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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 2002
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 52-2106600
(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)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |
AS OF JUNE 28, 2002 THE REGISTRANT HAD 100 MEMBERSHIP INTERESTS OUTSTANDING.
ITEM 1. FINANCIAL STATEMENTS
AMERICAN COMMERCIAL LINES LLC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
MAY 29 MARCH 30 THREE MONTHS
TO JUNE 28, TO MAY 28, ENDED JUNE 29,
2002 2002 2001
----------- ---------- ---------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
OPERATING REVENUE $ 55,994 $ 113,937 $ 192,884
OPERATING EXPENSE
Materials, Supplies and Other 23,594 59,467 86,382
Restructuring Cost -- 10,072 --
Rent 4,375 9,431 14,258
Labor and Fringe Benefits 11,981 24,668 41,138
Fuel 6,908 13,111 23,930
Depreciation and Amortization 5,631 8,761 14,176
Gain on Property Dispositions, Net (95) (450) (11,033)
Taxes, Other Than Income Taxes 2,274 4,452 6,839
-------- --------- ---------
Total Operating Expenses 54,668 129,512 175,690
-------- --------- ---------
OPERATING INCOME (LOSS) 1,326 (15,575) 17,194
OTHER EXPENSE (INCOME)
Interest Expense 4,618 10,632 18,529
Other, Net 368 260 (1,347)
-------- --------- ---------
Total Other Expense 4,986 10,892 17,182
-------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (3,660) (26,467) 12
INCOME TAXES 36 74 159
-------- --------- ---------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (3,696) (26,541) (147)
EXTRAORDINARY ITEM - GAIN ON EARLY
EXTINGUISHMENT OF DEBT -- -- 1,885
-------- --------- ---------
NET (LOSS) INCOME $ (3,696) $ (26,541) $ 1,738
======== ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
2
AMERICAN COMMERCIAL LINES LLC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
DECEMBER 29,
MAY 29 2001 SIX MONTHS
TO JUNE 28, TO MAY 28, ENDED JUNE 29,
2002 2002 2001
----------- ------------ --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
OPERATING REVENUE $ 55,994 $ 284,805 $ 365,982
OPERATING EXPENSE
Materials, Supplies and Other 23,594 138,092 171,005
Restructuring Cost -- 13,493 --
Rent 4,375 23,121 28,516
Labor and Fringe Benefits 11,981 65,760 81,323
Fuel 6,908 30,434 47,691
Depreciation and Amortization 5,631 21,824 28,366
Gain on Property Dispositions, Net (95) (455) (11,074)
Taxes, Other Than Income Taxes 2,274 10,926 13,395
-------- --------- ---------
Total Operating Expenses 54,668 303,195 359,222
-------- --------- ---------
OPERATING INCOME (LOSS) 1,326 (18,390) 6,760
OTHER EXPENSE (INCOME)
Interest Expense 4,618 25,712 38,080
Other, Net 368 827 (1,513)
-------- --------- ---------
Total Other Expense 4,986 26,539 36,567
-------- --------- ---------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (3,660) (44,929) (29,807)
INCOME TAXES (BENEFIT) 36 (919) 262
-------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (3,696) (44,010) (30,069)
EXTRAORDINARY ITEM - GAIN ON EARLY
EXTINGUISHMENT OF DEBT -- -- 1,885
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- -- (490)
-------- --------- ---------
NET LOSS $ (3,696) $ (44,010) $ (28,674)
======== ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
3
AMERICAN COMMERCIAL LINES LLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
MAY 29 DECEMBER 29, SIX MONTHS
TO JUNE 28, 2001 TO MAY 28, ENDED JUNE 29,
2002 2002 2001
----------- --------------- --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net Loss $ (3,696) $(44,010) $(28,674)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 5,631 21,824 28,366
Interest Accretion and Discount Amortization 494 1,245 1,989
Gain on Property Dispositions (95) (455) (11,074)
Other Operating Activities 165 (5,422) (3,824)
Changes in Operating Assets and Liabilities:
Accounts Receivable (6,546) (3,240) (12,381)
Materials and Supplies (4,252) (5,160) (2,394)
Accrued Interest 3,658 10,332 385
Other Current Assets 5,148 (3,149) (5,577)
Other Current Liabilities (1,182) 8,357 28,022
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities (675) (19,678) (5,162)
INVESTING ACTIVITIES
Property Additions (771) (5,605) (9,008)
Proceeds from Property Dispositions 403 988 16,683
Net Change in Restricted Cash 687 -- --
Proceeds from Sale of Terminals -- -- 8,241
Other Investing Activities (278) (2,859) (960)
-------- -------- --------
Net Cash (Used in) Provided by Investing Activities 41 (7,476) 14,956
FINANCING ACTIVITIES
Danielson Holding Corporation Investment -- 25,000 --
Short-Term Borrowings -- -- 8,250
Long-Term Debt Repaid (1,197) (25,190) (34,007)
Bank Overdrafts (2,900) 1,149 (9,656)
Debt Costs -- -- (3,462)
Other Financing -- (173) 103
-------- -------- --------
Net Cash (Used in) Provided by Financing Activities (4,097) 786 (38,772)
-------- -------- --------
Net Decrease in Cash and Cash Equivalents (4,731) (26,368) (28,978)
Cash and Cash Equivalents at Beginning of Period 20,885 47,253 59,568
-------- -------- --------
Cash and Cash Equivalents at End of Period $ 16,154 $ 20,885 $ 30,590
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
4
AMERICAN COMMERCIAL LINES LLC
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
JUNE 28, DECEMBER 28,
2002 2001
--------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 16,154 $ 47,253
Cash, Restricted 5,877 --
Accounts Receivable, Net 52,102 54,785
Materials and Supplies 40,747 31,335
Other Current Assets 26,941 29,633
--------- ---------
Total Current Assets 141,821 163,006
PROPERTIES-Net 624,429 464,133
PENSION ASSETS 21,511 26,067
OTHER ASSETS 75,978 104,730
--------- ---------
Total Assets $ 863,739 $ 757,936
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 37,375 $ 29,737
Accrued Payroll and Fringe Benefits 12,693 17,206
Deferred Revenue 15,907 11,890
Accrued Claims and Insurance Premiums 26,926 24,200
Accrued Interest 5,868 18,659
Short-Term Debt 34,000 84,000
Current Portion of Long-Term Debt 27,887 608,519
Other Current Liabilities 35,881 50,469
--------- ---------
Total Current Liabilities 196,537 844,680
LONG-TERM DEBT 550,132 --
PENSION LIABILITY -- 18,907
OTHER LONG-TERM LIABILITIES 35,597 42,368
--------- ---------
Total Liabilities 782,266 905,955
--------- ---------
MEMBER'S EQUITY (DEFICIT)
Member's Interest 85,025 220,074
Other Capital 1,695 166,580
Unearned Compensation (1,648) --
Retained Deficit (3,696) (532,816)
Accumulated Other Comprehensive Income (Loss) 97 (1,857)
--------- ---------
Total Member's Equity (Deficit) 81,473 (148,019)
--------- ---------
Total Liabilities and Member's Equity (Deficit) $ 863,739 $ 757,936
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
5
AMERICAN COMMERCIAL LINES LLC
CONDENSED CONSOLIDATED STATEMENT OF MEMBER'S EQUITY (DEFICIT)
(Unaudited)
ACCUMULATED
OTHER
MEMBER'S OTHER UNEARNED RETAINED COMPREHENSIVE
INTEREST CAPITAL COMPENSATION DEFICIT INCOME (LOSS) TOTAL
-------- ------- ------------ ------- ------------- ----------
(DOLLARS IN THOUSANDS)
Balance at December 28, 2001 $ 220,074 $ 166,580 $ -- $(532,816) $(1,857) $(148,019)
Comprehensive Loss:
Net loss -- -- -- (44,010) -- (44,010)
Net gain on fuel swaps designated as
cash flow hedging instruments -- -- -- -- 174 174
Net gain on interest rate swaps designated
as cash flow hedging instruments -- -- -- -- 228 228
Foreign Currency Translation -- -- -- -- (219) (219)
--------- --------- ------- --------- ------- ---------
Total Comprehensive Loss -- -- -- (44,010) 183 (43,827)
Other -- (373) -- -- -- (373)
--------- --------- ------- --------- ------- ---------
Balance at May 28, 2002 220,074 166,207 -- (576,826) (1,674) (192,219)
Elimination of historical equity (220,074) (166,207) -- 576,826 1,674 192,219
Acquisition of Company by Danielson Holding
Corporation 82,256 -- -- -- -- 82,256
Acquisition of Vessel Leasing 2,769 -- -- -- -- 2,769
Issuance of restricted Parent Company
common stock -- 1,695 (1,695) -- -- --
Amortization of unearned compensation -- -- 47 -- -- 47
Comprehensive Loss:
Net loss -- -- -- (3,696) -- (3,696)
Net gain on fuel swaps designated as
cash flow hedging instruments -- -- -- -- 49 49
Net loss on interest rate swaps designated
as cash flow hedging instruments -- -- -- -- (266) (266)
Foreign Currency Translation -- -- -- -- 314 314
--------- --------- ------- --------- ------- ---------
Total Comprehensive Loss -- -- -- (3,696) 97 (3,599)
--------- --------- ------- --------- ------- ---------
Balance at June 28, 2002 $ 85,025 $ 1,695 $(1,648) $ (3,696) $ 97 $ 81,473
========= ========= ======= ========= ======= =========
The accompanying notes are an integral part of the
consolidated financial statements.
6
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 28, 2002
(Dollars in Thousands)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
American Commercial Lines LLC ("ACL") have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in ACL's Annual
Report on Form 10-K for the year ended December 28, 2001. Operating results for
the interim periods presented herein are not necessarily indicative of the
results that may be expected for the year ended December 27, 2002.
Through May 28, 2002, ACL was in default under its bank and bond debt, as well
as its receivables facility, due to nonpayment of interest on the debt as well
as other covenant violations. On December 31, 2001, and subsequent thereto, ACL
elected not to pay the interest due on its bank and bond debt due to ongoing
negotiations with its lenders and noteholders regarding the restructuring of the
debt. ACL obtained forbearance agreements or waivers which enabled it to
complete the Danielson Recapitalization described below and the debt
restructuring described in Note 3.
On May 29, 2002, American Commercial Lines Holding LLC ("ACL Holdings"), ACL's
parent company, and ACL completed a comprehensive restructuring involving the
acquisition and recapitalization of ACL Holdings and ACL (the "Danielson
Recapitalization") by Danielson Holding Corporation ("DHC") and subsidiaries
(collectively with DHC, "Danielson") and the restructuring of ACL's outstanding
debt obligations (see Notes 2 and 3). Consulting fees and legal costs incurred
in connection with the Danielson Recapitalization are included in the
accompanying condensed statement of operations as "Restructuring Cost." In
connection with Danielson becoming the owner of 100% of the membership interests
in ACLines LLC ("ACLines"), which wholly owns ACL Holdings, Danielson elected to
push down its basis of accounting to the net assets of ACL. ACL's assets,
liabilities and member's equity have been adjusted, as of the acquisition date,
following push down accounting. Accordingly, effective May 29, 2002, ACL's
accounts have been adjusted to reflect Danielson's basis in ACL's assets and
liabilities based on the estimated fair values of such assets and liabilities
using the principles of Financial Accounting Standards No. 141, "Business
Combinations".
7
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in Thousands)
NOTE 2. DANIELSON ACQUISITION OF ACL
Danielson's basis in ACL's net assets at the acquisition date of $82,256
includes $7,000 in cash paid for membership interests in ACL Holdings; $2,769 in
cash paid for a 50% membership interest in Vessel Leasing LLC ("Vessel
Leasing"), an entity in which ACL owns the other 50% membership interest; the
contribution of $25,000 in cash and ACL 10 1/4% senior notes due June 30, 2008
having an estimated fair value of $43,650; and costs incurred by Danielson
directly associated with the acquisition of $6,606.
As a result of Danielson's acquisition of ACL and the push-down purchase
accounting that resulted, ACL recorded several non-cash adjustments including
the following:
Properties $ 135,279
Net Pension Assets (5,426)
Other Assets (27,842)
---------
$ 102,510
=========
Accrued Interest $ (21,977)
Other Current Liabilities 219
Short-term Debt (50,000)
Long-term Debt (13,342)
Pension Liability (18,264)
Other Long-Term Liabilities (4,519)
Contribution of 10 1/4% senior notes at par including accrued interest,
if any (64,082)
Equity 274,475
---------
$ 102,510
=========
The above adjustments reflect the estimated fair value of assets and liabilities
acquired by Danielson as of the date of acquisition. Management believes no
significant intangibles were acquired in the Danielson Recapitalization. The
adjustments are subject to revision once appraisals and other evaluations of the
fair value of the assets acquired and liabilities assumed are completed.
Accordingly, actual push down purchase accounting adjustments could differ from
the adjustments presented above.
The pro forma unaudited results of operations for the quarters and six months
ended June 28, 2002 and June 29, 2001, assuming consummation of the acquisition
as of December 30, 2000, are as follows:
QUARTERS ENDED SIX MONTHS ENDED
--------------------- ----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
2002 2001 2002 2001
--------- --------- --------- ---------
Revenue $ 169,931 $ 192,884 $ 340,799 $ 365,982
Loss from continuing operations
before extraordinary item and
cumulative effect of accounting change (22,506) 145 (38,830) (27,610)
Net (loss) income (22,506) 2,030 (38,830) (26,215)
8
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in Thousands)
NOTE 3. DEBT
JUNE 28, DECEMBER 28,
2002 2001
-------- ------------
Revolving Credit Facility $ 34,000 $ 84,000
Tranche A Term Loan 46,559 --
Tranche B Term Loan 134,046 143,951
Tranche C Term Loan 157,723 169,378
Senior Notes (New) 127,900 --
Senior Subordinated Notes 65,790 --
Senior Notes ( Old) 4,864 295,000
Bonds guaranteed by the Maritime Administration 41,137 --
Other Notes -- 190
-------- --------
612,019 692,519
Less short-term debt 34,000 84,000
Less, current portion of long-term debt 27,887 608,519
-------- --------
Long-term debt $550,132 $ --
======== ========
As part of the Danielson Recapitalization, ACL's debt was restructured.
Danielson contributed to ACL Holdings $58,493 principal amount of ACL's 10.25%
senior notes due June 30, 2008, (the "Old Senior Notes"), plus the interest
obligations, if any, thereon.
ACL's existing credit facilities were amended and restated as of April 11, 2002
(the amended and restated credit facilities are hereafter referred to as the
"Senior Credit Facilities") to, among other things, modify financial and
restrictive covenants thereunder, prepay $25,000 of the term loans (the "Term
Loans") thereunder from the $25,000 in cash contributed by Danielson and convert
$50,000 of revolving credit loans (the "Revolving Credit Facility") thereunder
into a new tranche of term loans having an interest rate and other terms
substantially similar to the revolving credit loans under ACL's old senior
credit facilities. The amended and restated credit agreement with ACL's senior
secured lenders contains mandatory prepayments of the term loans with net
proceeds from certain asset sales, equity issuances, incurrence of indebtedness
and sale and leaseback transactions, as well as excess cash flow, as defined in
the credit agreement.
ACL also completed an exchange offer (the "Exchange Offer") for the Old Senior
Notes, pursuant to which $284,500 or approximately 96.4%, of the principal
amount of Old Senior Notes were tendered, with the $58,493 principal amount of
Old Senior Notes contributed by Danielson to ACL Holdings being deemed tendered
in the Exchange Offer. Holders of Old Senior Notes who tendered their Old Senior
Notes pursuant to the Exchange Offer received approximately $134,700 aggregate
principal amount of new 11.25% senior notes due January 1, 2008 (the "Senior
Notes") and approximately $112,900 aggregate principal amount of 12% pay-in-kind
senior subordinated notes due July 1, 2008 (the "PIK Notes"). The debt exchange
was not an extinguishment of debt for accounting purposes since the terms of the
new debt are not substantially different from the terms of the Old Senior Notes
exchanged. Following the consummation of the Exchange Offer, a holder of $4,000
aggregate principal amount of Old Senior Notes exchanged such notes and accrued
interest for approximately $2,400 of Senior Notes and approximately $2,000 of
PIK Notes as permitted by the indentures governing the notes, following which
$6,500 of the Old Senior Notes remained outstanding.
Since ACL is applying push down accounting effective with Danielson's
acquisition of ACL, ACL's debt was adjusted to fair value at the acquisition
date. The difference between the principal amount of the debt and its fair value
is being accreted as interest expense over the term of the debt under the
effective interest method.
The Revolving Credit Facility, which provides for revolving loans and letters of
credit not to exceed the aggregate principal amount of $50,000, matures June 30,
2005, but each loan must be repaid within one year. The Revolving Credit
Facility bears interest at a rate equal to London InterBank Offered Rates
("LIBOR") plus a margin based on ACL's performance. The interest rate as
of June 28, 2002 was 5.73%.
9
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in Thousands)
NOTE 3. DEBT - CONTINUED
Tranche A of the Term Loans matures June 30, 2005. Tranche B of the Term Loans
matures June 30, 2006. Tranche C of the Term Loans matures June 30, 2007. The
Term Loans bear interest at a rate equal to LIBOR plus a margin based on ACL's
performance. The annual interest rates as of June 28, 2002 were: Tranche A -
5.69%, Tranche B - 6.00% and Tranche C - 6.25%.
The new Senior Notes are due January 1, 2008 and bear interest at an annual rate
of 11.25%, payable semi-annually. The PIK Notes are due July 1, 2008 and bear
interest at an annual rate of 12%. ACL has the option of issuing new PIK Notes
in lieu of paying cash interest on such notes each June 30 and December 31 until
maturity. After 2 years from issuance, interest accretes at 13.5% per annum if
ACL elects to not pay the interest due in cash. The interest rate remains 12% if
the interest is paid in cash. The existing Old Senior Notes are due June 30,
2008 and bear interest at annual rate of 10.25%.
In connection with the Exchange Offer, ACL completed a consent solicitation of
the holders of the Old Senior Notes, which resulted in the elimination or
amendment of substantially all the restrictive covenants contained in the
indenture governing the Old Senior Notes, the subordination of the subsidiary
guarantees of the Old Senior Notes to the subsidiary guarantees of ACL's Senior
Credit Facilities, the Senior Notes and the PIK Notes and the waiver of any and
all defaults under the indenture governing the Old Senior Notes through the
effective date of the exchange offer, May 29, 2002.
ACL's receivables facility, which was administered by PNC Bank, N.A. was
replaced with a receivables facility administered by Bank One, NA having
substantially the same terms as the old receivables facility.
As noted above, DHC purchased the 50% equity interest that Vectura Group LLC
owned in Vessel Leasing at the time Danielson acquired ACL. Vessel Leasing,
which was formerly accounted for under the equity method, is now consolidated
with ACL. Accordingly, the bonds issued by Vessel Leasing that are guaranteed by
the U.S. Maritime Administration are included in ACL's debt balance. ACL does
not guarantee payment of these bonds.
ACL's debt agreements include a number of covenants, including specified
financial ratios. ACL is currently addressing whether the consolidation of
Vessel Leasing has an effect on the debt covenant calculations. While ACL
management believes it should have no effect, ACL plans to obtain a waiver or
amendment to its Senior Credit Facilities. As previously disclosed, ACL's
operating revenue has declined as a result of the broad weakness in the entire
inland river industry as a result of poor general economic conditions.
Additionally, the weak economy coupled with the supply-demand imbalance in the
inland river industry continues to put downward pressure on rates for covered
and open barges. Although ACL believes it is currently in compliance with its
debt covenants, there is a reasonable possibility if economic conditions do not
improve that ACL will not be able to comply with covenant requirements in the
future irrespective of the anticipated favorable resolution of the Vessel
Leasing matter. Management is working on operating and financial plans to
comply with its debt covenants, including a possible sale-leaseback transaction
and other financial transactions. Failure to meet these covenants could have a
material adverse effect on ACL since it is highly leveraged.
Principal payments of long-term debt due during the next five fiscal years and
thereafter and unamortized debt discount are as follows:
2002 $ 7,694
2003 25,574
2004 43,605
2005 84,949
2006 87,042
Thereafter 389,085
---------
637,949
Unamortized debt discount (59,930)
---------
$ 578,019
=========
10
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
NOTE 4. MATERIALS AND SUPPLIES
Materials and Supplies are carried at the lower of cost (average) or market and
consist of the following:
JUNE 28, DECEMBER 28,
2002 2001
-------- ------------
Raw Materials $ 7,339 $ 3,633
Work in Process 17,641 13,029
Parts and Supplies 15,767 14,673
------- -------
$40,747 $31,335
======= =======
NOTE 5. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FUEL PRICE RISK MANAGEMENT
ACL uses forward fuel purchases to provide short-term protection against a sharp
increase in diesel fuel prices. These instruments generally cover a portion of
the company's forecasted diesel fuel needs for towboat operations over the next
one to twelve months.
ACL accounts for the forward fuel purchases as cash flow hedges. In accordance
with Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), such financial
instruments are marked-to-market with the offset to other comprehensive income
and then subsequently recognized as a component of fuel expense when the
underlying fuel being hedged is used.
At June 28, 2002, ACL had forward fuel purchase contracts outstanding with an
aggregate notional amount of approximately $634, and a fair value of
approximately $20 loss, which has been recorded in other current liabilities
with the offset to other comprehensive income and an additional fair value gain
of $56 which has been recorded as receivable with an offset to the allowance for
doubtful accounts in the condensed consolidated statement of financial
position. The $20 loss will be recognized in earnings in July 2002. Under these
agreements, ACL will pay fixed prices ranging from $0.61 to $0.86 per gallon.
There were 1.0 million gallons remaining on the contracts at June 28, 2002. The
agreements terminate October 31, 2002. Due to the bankruptcy of Enron, one of
the trading partners, ACL believes the hedge is no longer effective and has
recognized the mark-to-market gain of $56 but has fully reserved for the
amount. Management believes that the other trading partner does not present a
credit risk to ACL.
INTEREST RATE RISK MANAGEMENT
ACL entered into an interest rate cap agreement in the third quarter of 2000 to
reduce the impact of potential rate increases on floating rate debt. The
interest rate cap has a notional amount of $202,000 and a fair value of $1 as of
June 28, 2002 and is effective through August 11, 2003. ACL accounts for the
interest rate cap as a cash flow hedge whereby the fair value of the interest
rate cap is reflected as an asset or liability in the accompanying condensed
consolidated statement of financial position. The cap rate (hedging instrument)
is the same interest rate index as the base interest rate for the floating rate
debt (hedged item). When the interest rate index exceeds the interest rate cap,
a portion of the change in fair value of the instrument represents a change in
intrinsic value which is an effective hedge. This portion of the change in value
will be recorded as other comprehensive income. The remaining change in fair
value is recorded as other expense (income) in the condensed consolidated
statements of operations. For the quarter and six months ended June 28, 2002,
the entire change in value resulted in losses of $14 and $36, respectively,
which are recorded in other expense (income) in the condensed consolidated
statement of operations.
ACL also records changes to other assets on the accompanying condensed
consolidated statement of financial position, with the offset recorded as
comprehensive income (loss), for changes in the fair value of interest rate swap
agreements entered into by Global Material Services LLC ("GMS"), an entity in
which ACL has a 50% ownership interest accounted for by the equity method. ACL
recognized a comprehensive loss of $67 for its share of these swaps in the six
months ended June 28, 2002.
11
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 6. BUSINESS SEGMENTS
REPORTABLE SEGMENTS
---------------------------
BARGING CONSTRUCTION OTHER (1) TOTAL
------- ------------ --------- -----
MAY 29 TO JUNE 28, 2002
Revenues from external customers $ 53,465 $ 1,358 $1,171 $ 55,994
Intersegment revenues -- 9 -- 9
Segment earnings (loss) 1,836 (826) 316 1,326
MARCH 30 TO MAY 28, 2002
Revenues from external customers $ 98,417 $ 14,348 $1,172 $ 113,937
Intersegment revenues -- 104 12 116
Segment (loss) earnings (15,679) (387) 491 (15,575)
QUARTER ENDED JUNE 29, 2001
Revenues from external customers $ 164,271 $ 25,515 $3,098 $ 192,884
Intersegment revenues -- 401 4 405
Segment earnings 13,933 2,619 642 17,194
MAY 29 TO JUNE 28, 2002
Revenues from external customers $ 53,465 $ 1,358 $1,171 $ 55,994
Intersegment revenues -- 9 -- 9
Segment earnings (loss) 1,836 (826) 316 1,326
DECEMBER 29, 2001 TO MAY 28, 2002
Revenues from external customers $ 243,880 $ 37,659 $3,266 $ 284,805
Intersegment revenues -- 560 20 580
Segment (loss) earnings (21,213) 1,287 1,536 (18,390)
SIX MONTHS ENDED JUNE 29, 2001
Revenues from external customers $ 310,552 $ 48,886 $6,544 $ 365,982
Intersegment revenues -- 1,056 4 1,060
Segment earnings 2,276 3,480 1,004 6,760
- ----------
(1) Financial data for a segment operating terminals along the U.S. inland
waterways and in Venezuela.
12
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in Thousands)
NOTE 6. BUSINESS SEGMENTS - CONTINUED
The following is a reconciliation of ACL's segment earnings (loss) to ACL's
consolidated totals.
MAY 29 MARCH 30 QUARTER MAY 29 DECEMBER 29, SIX MONTHS
TO TO ENDED TO 2001 TO ENDED
JUNE 28, MAY 28, JUNE 29, JUNE 28, MAY 28, JUNE 29,
2002 2002 2001 2002 2002 2001
-------- --------- --------- -------- ------------ ----------
Total segment earnings (loss) $ 1,326 $(15,575) $ 17,194 $ 1,326 $(18,390) $ 6,760
Unallocated amounts:
Interest expense (4,618) (9,285) (18,529) (4,618) (25,712) (38,080)
Other, net (368) (1,607) 1,347 (368) (827) 1,513
------- -------- -------- ------- -------- --------
(Loss) income before income taxes,
extraordinary item and cumulative
effect of accounting change $(3,660) $(26,467) $ 12 $(3,660) $(44,929) $(29,807)
======= ======== ======== ======= ======== ========
13
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in Thousands)
NOTE 7. SUMMARIZED OPERATIONS OF SIGNIFICANT EQUITY INVESTEES
DECEMBER 29,
MAY 29, MARCH 30, THREE MONTHS MAY 29, 2001 SIX MONTHS
TO JUNE 28, TO MAY 28, ENDED JUNE 29, TO JUNE 28, TO MAY 28, ENDED JUNE 29,
2002 2002 2001 2002 2002 2001
----------- ---------- -------------- ----------- ------------ --------------
REVENUE $ 7,771 $ 15,495 $ 23,740 $ 7,771 $ 35,671 $ 44,622
OPERATING INCOME 1,002 2,273 2,496 1,002 2,982 3,368
NET INCOME 512 1,184 1,348 512 235 827
NOTE 8. COMPREHENSIVE INCOME (LOSS)
DECEMBER 29,
MAY 29, MARCH 30, THREE MONTHS MAY 29, 2001 SIX MONTHS
TO JUNE 29, TO MAY 28, ENDED JUNE 29, TO JUNE 29, TO MAY 28, ENDED JUNE 29,
2002 2002 2001 2002 2002 2001
----------- ---------- -------------- ----------- ------------ -------------
NET (LOSS) INCOME ($ 3,696) ($26,541) $ 1,738 ($ 3,696) ($44,010) ($28,674)
NET GAIN (LOSS) ON FUEL SWAPS DESIGNATED AS
CASH FLOW HEDGING INSTRUMENTS 49 -- (174) 49 174 (691)
NET (LOSS) GAIN ON INTEREST RATE SWAPS DESIGNATED
AS CASH FLOW HEDGING INSTRUMENTS (266) -- 91 (266) 228 (317)
FOREIGN CURRENCY TRANSLATION GAIN (LOSS) 314 -- (87) 314 (219) (152)
-------- -------- -------- -------- -------- --------
TOTAL COMPREHENSIVE (LOSS) INCOME ($ 3,599) ($26,541) $ 1,568 ($ 3,599) ($43,827) ($29,834)
======== ======== ======== ======== ======== ========
14
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 9. 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.
NOTE 10. CHANGES IN ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142") which establishes the
accounting for goodwill and other intangible assets following their recognition.
SFAS 142 applies to all goodwill and other intangible assets whether acquired
singly, as part of a group, or in a business combination. SFAS 142 provides that
goodwill should not be amortized but should be tested for impairment annually
using a fair-value based approach. In addition, SFAS 142 provides that other
intangible assets other than goodwill should be amortized over their useful
lives and reviewed for impairment in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of" ("SFAS 121"). SFAS 121 has been superceded by SFAS 144
which is described below. The adoption of SFAS 142 on December 29, 2001 has not
had a significant effect on ACL's financial position or results of operations.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supersedes SFAS 121 and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of business (as previously defined
in that Opinion). SFAS 144 also amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The objectives of
SFAS 144 are to address significant issues relating to the implementation of
SFAS 121 and to develop a single accounting model, based on the framework
established in SFAS 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. ACL adopted SFAS 144 in the
first quarter 2002. The provisions of SFAS 144 did not have an impact on ACL's
financial statements during the six month period ended June 28, 2002.
15
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 11. GUARANTOR FINANCIAL STATEMENTS
The $596,812 of debt issued by ACL and the Revolving Credit Facility, which
provides for revolving loans and the issuance of letters of credit in an
aggregate amount up to $50,000, are guaranteed by ACL Holdings and its
wholly-owned domestic subsidiaries, other than ACL Capital Corp. (which was
formed in connection with the issuance of the senior notes), 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 "Guarantor Subsidiaries"). Such guarantees are full,
unconditional and joint and several.
Separate financial statements of the Guarantor Subsidiaries 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 operations and
statements of cash flows for the Guarantor Subsidiaries, non-guarantor
subsidiaries and for ACL as of June 28, 2002 and December 28, 2001 and for the
periods May 29, 2002 through June 28, 2002, March 30, 2002 through May 28, 2002
and December 29, 2001 through May 28, 2002 and for the quarter and six months
ended June 29, 2001.
16
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Operations for the
Period May 29 through June 28, 2002
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ --------
OPERATING REVENUE $ 50,684 $5,310 $ -- $ 55,994
OPERATING EXPENSE
Materials, Supplies and Other 21,768 1,826 -- 23,594
Rent 4,242 133 -- 4,375
Labor and Fringe Benefits 11,609 372 -- 11,981
Fuel 6,832 76 -- 6,908
Depreciation and Amortization 5,047 584 -- 5,631
Gain on Property Dispositions, Net (95) -- -- (95)
Taxes, Other Than Income Taxes 2,273 1 -- 2,274
-------- ------ -------- --------
51,676 2,992 -- 54,668
-------- ------ -------- --------
OPERATING (LOSS) INCOME (992) 2,318 -- 1,326
OTHER EXPENSE (INCOME)
Interest Expense 4,459 159 -- 4,618
Interest Expense, Affiliate - Net -- 583 (583) --
Other, Net (760) 545 583 368
-------- ------ -------- --------
3,699 1,287 -- 4,986
-------- ------ -------- --------
(LOSS) INCOME BEFORE INCOME TAXES (4,691) 1,031 -- (3,660)
INCOME TAXES 19 17 -- 36
-------- ------ -------- --------
NET (LOSS) EARNINGS $ (4,710) $1,014 $ -- $ (3,696)
======== ====== ======== ========
17
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Operations for the
Period March 30 through May 28, 2002
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ ---------
OPERATING REVENUE $ 107,616 $ 6,321 $ -- $ 113,937
OPERATING EXPENSE
Materials, Supplies and Other 54,595 4,872 -- 59,467
Restructuring Cost 10,072 -- -- 10,072
Rent 9,199 232 -- 9,431
Labor and Fringe Benefits 23,926 742 -- 24,668
Fuel 13,035 76 -- 13,111
Depreciation and Amortization 7,763 998 -- 8,761
Gain on Property Dispositions, Net (450) -- -- (450)
Taxes, Other Than Income Taxes 4,450 2 -- 4,452
--------- ------- --------- ---------
122,590 6,922 -- 129,512
--------- ------- --------- ---------
OPERATING LOSS (14,974) (601) -- (15,575)
OTHER EXPENSE (INCOME)
Interest Expense 10,611 21 -- 10,632
Interest Expense, Affiliate - Net -- 1,108 (1,108) --
Other, Net (660) (188) 1,108 260
--------- ------- --------- ---------
9,951 941 -- 10,892
--------- ------- --------- ---------
LOSS BEFORE INCOME TAXES (24,925) (1,542) -- (26,467)
INCOME TAXES 44 30 -- 74
--------- ------- --------- ---------
NET LOSS $ (24,969) $(1,572) $ -- $ (26,541)
========= ======= ========= =========
18
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Operations for the
Period December 29, 2001 through May 28, 2002
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ ----------
OPERATING REVENUE $ 273,063 $ 11,742 $ -- $ 284,805
OPERATING EXPENSE
Materials, Supplies and Other 128,363 9,729 -- 138,092
Restructuring Cost 13,493 -- -- 13,493
Rent 22,527 594 -- 23,121
Labor and Fringe Benefits 64,172 1,588 -- 65,760
Fuel 30,316 118 -- 30,434
Depreciation and Amortization 19,413 2,411 -- 21,824
Gain on Property Dispositions, Net (452) (3) -- (455)
Taxes, Other Than Income Taxes 10,902 24 -- 10,926
--------- -------- --------- ---------
288,734 14,461 -- 303,195
--------- -------- --------- ---------
OPERATING LOSS (15,671) (2,719) -- (18,390)
OTHER EXPENSE (INCOME)
Interest Expense 25,691 21 -- 25,712
Interest Expense, Affiliate - Net -- 2,801 (2,801) --
Other, Net (1,473) (501) 2,801 827
--------- -------- --------- ---------
24,218 2,321 -- 26,539
--------- -------- --------- ---------
LOSS BEFORE INCOME TAXES (39,889) (5,040) -- (44,929)
INCOME TAXES (BENEFIT) (976) 57 -- (919)
--------- -------- --------- ---------
NET LOSS $ (38,913) $ (5,097) $ -- $ (44,010)
========= ======== ========= =========
19
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Operations for the Quarter Ended June 29, 2001
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ ---------
OPERATING REVENUE $ 184,011 $ 8,873 $ -- $ 192,884
OPERATING EXPENSE
Materials, Supplies and Other 81,407 4,975 -- 86,382
Rent 13,827 431 -- 14,258
Labor and Fringe Benefits 40,132 1,006 -- 41,138
Fuel 23,794 136 -- 23,930
Depreciation and Amortization 12,875 1,301 -- 14,176
Gain on Property Dispositions, Net (11,033) -- -- (11,033)
Taxes, Other Than Income Taxes 6,836 3 -- 6,839
--------- ------- --------- ---------
167,838 7,852 -- 175,690
--------- ------- --------- ---------
OPERATING INCOME 16,173 1,021 -- 17,194
OTHER EXPENSE (INCOME)
Interest Expense 18,529 -- -- 18,529
Interest Expense, Affiliate - Net -- 1,611 (1,611) --
Other, Net (2,366) (592) 1,611 (1,347)
--------- ------- --------- ---------
16,163 1,019 -- 17,182
--------- ------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 10 2 -- 12
INCOME TAXES (BENEFIT) 185 (26) -- 159
--------- ------- --------- ---------
(LOSS) EARNINGS BEFORE EXTRAORDINARY ITEM (175) 28 -- (147)
EXTRAORDINARY ITEM - GAIN ON EARLY
EXTINGUISHMENT OF DEBT 1,885 -- -- 1,885
--------- ------- --------- ---------
NET EARNINGS $ 1,710 $ 28 $ -- $ 1,738
========= ======= ========= =========
20
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Operations for the
Six Months Ended June 29, 2001
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ ----------
OPERATING REVENUE $ 351,137 $ 14,845 $ -- $ 365,982
OPERATING EXPENSE
Materials, Supplies and Other 161,278 9,727 -- 171,005
Rent 27,724 792 -- 28,516
Labor and Fringe Benefits 79,491 1,832 -- 81,323
Fuel 47,627 64 -- 47,691
Depreciation and Amortization 25,794 2,572 -- 28,366
Gain on Property Dispositions, Net (11,074) -- -- (11,074)
Taxes, Other Than Income Taxes 13,389 6 -- 13,395
--------- -------- --------- ---------
344,229 14,993 -- 359,222
--------- -------- --------- ---------
OPERATING INCOME (LOSS) 6,908 (148) -- 6,760
OTHER EXPENSE (INCOME)
Interest Expense 38,080 -- -- 38,080
Interest Expense, Affiliate - Net -- 3,165 (3,165) --
Other, Net (3,730) (2,134) 3,165 (1,513)
--------- -------- --------- ---------
34,350 1,031 -- 36,567
--------- -------- --------- ---------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (27,442) (2,365) -- (29,807)
INCOME TAXES 211 51 -- 262
--------- -------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (27,653) (2,416) -- (30,069)
EXTRAORDINARY ITEM - GAIN ON EARLY
EXTINGUISHMENT OF DEBT 1,885 -- -- 1,885
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (490) -- -- (490)
--------- -------- --------- ---------
NET LOSS $ (26,258) $ (2,416) $ -- $ (28,674)
========= ======== ========= =========
21
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Cash Flows for the
Period May 29 through June 28, 2002
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ --------
OPERATING ACTIVITIES
Net (Loss) Income $ (4,270) $ 574 $ -- $ (3,696)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 5,046 585 -- 5,631
Interest Accretion and Discount Amortization 484 10 -- 494
Gain on Property Dispositions (95) -- -- (95)
Other Operating Activities (1,161) 1,326 -- 165
Changes in Operating Assets and Liabilities:
Accounts Receivable (2,228) (4,318) -- (6,546)
Materials and Supplies (4,445) 193 -- (4,252)
Accrued Interest 4,287 (629) -- 3,658
Other Current Assets 4,421 727 -- 5,148
Other Current Liabilities (2,601) 1,419 -- (1,182)
-------- ------- ------- --------
Net Cash Provided by (Used in) Operating Activities (562) (113) -- (675)
INVESTING ACTIVITIES
Property Additions (738) (33) -- (771)
Proceeds from Property Dispositions 403 -- -- 403
Net Change in Restricted Cash -- 687 -- 687
Other Investing Activities (310) 32 -- (278)
-------- ------- ------- --------
Net Cash (Used in) Provided by Investing Activities (645) 686 -- 41
FINANCING ACTIVITIES
Long-Term Debt Repaid -- (1,197) -- (1,197)
Bank Overdrafts (2,900) -- -- (2,900)
-------- ------- ------- --------
Net Cash Used in Financing Activities (2,900) (1,197) -- (4,097)
Net Decrease in Cash and Cash Equivalents (4,107) (624) -- (4,731)
Cash and Cash Equivalents at Beginning of Period 18,727 2,158 -- 20,885
-------- ------- ------- --------
Cash and Cash Equivalents at End of Period $ 14,620 $ 1,534 $ -- $ 16,154
======== ======= ======= ========
22
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Cash Flows for the
Period December 29, 2001 through May 28, 2002
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ --------
OPERATING ACTIVITIES
Net Loss $(38,922) $(5,088) $ -- $(44,010)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 19,404 2,420 -- 21,824
Interest Accretion and Discount Amortization 1,255 (10) -- 1,245
Gain on Property Dispositions (452) (3) -- (455)
Other Operating Activities (4,640) (782) -- (5,422)
Changes in Operating Assets and Liabilities:
Accounts Receivable (18,565) 2,958 12,367 (3,240)
Materials and Supplies (5,139) (21) -- (5,160)
Accrued Interest 10,331 1 -- 10,332
Other Current Assets (4,427) 1,278 -- (3,149)
Other Current Liabilities 20,029 695 (12,367) 8,357
-------- ------- -------- --------
Net Cash (Used in) Provided by Operating Activities (21,126) 1,448 -- (19,678)
INVESTING ACTIVITIES
Property Additions (5,554) (51) -- (5,605)
Proceeds from Property Dispositions 985 3 -- 988
Other Investing Activities (2,276) 5 (588) (2,859)
-------- ------- -------- --------
Net Cash Used in Investing Activities (6,845) (43) (588) (7,476)
FINANCING ACTIVITIES
Danielson Holding Corporation Investment 25,000 -- -- 25,000
Cash Dividends Paid -- (588) 588 --
Long-Term Debt Repaid (25,190) -- -- (25,190)
Bank Overdrafts 1,149 -- -- 1,149
Other Financing (173) -- -- (173)
-------- ------- -------- --------
Net Cash Provided by (Used in) Financing Activities 786 (588) 588 786
Net (Decrease) Increase in Cash and Cash Equivalents (27,185) 817 -- (26,368)
Cash and Cash Equivalents at Beginning of Period 45,912 1,341 -- 47,253
-------- ------- -------- --------
Cash and Cash Equivalents at End of Period $ 18,727 $ 2,158 $ -- $ 20,885
======== ======= ======== ========
23
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Cash Flows for the
Six Months Ended June 29, 2001
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ ---------
OPERATING ACTIVITIES
Net Loss $(26,258) $ (2,416) $ -- $(28,674)
Adjustments to Reconcile Net Loss
to Net Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 25,794 2,572 -- 28,366
Interest Accretion and Discount Amortization 1,989 -- -- 1,989
Gain on Property Dispositions (11,074) -- -- (11,074)
Other Operating Activities (1,743) (2,081) -- (3,824)
Changes in Operating Assets and Liabilities:
Accounts Receivable 555 (12,936) -- (12,381)
Materials and Supplies (1,968) (426) -- (2,394)
Accrued Interest 385 -- -- 385
Other Current Assets (9,342) 3,765 -- (5,577)
Other Current Liabilities 22,010 6,012 -- 28,022
-------- -------- ------- --------
Net Cash Provided by (Used in) Operating Activities 348 (5,510) -- (5,162)
INVESTING ACTIVITIES
Property Additions (7,279) (1,729) -- (9,008)
Proceeds from Property Dispositions 16,683 -- -- 16,683
Proceeds from Sale of Terminals 8,241 -- -- 8,241
Other Investing Activities (7,062) 7,056 (954) (960)
-------- -------- ------- --------
Net Cash Provided by Investing Activities 10,583 5,327 (954) 14,956
FINANCING ACTIVITIES
Short-Term Borrowings 8,250 -- -- 8,250
Long-Term Debt Repaid (34,007) -- -- (34,007)
Cash Dividends Paid -- (1,000) 1,000 --
Bank Overdrafts (9,656) -- -- (9,656)
Debt Costs (3,462) -- -- (3,462)
Other Financing 103 46 (46) 103
-------- -------- ------- --------
Net Cash Used in Financing Activities (38,772) (954) 954 (38,772)
Net Decrease in Cash and Cash Equivalents (27,841) (1,137) -- (28,978)
Cash and Cash Equivalents at Beginning of Period 57,289 2,279 -- 59,568
-------- -------- ------- --------
Cash and Cash Equivalents at End of Period $ 29,448 $ 1,142 $ -- $ 30,590
======== ======== ======= ========
24
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Financial Position at June 28, 2002
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ ---------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 14,620 $ 1,534 $ -- $ 16,154
Cash, Restricted -- 5,877 -- 5,877
Accounts Receivable, Net 31,623 32,846 (12,367) 52,102
Materials and Supplies 39,764 983 -- 40,747
Other Current Assets 37,281 (8,265) (2,075) 26,941
--------- --------- --------- ---------
Total Current Assets 123,288 32,975 (14,442) 141,821
PROPERTIES - NET 538,139 86,290 -- 624,429
PENSION ASSETS 21,511 -- -- 21,511
OTHER ASSETS 120,527 54,312 (98,861) 75,978
--------- --------- --------- ---------
Total Assets $ 803,465 $ 173,577 $(113,303) $ 863,739
========= ========= ========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 36,349 $ 1,026 $ -- $ 37,375
Accrued Payroll and Fringe Benefits 12,693 -- -- 12,693
Deferred Revenue 15,907 2,075 (2,075) 15,907
Accrued Claims and Insurance Premiums 26,926 -- -- 26,926
Accrued Interest 5,712 156 -- 5,868
Short-term Debt 34,000 -- -- 34,000
Current Portion of Long-Term Debt 24,604 2,887 -- 27,491
Other Current Liabilities 33,343 14,905 (12,367) 35,881
--------- --------- --------- ---------
Total Current Liabilities 189,534 21,049 (14,442) 196,141
LONG-TERM NOTE PAYABLE TO AFFILIATE -- 92,569 (92,569) --
LONG-TERM DEBT 512,278 38,250 -- 550,528
OTHER LONG-TERM LIABILITIES 26,988 9,578 (969) 35,597
--------- --------- --------- ---------
Total Liabilities 728,800 161,446 (107,980) 782,266
--------- --------- --------- ---------
MEMBER'S EQUITY
Member's Interest 78,217 6,808 -- 85,025
Other Capital 1,695 57,374 (57,374) 1,695
Unearned Compensation (1,648) -- -- (1,648)
Retained Deficit (3,696) (52,051) 52,051 (3,696)
Accumulated Other Comprehensive Income 97 -- -- 97
--------- --------- --------- ---------
Total Member's Equity 74,665 12,131 (5,323) 81,473
--------- --------- --------- ---------
Total Liabilities and Member's Equity $ 803,465 $ 173,577 $(113,303) $ 863,739
========= ========= ========= =========
25
AMERICAN COMMERCIAL LINES LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Condensed Combining Statement of Financial Position at December 28, 2001
(Dollars in Thousands)
GUARANTOR OTHER COMBINED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------ ---------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 45,912 $ 1,341 $ -- $ 47,253
Accounts Receivable, Net 25,612 43,154 (13,981) 54,785
Materials and Supplies 30,180 1,155 -- 31,335
Other Current Assets 41,069 (11,436) -- 29,633
--------- --------- --------- ---------
Total Current Assets 142,773 34,214 (13,981) 163,006
PROPERTIES - NET 422,877 41,256 -- 464,133
PENSION ASSETS 26,067 -- -- 26,067
OTHER ASSETS 153,227 52,702 (101,199) 104,730
--------- --------- --------- ---------
Total Assets $ 744,944 $ 128,172 $(115,180) $ 757,936
========= ========= ========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 28,094 $ 1,643 $ -- $ 29,737
Accrued Payroll and Fringe Benefits 17,206 -- -- 17,206
Deferred Revenue 11,890 -- -- 11,890
Accrued Claims and Insurance Premiums 24,200 -- -- 24,200
Accrued Interest 18,659 -- -- 18,659
Short-term Debt 84,000 -- -- 84,000
Current Portion of Long-Term Debt 608,519 -- -- 608,519
Other Current Liabilities 40,249 24,201 (13,981) 50,469
--------- --------- --------- ---------
Total Current Liabilities 832,817 25,844 (13,981) 844,680
LONG-TERM NOTE PAYABLE TO AFFILIATE -- 86,700 (86,700) --
PENSION LIABILITY 18,907 -- -- 18,907
OTHER LONG-TERM LIABILITIES 36,163 6,205 -- 42,368
--------- --------- --------- ---------
Total Liabilities 887,887 118,749 (100,681) 905,955
--------- --------- --------- ---------
MEMBER'S (DEFICIT) EQUITY
Member's Interest 220,074 -- -- 220,074
Other Capital 166,580 57,374 (57,374) 166,580
Retained Deficit (527,740) (47,951) 42,875 (532,816)
Accumulated Other Comprehensive Loss (1,857) -- -- (1,857)
--------- --------- --------- ---------
Total Member's (Deficit) Equity (142,943) 9,423 (14,499) (148,019)
--------- --------- --------- ---------
Total Liabilities and Member's (Deficit) Equity $ 744,944 $ 128,172 $(115,180) $ 757,936
========= ========= ========= =========
26
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This Quarterly Report contains certain forward-looking statements about
the financial position and results of operations of American Commercial Lines
LLC ("ACL"). 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 important factors that
may cause the actual results to materially differ from those considered by the
forward-looking statements. Such important 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.
Although we believe that our plans, intentions and expectations reflected
in or suggested by such forward-looking statements are reasonable, actual
results could differ materially from a projection or assumption in any of our
forward-looking statements. Our future financial condition and results of
operations, as well as any forward-looking statements, are subject to change and
inherent risks and uncertainties discussed under Item 1. Business Risks
Associated With Our Business and elsewhere in ACLs Annual Report on Form 10-K
for the year ended December 28, 2001, as well as in our other filings with the
Securities and Exchange Commission. The forward-looking statements contained in
this Quarterly Report on Form 10-Q are made only as of the date hereof and ACL
does not have or undertake any obligation to update or revise any
forward-looking statements whether as a result of new information, subsequent
events or otherwise, unless otherwise required by law.
OVERVIEW AND SIGNIFICANT EVENTS
ACL is an integrated marine transportation and service company, providing
barge transportation on the inland waterways of North and South America. ACL
supports its barging operations by providing towboat and barge construction,
terminal and vessel repair services to American Commercial Barge Line LLC
("ACBL") and third parties. ACBL 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, American Commercial
Lines International LLC, a wholly owned subsidiary of ACL ("ACL International"),
has become the leading provider of barge transportation services on the Orinoco
River in Venezuela and through UABL Limited, a venture in which ACL has a 50%
ownership interest, on the Parana/Paraguay River system serving Argentina,
Brazil, Paraguay, Uruguay and Bolivia. ACL International also provides
transportation services on the Higuamo River in the Dominican Republic. ACL is a
wholly owned subsidiary of its parent holding company, American Commercial Lines
Holdings LLC ("ACL Holdings").
Through May 28, 2002, ACL was in default under its bank and bond debt, as
well as its receivables facility, due to nonpayment of interest on the debt as
well as other covenant violations. On December 31, 2001, and subsequent thereto,
ACL elected not to pay the interest due on its bank and bond debt due to ongoing
negotiations with its bankers and noteholders regarding the restructuring of the
debt. ACL obtained forbearance agreements or waivers which enabled it to
complete the Danielson Recapitalization described below and the debt
restructuring described in Note 3 in the accompanying financial statements.
ACL's original secured debt was issued pursuant to a Credit Agreement,
dated June 30, 1998, with certain lenders and JPMorgan Chase Bank (formerly,
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 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 had outstanding $295.0
million of unsecured 10.25% Senior Notes due June 2008 (the "Old Senior
Notes").
27
On March 15, 2002, ACL entered into a definitive recapitalization
agreement regarding the acquisition and recapitalization of ACL (the "Danielson
Recapitalization") by Danielson Holding Corporation ("DHC") certain DHC
subsidiaries (collectively with DHC, "Danielson") and on April 15, 2002 launched
an exchange offer pursuant to which ACL offered to exchange the Old Senior Notes
for a new series of 11.25% senior notes due January 1, 2008 (the "Senior Notes")
and a new class of 12% pay-in-kind senior subordinated notes due July 1, 2008
(the "PIK Notes").
On April 11, 2002, ACL and certain lenders executed an amendment agreement
under which the Senior Credit Facilities would be amended and restated upon the
satisfaction of certain conditions set forth in the amendment agreement,
including the consummation of the Danielson Recapitalization.
Effective May 29, 2002, the Danielson Recapitalization was consummated
with $58.5 million of the Old Senior Notes and interest thereon if any
contributed by Danielson to ACL Holdings; $230 million, plus accrued interest,
of the remaining $236.5 million in Old Senior Notes exchanged for new Senior
Notes, and new PIK Notes and the Senior Credit Facilities amended. As part of
the Danielson Recapitalization, DHC contributed $25.0 million in cash to ACL
Holdings, which was immediately used to reduce the outstanding term loan debt
under the Senior Credit Facilities. In addition, $50.0 million of the amount
outstanding under the Revolving Credit Facility was converted into a new term
loan (the "Tranche A Term Loan").
As of May 29, 2002, after the $25.0 million reduction in outstanding term
loans, and after the $50.0 million Revolving Credit conversion to a "Tranche A
Term Loan," ACL's secured debt issued under the amended Senior Credit Facilities
consisted of a $46.6 million Tranche A Term Loan due June 30, 2005, a $134.0
million Tranche B Term Loan due June 30, 2006, a $157.7 million Tranche C Term
Loan due June 30, 2007 (collectively the "Term Loans") and the 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 $50.0 million due
June 30, 2005. The Term Loans bear interest at a rate equal to the London
InterBank Offered Rates ("LIBOR" or "LIBO Rates") plus a margin based on ACL's
performance. The annual interest rates as of June 28, 2002 were: Tranche A -
5.69%; Tranche B - 6.00%; and Tranche C - 6.25%. ACL also had outstanding
principal of $137.1 million in new Senior Notes and $114.9 million in new PIK
Notes. $6.5 million in principal of the Old Senior Notes remain outstanding. The
Senior Notes and PIK Notes are unsecured.
Also effective May 29, 2002, ACL's receivables facility, which was
administered by PNC Bank, N.A., was replaced with a receivables facility
administered by Bank One, NA having substantially the same terms as the previous
receivables facility.
The collective bargaining agreement between Jeffboat LLC ("Jeffboat") and
its unionized employees represented by the International Brotherhood of
Teamsters, Local No. 89 expired on April 29, 2002. Despite Jeffboat's efforts,
no agreement could be reached as to a new collective bargaining agreement and
the union employees chose to strike, beginning on the morning of April 30, 2002.
On July 3, 2002 the employees voted to accept a new contract and returned to
work on July 9, 2002.
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.
RESULTS OF OPERATIONS
As a result of the acquisition of ACL by Danielson, ACL's assets and
liabilities were adjusted to estimated fair value under push down purchase
accounting. ACL's consolidated financial statements for the periods ended before
May 29, 2002 were prepared using ACL's historical basis of accounting. Although
a new basis of accounting began on May 29, 2002, management has summarized the
results for the quarter and six months ended June 28, 2002 below by combining
the periods before and after May 29, 2002 together as ACL believes presentation
of these periods to be meaningful for comparison purposes. The impact on results
of operations related to push down purchase accounting has not materially
affected the comparability of the periods.
QUARTER ENDED JUNE 28, 2002 COMPARED WITH QUARTER ENDED JUNE 29, 2001
Operating Revenue. Operating revenue for the quarter ended June 28, 2002
decreased 11.9% to $169.9 million from $192.9 million for the quarter ended June
29, 2001. The decrease in revenue was primarily due to lower domestic barging
freight rates and volume, lower manufacturing revenue due to a strike at
Jeffboat, and the loss of revenue associated with the sale of substantially all
of ACL's terminals in the second quarter of 2001, partially offset by higher
revenue from ACL's international business units.
Domestic barging revenue decreased $15.4 million to $140.0 million due to
lower barging rates for grain freight and other commodities, lower other bulk
freight volume, lower liquid freight volume and lower towing and demurrage
revenue, partially offset
28
by increased volume as a result of better operating conditions.
International barging revenues increased $3.1 million to $11.9 million due
to a new operation in Venezuela to move bauxite tonnage during the low water
navigation season, the sale of logistics services to a third party barge
operator in Venezuela to transport equipment from the United States to Venezuela
and revenue from ACL's Dominican Republic unit, which began operation in the
third quarter of 2001.
Revenue at Jeffboat decreased $9.8 million to $15.7 million primarily due
to lower volume of hopper and tank barge production as a result of the strike.
Operating Expense. Operating expense for the quarter ended June 28, 2002
increased 4.8% to $184.2 million from $175.7 million in the first quarter of
2001.
Domestic barging expense increased $12.3 million to $155.2 million due to
lower gains on property dispositions, higher consulting and legal fees of which
$10.1 million were associated with the Danielson Recapitalization and higher
equipment repair expense partially offset by lower barge freight volume, reduced
fuel prices and better operating conditions. Fuel price before the effect of
user tax and hedging was 69 cents per gallon in the second quarter of 2002 on a
volume of 27.4 million gallons, compared to 84 cents per gallon in the second
quarter of 2001. Barge freight contract adjustment clauses for changes in fuel
price currently protect approximately 50% of ACL's fuel price risk exposure.
International barging expenses increased $3.4 million to $10.8 million
primarily due to a new operation in Venezuela to move bauxite tonnage during the
low water navigation season and the cost of logistics services provided to a
third party barge operator in Venezuela to transport equipment from the United
States to Venezuela.
Jeffboat's expenses decreased $6.0 million to $16.9 million due to lower
volume of hopper and tank barge barge construction as a result of the strike,
partially offset by declines in productivity also attributable to the strike.
Interest Expense. Interest expense for the second quarter of 2002
decreased to $15.3 million from $18.5 million for the same period in 2001. The
decrease was due to lower LIBOR rates, which are the basis for certain interest
rate adjustments under ACL's Senior Credit Facilities, lower outstanding
balances on the Term Loans, and lower balances of other debt. The decrease was
partially offset by a higher outstanding balance on the Revolving Credit
Facility.
Income Taxes. Income tax expense for the second quarter of 2002 was $0.1
million compared to $0.1 million in the second quarter of 2001. ACL passes its
U.S. federal and most of its state taxable income to ACL Holdings, whose equity
holders are responsible for those income taxes.
Extraordinary Item-Gain on Early Extinguishment of Debt. There was no
extraordinary item for the second quarter of 2002 compared to a gain of $1.9
million in the second quarter of 2001. The gain for the first six months of 2001
is a result of ACL's purchase in the open market of $5.0 million par value of
Old Senior Notes at a discount.
SIX MONTHS ENDED JUNE 28, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 29,
2001
Operating Revenue. Operating revenue for the six months ended June 28,
2002 decreased 6.9% to $340.8 million from $366.0 million for the six months
ended June 29, 2001. The revenue decrease was primarily due to lower domestic
barging freight rates and volumes, the strike at Jeffboat and the loss of
revenue associated with the sale of terminals in 2001, partially offset by
increased revenue from ACL's international business units.
Domestic barging revenue decreased $15.6 million to $280.1 million due to
lower barging rates for grain freight and other commodities, lower liquid
freight volume, lower towing revenue and lower other bulk freight volume,
partially offset by increased volume as a result of better operating conditions.
International barging revenue increased $2.5 million to $17.3 million due
to a new operation in Venezuela to move bauxite tonnage during the low water
navigation season, revenue from ACL's Dominican Republic unit which began
operation in the third quarter of 2001, and the sale of logistics services to a
third party barge operator in Venezuela to transport equipment from the United
States to Venezuela. The increase was partially offset by the absence of
payments for minimum contract tonnage in Venezuela.
29
Revenue at Jeffboat decreased $9.9 million to $39.0 million primarily due
to lower volume of hopper and tank barge production as a result of the strike.
Operating Expense. Operating expense for the six months ended June 28,
2002 decreased 0.4% to $357.9 million from $359.2 million in the first six
months of 2001.
Domestic barging expense increased $4.4 million to $298.0 million due to
higher consulting and legal fees of which $13.5 million were associated with the
Danielson Recapitalization, lower gains on property dispositions and higher
equipment repair expense, partially offset by reduced fuel prices, better
operating conditions, lower barge freight volume and lower boat depreciation
expense due to a change in the estimated useful life of towboats. Fuel price
before the effect of user tax and hedging was 66 cents per gallon in the first
six months of 2002 on a volume of 53.5 million gallons, compared to 86 cents per
gallon in the first six months of 2001.
International barging expenses increased $4.0 million to $18.7 million
primarily due to additional expenses associated with operations during low water
periods in Venezuela, certain logistics services provided to a third party barge
operator in Venezuela to transport equipment from the United States to
Venezuela, and an increase in fees for start up activities and expenses from
ACL's Dominican Republic unit, which began operation in the third quarter of
2001.
Jeffboat's expenses decreased $6.8 million to $38.6 million due to lower
volume of hopper and tank barge construction as a result of the strike in
the second quarter and due to a lower volume of hopper barge construction during
the first quarter of 2002 compared to the first quarter of 2001.
Interest Expense. Interest expense for the first six months of 2002
decreased to $30.3 million from $38.1 million for the same period in 2001. The
decrease was due to lower LIBO rates, which are the basis for certain interest
rate adjustments under ACL's Senior Credit Facilities, lower outstanding
balances on the Term Loans, and lower balances of other debt. The decrease was
partially offset by a higher outstanding balance on the Revolving Credit
Facility.
Income Taxes. Income tax for the six months was a benefit of $0.9 million
compared to expense of $0.3 million in the first six months of last year. The
benefit was due to the reversal of foreign tax expense that was previously
accrued in relation to a tax matter in South America. ACL passes its U.S.
federal and most of its state taxable income to ACL Holdings, whose equity
holders are responsible for those income taxes.
Extraordinary Item-Gain on Early Extinguishment of Debt. There was no gain
on early extinguishment of debt for the first six months of 2002 compared to a
gain of $1.9 million for the same period in 2001. The gain for the first six
months of 2001 is a result of ACL's purchase in the open market of $5.0 million
par value of Old Senior Notes at a discount.
Cumulative Effect of Accounting Change. There was no cumulative effect of
accounting change for the first six months of 2002 compared to a loss of $0.5
million for the first six months of 2001 due to a loss on the fair value of an
interest rate cap as a result of ACL's adoption of FASB Statement No. 133 as of
December 30, 2000.
OUTLOOK
Management expects lower freight tariff rates and volumes in the third
quarter of 2002 compared to the third quarter of 2001 due to continued weakness
in the general economy. Management also expects the average price of fuel
consumed by ACBL vessels to remain consistent with current market prices
resulting in a price per gallon in the third quarter of 2002 of approximately 72
cents, 9 cents lower than the price in the third quarter of 2001. Management
expects that ACBL's vessels will consume approximately 110 million gallons
annually and generally ratably throughout the year. ACBL has barge freight
contract price adjustment clauses which currently provide protection for
approximately 50% of gallons consumed. Contract adjustments are deferred one
quarter.
LIQUIDITY AND CAPITAL RESOURCES.
Significant changes in ACL's credit facilities are discussed above in
"Overview and Significant Events." As of June 28, 2002, ACL had outstanding
indebtedness of $630.8 million, including $338.3 million drawn under the Term
Loans, $34.0 million drawn under the Revolving Credit Facility, $137.1 million
aggregate principal amount of Senior Notes, $114.9 million of PIK Notes and $6.5
million in Old Senior Notes. As a result of DHC's purchase of 50% of the voting
interests in Vessel Leasing LLC ("Vessel Leasing"), an entity in which ACL owns
the remaining 50% of the voting interests, ACL now consolidates Vessel Leasing's
debt. ACL's investment in Vessel Leasing was previously accounted for under the
equity method. Long-term debt, therefore, also includes $41.1 million in bonds
guaranteed by the U.S. Maritime Administration that are obligations of Vessel
Leasing. Since ACL is applying push down accounting effective with Danielson's
acquisition of ACL, ACL's debt was adjusted to fair value at the acquisition
date. The total amount of the unamortized discount is $59.9 million. The
difference between the principal amount of the
30
debt and its fair value is being accreted as interest expense over the term of
the debt under the effective interest method. Accordingly, as of June 28, 2002,
the carrying value of the new Senior Notes is $127.9 million, the carrying value
of the PIK Notes is $65.8 million and the carrying value of the Old Senior Notes
is $4.9 million.
ACL also had $1.8 million in outstanding capital lease obligations which
are included in other current and long-term liabilities and had securitized
$39.4 million of the trade receivables of two subsidiaries as of the end of the
quarter.
The Senior Credit Facilities and the indentures governing the Senior Notes
and the PIK Notes (the "Indentures") contain a number of covenants with
specified financial ratios and tests including, with respect to the Senior
Credit Facilities, maximum leverage ratios, rent adjusted maximum leverage
ratios and interest coverage ratios which could lead to an event of default
which could result in acceleration of the debt, higher interest rates or other
adverse consequences. The Indentures also contain certain cross default
provisions. Compliance with financial ratios is measured at the end of each
quarter. ACL's ability to meet the financial ratios is affected by adverse
weather conditions, seasonality and other risk factors inherent in its business.
ACL is currently addressing whether the consolidation of Vessel Leasing has an
effect on the debt covenant calculations. While ACL management believes it
should have no effect, ACL plans to obtain a waiver or amendment to its Senior
Credit Facilities. Although ACL believes it is currently in compliance with its
debt covenants, it is a reasonable possibility that ACL will not be able to
comply with covenant requirements in the future irrespective of the favorable
resolution of the Vessel Leasing issue. Management is working on operating and
financial plans to comply with its debt covenants, including a possible
sale-leaseback transaction and other financial transactions. Failure to meet
these covenants could have a material adverse effect on ACL since it is highly
leveraged.
The amended and restated Senior Credit Facilities also contain mandatory
prepayments of the Term Loans with net proceeds from certain asset sales, equity
issuances, incurrence of indebtedness and sale and leaseback transactions, as
well as excess cash flow, as defined in the Senior Credit Facilities.
ACL's primary sources of liquidity are cash flows from operating
activities and its Senior Credit Facilities. ACL's cash balance was $16.2
million as of June 28, 2002. There is no amount of liquidity currently
available under the revolving credit facility. Cash used by operating activities
totaled $20.4 million for the first six months of 2002 compared to cash used by
operating activities of $5.2 million for the first six months of 2001. The
increase in cash used was primarily due to reduced operating earnings
(principally due to the costs incurred for consulting and legal fees associated
with the Danielson Recapitalization and the adverse effects of the Jeffboat
strike on operations), a difference in the timing of cash disbursements related
to trade payables and increases in inventory balances as a result of the
Jeffboat strike, partially offset by a reduction in interest payments due to the
timing of the maturities of the floating rate debt under the Senior Credit
Facilities.
Capital expenditures are expected to be $25.3 million for 2002, with most
expenditures being for marine equipment maintenance. As of June 28, 2002, a
total of $6.4 million had been spent. ACL will continue to lease new
construction equipment from Vessel Leasing and third parties.
ACL is highly leveraged, which makes it vulnerable to changes in general
economic conditions and to worldwide weather conditions, particularly those
affecting North and South America, given the nature of ACL's business. ACL's
ability to repay or refinance its debt will depend on, among other things,
financial, business, market, competitive and other conditions, many of which are
beyond ACL's control. Management believes that its cash and cash generated from
operations will be sufficient to fund its cash requirements, including capital
expenditures for fleet maintenance, working capital, interest payments and
scheduled principal payments. Management is evaluating alternatives for reducing
outstanding indebtedness under the Senior Credit Facilities, including the sale
and lease-back of property, plant and equipment. ACL will, from time to time,
borrow under the Revolving Credit Facility.
CHANGES IN ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement of Financial Accounting Standard
No. 142 Goodwill and Other Intangible Assets (SFAS 142), which establishes the
accounting for goodwill and other intangible assets following their recognition.
SFAS 142 applies to all goodwill and other intangible assets whether acquired
singly, as part of a group, or in a business combination. SFAS 142 provides that
goodwill should not be amortized but should be tested for impairment annually
using a fair-value based approach. In addition, SFAS 142 provides that
intangible assets other than goodwill should be amortized over their useful
lives and reviewed for impairment in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 has
been superceded by SFAS 144 which is described below. The adoption of SFAS 142
on December 29, 2001 has not had a significant effect on ACL's financial
position or results of operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets and supercedes SFAS 121, and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS 144 also amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements", to eliminate the exception
to consolidation for a subsidiary for which control is likely to be temporary.
The objectives of SFAS 144 are to address significant issues relating to the
implementation of SFAS 121 and to develop a single accounting model, based on
the framework established in SFAS 121, for long-lived assets to be disposed of
by sale, whether previously held and used or newly acquired. ACL adopted SFAS
144 in the first quarter of 2002. The provisions of SFAS 144 did not have an
impact on ACL's financial statements during the six month period ended June 28,
2002.
31
ITEM 3. 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. There have been no material changes to ACL's exposure to market
risks discussed in Item 7A of ACL's 2001 Annual Report on Form 10-K for the year
ended December 28, 2001.
FUEL PRICE RISK
At June 28, 2002, ACL had forward fuel purchase contracts outstanding with
an aggregate notional amount of approximately $.63 million and a fair value of
approximately $.02 million loss, which has been recorded in other current
liabilities with the offset to other comprehensive income and an additional fair
value gain of $.056 million which has been recorded as receivable with an offset
to the allowance for doubtful accounts in the condensed consolidated statement
of financial position. The $.02 million loss will be recognized in earnings in
July 2002. Under these agreements, ACL will pay fixed prices ranging from $0.61
to $0.86 per gallon. There were 1.0 million gallons remaining on the contracts
at June 28, 2002. The agreements terminate October 31, 2002. Due to the
bankruptcy of Enron, one of the trading partners, ACL believes the hedge is no
longer effective and has recognized the mark-to-market gain of $.056 million but
has fully reserved for the amount. Management believes that the other trading
partner does not present a credit risk to ACL.
INTEREST RATE RISKS
ACL entered into an interest rate cap agreement in the third quarter of
2000 to reduce the impact of potential rate increases on floating rate debt. The
interest rate cap has a notional amount of $202.0 million and a fair value of
$.001 million as of June 28, 2002 and is effective through August 11, 2003. ACL
accounts for the interest rate cap as a cash flow hedge whereby the fair value
of the interest rate cap is reflected as an asset or liability in the
accompanying condensed consolidated statement of financial position. The cap
rate (hedging instrument) is the same interest rate index as the base interest
rate for the floating rate debt (hedged item). When the interest rate index
exceeds the interest rate cap, a portion of the change in fair value of the
instrument represents a change in intrinsic value which is an effective hedge.
This portion of the change in value is recorded as other comprehensive income.
The remaining change in fair value is recorded as other expense (income) in the
condensed consolidated statement of operations.
For the quarters ended June 28, 2002 and June 29, 2001, the entire change
in fair value resulted in losses of $.014 million and $.036 million,
respectively, which are recorded in other expense (income) in the condensed
consolidated statement of operations.
ACL also records changes to other assets in the accompanying condensed
consolidated statement of financial position, with the offset recorded as
comprehensive income (loss), for changes in the fair value of interest rate swap
agreements entered into by Global Material Services LLC, an entity in which ACL
has a 50% ownership interest accounted for by the equity method. ACL recognized
a comprehensive loss of $.067 million for its share of these swaps in the
quarter ended June 28, 2002.
PART II
OTHER INFORMATION
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
On December 31, 2001, ACL elected not to pay the interest due in the amount of
$15.1 million on its Old Senior Notes (the "Bond Interest Payment") due to
ongoing negotiations with its lenders and noteholders regarding the
restructuring of ACL's bank and bond debt. Following the thirty day grace
period provided by the indenture (the "Indenture") governing the Old Senior
Notes, ACL again did not make the Bond Interest Payment. This election not to
make the Bond Interest Payment was an event of default under the Indenture,
which, in turn, was an event of default under ACL's Senior Credit Facilities.
On May 29, 2002, in connection with the Danielson Recapitalization, all of the
aforementioned defaults were cured.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Recapitalization Agreement dated as of March 15, 2002 by and
among American Commercial Lines Holdings LLC, American
Commercial Lines LLC, Danielson Holding Corporation, the
Preferred Unitholders (as defined therein) party thereto and
the Management Unitholders (as defined therein) party thereto
(Incorporated herein by reference to Exhibit 10.23 filed with
American Commercial Lines LLC's Current Report on Form 8-K
dated March 15, 2002 and filed with the Securities and
Exchange Commission on March 27, 2002).
2.2 First Amendment to Recapitalization Agreement dated as of May
29, 2002 by and among Danielson Holding Corporation, ACLH
Acquisition LLC, American Commercial Lines Holdings LLC,
American Commercial Lines LLC, the Preferred Unitholders (as
defined therein) party thereto, the Management Unitholders (as
defined therein) party thereto and the
32
Consenting Common Unitholders (as defined therein) party
thereto (Incorporated herein by reference to Exhibit 10.23
filed with American Commercial Lines LLC's Current Report on
Form 8-K dated May 29, 2002 and filed with the Securities and
Exchange Commission on June 10, 2002).
+3.1 Amendment to Amended and Restated Limited Liability Company
Agreement of American Commercial Lines Holdings LLC dated as
of May 29, 2002, by and among the parties signatory thereto.
+3.2 Amended and Restated Limited Liability Company Agreement of
American Commercial Lines Holdings LLC dated as of May 29,
2002.
+4.1 Supplemental Indenture dated as of May 29, 2002 by and among
American Commercial Lines LLC, ACL Capital Corp. and The Bank
of New York (as successor trustee to United States Trust
Company of New York) as Trustee.
4.2 Indenture dated May 29, 2002 for 11 1/4 % Senior Notes due
2008 by and among American Commercial Lines LLC, ACL Capital
Corp., the Subsidiary Guarantors (defined therein) party
thereto and The Bank of New York, as Trustee (Incorporated
herein by reference to Exhibit T3C filed with Amendment No. 1
to American Commercial Lines LLC's Application for
Qualification of Indenture Under the Trust Indenture Act of
1939 on Form T-3, filed with the Securities and Exchange
Commission on May 29, 2002 (No. 022-28597)).
4.3 Indenture dated May 29, 2002 for 12% Pay-In-Kind Senior
Subordinated Notes due 2008 by and among American Commercial
Lines LLC, ACL Capital Corp., the Subsidiary Guarantors
(defined therein) party thereto and The Bank of New York, as
Trustee (Incorporated herein by reference to Exhibit T3C filed
with Amendment No. 1 to American Commercial Lines LLC's
Application for Qualification of Indenture Under the Trust
Indenture Act of 1939 on Form T-3, filed with the Securities
and Exchange Commission on May 29, 2002 (No. 022-28598)).
+10.1 Amendment Agreement dated as of April 11, 2002 among American
Commercial Lines LLC, American Commercial Lines Holdings LLC,
the Lenders (as defined therein) party thereto and The
JPMorgan Chase Bank, as issuing bank, as administrative
agent, as security trustee and as collateral agent.
+10.2 Credit Agreement dated as of June 30, 1998, as Amended and
Restated as of April 11, 2002, among American Commercial Lines
LLC, American Commercial Lines Holdings LLC, the Lenders (as
defined therein) party thereto and The JPMorgan Chase Bank,
as issuing bank, as administrative agent, as security trustee
and as collateral agent.
+10.3 Receivables Purchase Agreement between American Commercial
Lines Funding Corporation, as Seller, American Commercial
Barge Line LLC, as Servicer, Jupiter Securitization
Corporation, as a Purchaser, The Financial Institutions from
time to time Party thereto, as Purchasers and Bank One, NA
(Main Office Chicago), as Agent, dated as of May 24, 2002.
+10.4 Receivables Sales Agreement between American Commercial Barge
Line LLC, as an Originator, American Commercial Terminals LLC,
as an Originator, and American Commercial Lines Funding
Corporation, as Buyer, dated as of May 24, 2002.
+10.5 Management Agreement between American Commercial Lines LLC and
Michael C. Hagan dated May 29, 2002.
+10.6 Management Agreement between American Commercial Lines LLC and
James J. Wolff dated May 29, 2002.
+10.7 Amendment of the Special Retirement Plan of American
Commercial Lines LLC dated May 22, 2002.
+10.8 Amendment of the Supplemental Savings Plan of Eligible
Executives of American Commercial Lines LLC dated May 22,
2002.
33
+ Filed herewith.
REPORTS ON FORM 8-K
ACL filed Current Reports on Form 8-K on:
- April 19, 2002 (Item 5--Other Events and Item 7--Financial
Statements, Pro Forma Financial Information and Exhibits);
- June 10, 2002; (Item 1--Changes in Control of Registrant and Item
7--Financial Statements, Pro Forma Financial Information and
Exhibits); and
- August 1, 2002 (Item 4--Change in Registrant's Certifying Accountant
and Item 7--Financial Statements, Pro Forma Financial Information
and Exhibits).
34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
American Commercial Lines LLC has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMERICAN COMMERCIAL LINES LLC
(Registrant)
Date: August 13, 2002 By: /s/ JAMES J. WOLFF
----------------------------------------
Name: James J. Wolff
Title: Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
35