments,
including dividends or other distributions, or merge or consolidate. A failure
to comply with the restrictions in the Indenture could result in an event of
default under the Indenture.
ASSET ENCUMBRANCES
In connection with the Senior Credit Facilities, the Parent granted the lenders
thereunder a first priority lien on all of the membership interests of ACL owned
by it as security for its guarantee of ACL's obligations under the Senior Credit
Facilities. In the event of a default under the Senior Credit Facilities or such
guarantee, the lenders under the Senior Credit Facilities could foreclose upon
the assets pledged to secure the Senior Credit Facilities, including such
membership interests, and the holders of the Senior Notes might not be able to
receive any payments until any payment default was cured or waived, any
acceleration was rescinded, or the indebtedness of the Senior Credit Facilities
was discharged or paid in full.
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