Attached files
file | filename |
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EX-31.2 - EX-31.2 - COMMERCIAL BARGE LINE CO | c64529exv31w2.htm |
EX-32.2 - EX-32.2 - COMMERCIAL BARGE LINE CO | c64529exv32w2.htm |
EX-31.1 - EX-31.1 - COMMERCIAL BARGE LINE CO | c64529exv31w1.htm |
EX-10.1 - EX-10.1 - COMMERCIAL BARGE LINE CO | c64529exv10w1.htm |
EX-10.2 - EX-10.2 - COMMERCIAL BARGE LINE CO | c64529exv10w2.htm |
EX-32.1 - EX-32.1 - COMMERCIAL BARGE LINE CO | c64529exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMERCIAL BARGE LINE COMPANY
(Exact Name of Registrant as Specified in Charter)
Delaware | 333-124454-12 | 03-0552365 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
1701 E. Market Street, | 47130 | |
Jeffersonville, Indiana | (Zip Code) | |
(Address of principal executive offices) |
(812) 288-0100
(Registrants telephone number, including area code)
Former name or former address, if changed since last report:
N/A
(Registrants telephone number, including area code)
Former name or former address, if changed since last report:
N/A
1701 East Market Street | 47130 | |
Jeffersonville, Indiana | (Zip Code) | |
(Address of principal executive offices) |
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act.
Yes þ No o
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 o No o Not applicable.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934).
Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last business day of the registrants
most recently completed second fiscal quarter. Not applicable
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
None
COMMERCIAL BARGE LINE COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2011
FOR THE QUARTERLY PERIOD ENDED March 31, 2011
TABLE OF CONTENTS
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Certification by CEO |
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Certification by CFO |
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Certification by CEO |
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Certification by CFO |
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EX-10.1 | ||||||||
EX-10.2 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMERCIAL BARGE LINE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited In thousands)
Successor Company | Predecessor Company | |||||||
Quarter Ended March 31, | Quarter Ended March 31, | |||||||
2011 | 2010 | |||||||
Revenues |
||||||||
Transportation and Services |
$ | 162,654 | $ | 136,854 | ||||
Manufacturing |
16,007 | 11,442 | ||||||
Revenues |
178,661 | 148,296 | ||||||
Cost of Sales |
||||||||
Transportation and Services |
158,809 | 123,052 | ||||||
Manufacturing |
16,444 | 10,532 | ||||||
Cost of Sales |
175,253 | 133,584 | ||||||
Gross Profit |
3,408 | 14,712 | ||||||
Selling, General and Administrative Expenses |
18,741 | 11,620 | ||||||
Operating (Loss) Income |
(15,333 | ) | 3,092 | |||||
Other Expense (Income) |
||||||||
Interest Expense |
7,468 | 9,853 | ||||||
Other, Net |
(130 | ) | (54 | ) | ||||
Other Expense |
7,338 | 9,799 | ||||||
Loss from Continuing Operations Before Income Taxes |
(22,671 | ) | (6,707 | ) | ||||
Income Tax Benefit |
(8,803 | ) | (3,227 | ) | ||||
Loss from Continuing Operations |
(13,868 | ) | (3,480 | ) | ||||
Discontinued Operations, Net of Tax |
(8 | ) | | |||||
Net Loss |
$ | (13,876 | ) | $ | (3,480 | ) | ||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
Table of Contents
COMMERCIAL BARGE LINE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and Cash Equivalents |
$ | 5,866 | $ | 3,707 | ||||
Accounts Receivable, Net |
75,121 | 83,518 | ||||||
Inventory |
71,277 | 50,834 | ||||||
Deferred Tax Assets |
2,788 | 10,072 | ||||||
Assets Held for Sale |
1,223 | 2,133 | ||||||
Prepaid and Other Current Assets |
41,073 | 32,075 | ||||||
Total Current Assets |
197,348 | 182,339 | ||||||
Properties, Net |
962,167 | 979,655 | ||||||
Investment in Equity Investees |
5,859 | 5,743 | ||||||
Accounts Receivable, Affiliate |
16,808 | 17,400 | ||||||
Other Assets |
52,127 | 53,665 | ||||||
Goodwill |
20,470 | 20,470 | ||||||
Total Assets |
$ | 1,254,779 | $ | 1,259,272 | ||||
LIABILITIES |
||||||||
Current Liabilities |
||||||||
Accounts Payable |
$ | 40,719 | $ | 44,782 | ||||
Accrued Payroll and Fringe Benefits |
11,511 | 27,992 | ||||||
Deferred Revenue |
19,359 | 14,132 | ||||||
Accrued Claims and Insurance Premiums |
12,313 | 12,114 | ||||||
Accrued Interest |
5,584 | 11,667 | ||||||
Customer Deposits |
437 | 500 | ||||||
Other Liabilities |
24,291 | 25,810 | ||||||
Total Current Liabilities |
114,214 | 136,997 | ||||||
Long Term Debt |
428,345 | 385,152 | ||||||
Pension and Post Retirement Liabilities |
39,219 | 38,615 | ||||||
Deferred Tax Liabilities |
195,772 | 208,651 | ||||||
Other Long Term Liabilities |
57,259 | 60,901 | ||||||
Total Liabilities |
834,809 | 830,316 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Other Capital |
433,864 | 435,487 | ||||||
Retained Deficit |
(20,511 | ) | (6,635 | ) | ||||
Accumulated Other Comprehensive Income |
6,617 | 104 | ||||||
Total
Shareholders Equity |
419,970 | 428,956 | ||||||
Total
Liabilities and Shareholders Equity |
$ | 1,254,779 | $ | 1,259,272 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Table of Contents
COMMERCIAL BARGE LINE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited In thousands)
Successor Company | Predecessor Company | |||||||
Quarter Ended March 31, | Quarter Ended March 31, | |||||||
2011 | 2010 | |||||||
OPERATING ACTIVITIES |
||||||||
Net Loss |
$ | (13,876 | ) | $ | (3,480 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash
(Used in) Provided by Operating
Activities: |
||||||||
Depreciation and Amortization |
27,525 | 11,999 | ||||||
Debt Premium and Debt
Issuance Cost Amortization |
(674 | ) | 1,326 | |||||
Deferred Taxes |
(13,322 | ) | (2,091 | ) | ||||
Gain on Property Dispositions |
(25 | ) | (3,871 | ) | ||||
Share-Based Compensation |
1,493 | (482 | ) | |||||
Other Operating Activities |
(1,254 | ) | 744 | |||||
Changes in Operating Assets
and Liabilities: |
||||||||
Accounts Receivable |
7,496 | 23,965 | ||||||
Inventory |
(20,443 | ) | (3,500 | ) | ||||
Other Current Assets |
(803 | ) | 1,221 | |||||
Accounts Payable |
(5,351 | ) | (2,038 | ) | ||||
Accrued Interest |
(6,083 | ) | (6,981 | ) | ||||
Other Current Liabilities |
(5,331 | ) | (17,131 | ) | ||||
Net Cash Used in
Operating Activities |
(30,648 | ) | (319 | ) | ||||
INVESTING ACTIVITIES |
||||||||
Property Additions |
(10,006 | ) | (15,554 | ) | ||||
Proceeds from Property Dispositions |
155 | 7,208 | ||||||
Proceeds from Government Grant |
| 2,302 | ||||||
Other Investing Activities |
(4,313 | ) | (303 | ) | ||||
Net Cash Used in
Investing Activities |
(14,164 | ) | (6,347 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Revolving Credit Facility Borrowings |
44,630 | 11,035 | ||||||
Bank Overdrafts on Operating Accounts |
1,288 | (3,421 | ) | |||||
Debt Issuance/Refinancing Costs |
(37 | ) | (107 | ) | ||||
Tax Benefit (Expense) of Share-Based
Compensation |
1,090 | | ||||||
Exercise of Stock Options |
| 211 | ||||||
Acquisition of Treasury Stock |
| (721 | ) | |||||
Other Financing Activities |
| (200 | ) | |||||
Net Cash Provided by
Financing Activities |
46,971 | 6,797 | ||||||
Net Increase in Cash and Cash Equivalents |
2,159 | 131 | ||||||
Cash and Cash Equivalents at Beginning of Period |
3,707 | 1,198 | ||||||
Cash and Cash
Equivalents at End of
Period |
$ | 5,866 | $ | 1,329 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Table of Contents
COMMERCIAL BARGE LINE COMPANY
CONDENSED CONSOLIDATED
STATEMENT OF SHAREHOLDERS EQUITY
Accumulated | ||||||||||||||||
Other | ||||||||||||||||
Other | Retained | Comprehensive | ||||||||||||||
Capital | Deficit | Income | Total | |||||||||||||
Balance at December 31, 2010 |
$ | 435,487 | $ | (6,635 | ) | $ | 104 | $ | 428,956 | |||||||
Excess Tax Benefit of Share-based Compensation |
1,090 | | | 1,090 | ||||||||||||
Comprehensive Loss: |
||||||||||||||||
Net Loss |
| (13,876 | ) | | (13,876 | ) | ||||||||||
Net Gain in Fuel Swaps Designated as Cash
Flow Hedging Instrument, Net of Tax |
| | 6,513 | 6,513 | ||||||||||||
Other |
(2,713 | ) | | | (2,713 | ) | ||||||||||
Total Comprehensive Loss |
$ | (2,713 | ) | $ | (13,876 | ) | $ | 6,513 | $ | (10,076 | ) | |||||
Balance at March 31, 2011 |
$ | 433,864 | $ | (20,511 | ) | $ | 6,617 | $ | 419,970 | |||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
Table of Contents
COMMERCIAL BARGE LINE COMPANY.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except as otherwise indicated)
(Unaudited)
(Dollars in thousands, except as otherwise indicated)
Note 1. Reporting Entity and Accounting Policies
Commercial Barge Line Company (CBL) is a Delaware corporation. In these financial
statements, unless the context indicates otherwise, the Company refers to CBL and its
subsidiaries on a consolidated basis.
The operations of the Company include barge transportation together with related port services
along the United States Inland Waterways consisting of the Mississippi River System, its connecting
waterways and the Gulf Intracoastal Waterway (the Inland Waterways) and marine equipment
manufacturing. Barge transportation accounts for the majority of the Companys revenues and
includes the movement of bulk products, grain, coal, steel and liquids in the United States. The
Company has long term contracts with many of its customers. Manufacturing of marine equipment is
provided to customers in marine transportation and other related industries in the United States.
The Company also has an operation engaged in naval architecture and engineering. This operation is
significantly smaller than either the transportation or manufacturing segments. In all periods
presented, discontinued operations consists of the results of operations related to Summit
Contracting Inc. (Summit) which was sold in 2009 and the Companys former international
operations which were sold in 2006.
The assets of CBL consist primarily of its ownership of all of the equity interests in
American Commercial Lines LLC, ACL Transportation Services LLC, and Jeffboat LLC, Delaware limited
liability companies, and their subsidiaries. Additionally, CBL owns ACL Professional Services,
Inc., a Delaware corporation. CBL is responsible for corporate income taxes. CBL does not conduct
any operations independent of their ownership interests in the consolidated subsidiaries.
CBL is a wholly-owned subsidiary of American Commercial Lines Inc. (ACL). ACL is a
wholly-owned subsidiary of ACL I Corporation (ACL I),
formerly known as Finn Intermediate Holding Corporation. ACL I is a wholly owned subsidiary of Finn
Holding Corporation (Finn). Finn is primarily owned by certain affiliates of Platinum Equity, LLC
(certain affiliates of Platinum Equity, LLC are referred to herein as Platinum). On December 21, 2010, ACL announced the consummation of the previously announced
acquisition of ACL by Platinum (the Acquisition, in all instances of usage. See Note 11 for
further information). The Acquisition was accomplished through the merger of Finn Merger
Corporation, a Delaware corporation and a wholly owned subsidiary of ACL I, a Delaware corporation,
with and into ACL. The assets of ACL consist principally of its ownership
of all of the stock of CBL. In connection with the Acquisition the purchase price has been
preliminarily allocated in these statements as of the Acquisition date. Financial information
through but not including the Acquisition date is referred to as Predecessor company information,
which has been prepared using the Companys previous basis of accounting. The financial information
in periods beginning after December 21, 2010, is referred to as Successor company information and
reflects the financial statement effects of recording fair value adjustments and the capital
structure resulting from the Acquisition. Since the financial statements of the Predecessor and
Successor are not comparable as a result of the application of acquisition accounting and the
Companys capital structure resulting from the Acquisition, they have been separately designated,
as appropriate, in these condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. As such, they
do not include all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The condensed consolidated balance sheet as of
December 31, 2010 has been derived from the audited consolidated balance sheet at that date. The
preparation of financial statements in conformity with accounting principles generally accepted in
the United States 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. Some of the significant estimates
underlying these financial statements include reserves for doubtful accounts, reserves for obsolete
and slow moving inventories, pension and post-retirement liabilities, incurred but not reported
medical claims, insurance claims and related receivable amounts, deferred tax liabilities, assets
held for sale, environmental liabilities, revenues and expenses on special vessels using the
percentage-of-completion method, environmental liabilities, valuation allowances related to
deferred tax assets, expected forfeitures of share-based compensation, estimates of future cash
flows used in impairment evaluations, liabilities for unbilled barge and boat maintenance,
liabilities for unbilled harbor and towing services, estimated sub-lease recoveries and depreciable
lives of long-lived assets.
In the opinion of management, for all periods presented, all adjustments (consisting of normal
recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the interim periods
presented herein are not necessarily indicative of the results that may be expected for the year
ending December 31, 2011. Our quarterly revenues and profits historically have been lower during
the first six months of the year and higher in the last six months of the year due primarily to the
timing of the North American grain harvest and seasonal weather patterns.
7
Table of Contents
COMMERCIAL BARGE LINE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Periodically the Financial Accounting Standards Board (FASB) issues additional Accounting
Standards Updates (ASUs). ASUs considered to have a potential impact on the Company where the
impact is not yet determined are discussed as follows.
In January 2010, the FASB issued new guidelines and clarifications for improving disclosures
about fair value measurements. This guidance requires enhanced disclosures for purchases, sales,
issuances, and settlements on a gross basis for Level 3 fair value measurements. The adoption of
this guidance did not materially impact the Company. These new disclosures are effective for
interim and annual reporting periods beginning after December 15, 2010 and have been incorporated
herein.
For further information, refer to the consolidated financial statements and footnotes
thereto, included in the Companys annual filing on Form 10-K filed with the Securities and
Exchange Commission (SEC) for the year ended December 31, 2010.
Certain prior year amounts have been reclassified in these financial statements to
conform to the current year presentation. These reclassifications had no impact on previously
reported net income.
Note 2. Debt
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Revolving Credit Facility |
$ | 194,940 | $ | 150,310 | ||||
2017 Senior Notes |
200,000 | 200,000 | ||||||
Plus Purchase Premium |
33,405 | 34,842 | ||||||
Total Long Term Debt |
$ | 428,345 | $ | 385,152 | ||||
Subsequent to the Acquisition, on December 21, 2010, the Company entered into a new the
credit agreement, consisting of a senior secured asset-based revolving credit facility (Existing
Credit Facility) in an aggregate principal amount of $475,000 with a final maturity date of
December 21, 2015.
On July 7, 2009, the Company issued $200,000 aggregate principal amount of senior secured
second lien 12.5% notes due July 15, 2017 (the 2017 Notes) which were assumed by the acquirer
upon acquisition. The 2017 Notes are guaranteed by ACL and by all material existing and future
domestic subsidiaries of CBL.
Availability under the Existing Credit Facility is capped at a borrowing base, calculated
based on certain percentages of the value of the Companys vessels, inventory and receivables and
subject to certain blocks and reserves, all as further set forth in the Existing Credit Facility
agreement. The Company is currently prohibited from incurring more than $390,000 of indebtedness
under the Existing Credit Facility regardless of the size of the borrowing base until (a) all of
the obligations (other than unasserted contingent obligations) under the indenture governing the
2017 Notes are repaid, defeased, discharged or otherwise satisfied or (b) the indenture governing
the 2017 Notes is replaced or amended or otherwise modified in a manner such that such additional
borrowings would be permitted. At the Companys option, the Existing Credit Facility may be
increased by $75,000, subject to certain requirements set forth in the credit agreement.
In accordance with the credit agreement, the Companys obligations under the Existing Credit
Facility are secured by, among other things, a lien on substantially all of their tangible and
intangible personal property (including but not limited to vessels, accounts receivable, inventory,
equipment, general intangibles, investment property, deposit and securities accounts, certain owned
real property and intellectual property), a pledge of the capital stock of each of the Companys
wholly owned restricted domestic subsidiaries, subject to certain exceptions and thresholds.
Borrowings under the Existing Credit Facility bear interest, at the Companys option, at
either (i) an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable
margin. The applicable margin will, depending on average availability under the Existing Credit
Facility, range from 2.00% to 2.50% in the case of base rate loans and 2.75% to 3.25% in the case
of LIBOR rate loans. Interest is payable (a) in the case of base rate loans, monthly in arrears,
and (b) in the case of LIBOR rate loans, at the end of each interest period, but in no event less
often than every three months. A commitment fee is payable monthly in arrears at a rate per annum
equal to 0.50% of the daily unused
amount of the commitments in respect of the Existing Credit Facility. The Borrowers, at their
option, may prepay borrowings under the Existing Credit Facility and re-borrow such amounts, at any
time (subject to applicable borrowing conditions) without penalty, in whole or in part, in minimum
amounts and subject to other conditions set forth in the Existing Credit Facility.
8
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Existing Credit Facility has no maintenance covenants unless, for any period, that
availability under the Existing Credit Facility is less than a certain defined level set forth in
the credit agreement. Availability at March 31, 2011 exceeds the specified level by approximately
$135,660. Should the springing covenants be triggered in the 2017 Notes and Existing Credit
Facility the leverage calculation includes only first lien senior debt, excluding debt under the
2017 Notes. The 2017 Notes and Existing Credit Facility also provide flexibility to execute sale
leasebacks, sell assets, and issue additional debt to raise additional funds. In addition the 2017
Notes and Existing Credit Facility place no restrictions on capital spending, but do limit the
payment of dividends.
During all periods presented the Company has been in compliance with the respective covenants
contained in its credit agreements.
Note 3. Inventory
Inventory is carried at the lower of cost (based on a weighted average method) or market
and consists of the following.
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Raw Materials |
$ | 35,185 | $ | 19,255 | ||||
Work in Process |
9,360 | 5,844 | ||||||
Parts and Supplies |
26,732 | 25,735 | ||||||
$ | 71,277 | $ | 50,834 | |||||
Note 4. Income Taxes
CBLs operating entities are primarily single member limited liability companies that are
owned by a corporate parent, and are subject to U.S. federal and state income taxes on a combined
basis.
The effective tax rates in the respective first quarters of 2011 and 2010 were 38.8% and
48.1%. The effective income tax rates are impacted by the significance of consistent levels of
permanent book and tax differences on expected full year income in the respective periods.
Note 5. Employee Benefit Plans
A summary of the components of the Companys pension and post-retirement plans follows.
Quarter Ended | ||||||||
March 31, | ||||||||
Successor | Predecessor | |||||||
2011 | 2010 | |||||||
Pension Components: |
||||||||
Service cost |
$ | 1,175 | $ | 1,200 | ||||
Interest cost |
2,650 | 2,590 | ||||||
Expected return on plan assets |
(3,225 | ) | (3,130 | ) | ||||
Amortization of unrecognized losses |
| 15 | ||||||
Net periodic benefit cost |
$ | 600 | $ | 675 | ||||
Post-retirement Components: |
||||||||
Service cost |
$ | 2 | $ | 5 | ||||
Interest cost |
55 | 87 | ||||||
Amortization of net gain |
(12 | ) | (270 | ) | ||||
Net periodic benefit cost |
$ | 45 | $ | ( 178 | ) | |||
9
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6. Related Party Transactions
There were no related party freight revenues in the periods ended March 31, 2011 and 2010 and
there were no related party receivables included in accounts receivable on the consolidated balance
sheets at March 31, 2011 or December 31, 2010, except contained in the caption Accounts Receivable
Affiliate, related primarily to the receivable from Finn related to the Acquisition. The $14,284
portion of the funding of the Acquisition purchase price represented the intrinsic value of the
share-based compensation for certain non-executive level employees. Per the American Commercial
Lines 2008 Omnibus Incentive Plan, which was assumed by Finn (See Note 12), on a change of control,
outstanding awards either vested or had to be rolled over to equity of the acquirer. The payout of
all of the interests of non-executive level employees and certain vested executive interests were
paid with proceeds of an advance on the Companys credit facility. The amount of the advance is
shown as a receivable from Finn and is partially offset by other normal intercompany transactions
between the Company and its direct and indirect parents.
On February 15, 2011 ACLs parent corporation, ACL I, completed a private placement of
$250,000 in aggregate principal amount of 10.625%/11.375% Senior Payment in Kind (PIK) Toggle
Notes due 2016. Interest on the Senior PIK Toggle Notes (the PIK Notes) will accrue at a rate of
10.625% with respect to interest paid in cash and a rate of 11.375% with respect to interest paid
by issuing additional Notes. Selection of the interest payment method is solely a decision of ACL
I. The net of original issue discount proceeds of the PIK Notes offering were used primarily to pay
a special dividend to the Companys shareholders to redeem equity advanced in connection with the
acquisition of the Company by Platinum and to pay certain costs and expenses
related to the notes offering. Other than the PIK Notes, neither ACL nor ACL I conducts activities
outside the Company. These notes are unsecured and not guaranteed by the Company.
The PIK Notes are not registered under the Securities Act of 1933, as amended and may not be
offered or sold in the United States absent registration or an applicable exemption from
registration.
Note 7. Business Segments
CBL has two significant reportable business segments: transportation and manufacturing. The
caption All other segments currently consists of our services company, which is much smaller than
either the transportation or manufacturing segment. ACLs transportation segment includes barge
transportation operations and fleeting facilities that provide fleeting, shifting, cleaning and
repair services at various locations along the Inland Waterways. The manufacturing segment
constructs marine equipment for external customers as well as for CBLs transportation segment. All
of the Companys international operations, civil construction and environmental consulting services
are excluded from segment disclosures due to the reclassification of those operations to
discontinued operations.
Management evaluates performance based on segment earnings, which is defined as operating
income. The accounting policies of the reportable segments are consistent with those described in
the summary of significant accounting policies described in the Companys filing on Form 10-K for
the year ended December 31, 2010.
Intercompany sales are transferred at the lower of cost or fair market value and intersegment
profit is eliminated upon consolidation.
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.
10
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reportable Segments | All Other | Intersegment | ||||||||||||||||||
Successor | Transportation | Manufacturing | Segments(1) | Eliminations | Total | |||||||||||||||
Quarter ended March 31, 2011 |
||||||||||||||||||||
Total revenue |
$ | 161,328 | $ | 27,981 | $ | 1,544 | $ | (12,192 | ) | $ | 178,661 | |||||||||
Intersegment revenues |
202 | 11,974 | 16 | (12,192 | ) | | ||||||||||||||
Revenue from external customers |
161,126 | 16,007 | 1,528 | | 178,661 | |||||||||||||||
Operating expense |
||||||||||||||||||||
Materials, supplies and other |
56,843 | | | | 56,843 | |||||||||||||||
Rent |
6,987 | | | | 6,987 | |||||||||||||||
Labor and fringe benefits |
30,243 | | | | 30,243 | |||||||||||||||
Fuel |
35,823 | | | | 35,823 | |||||||||||||||
Depreciation and amortization |
25,519 | | | | 25,519 | |||||||||||||||
Taxes, other than income taxes |
2,867 | | | | 2,867 | |||||||||||||||
Gain on disposition of equipment |
(25 | ) | | | | (25 | ) | |||||||||||||
Cost of goods sold |
| 16,444 | 552 | | 16,996 | |||||||||||||||
Total cost of sales |
158,257 | 16,444 | 552 | | 175,253 | |||||||||||||||
Selling, general & administrative |
17,067 | 608 | 1,066 | | 18,741 | |||||||||||||||
Total operating expenses |
175,324 | 17,052 | 1,618 | | 193,994 | |||||||||||||||
Operating loss |
$ | (14,198 | ) | $ | (1,045 | ) | $ | (90 | ) | $ | | $ | (15,333 | ) | ||||||
Reportable Segments | All Other | Intersegment | ||||||||||||||||||
Predecessor | Transportation | Manufacturing | Segments(1) | Eliminations | Total | |||||||||||||||
Quarter ended March 31, 2010 |
||||||||||||||||||||
Total revenue |
$ | 135,064 | $ | 25,485 | $ | 1,932 | $ | (14,185 | ) | $ | 148,296 | |||||||||
Intersegment revenues |
142 | 14,043 | | (14,185 | ) | | ||||||||||||||
Revenue from external customers |
134,922 | 11,442 | 1,932 | | 148,296 | |||||||||||||||
Operating expense |
||||||||||||||||||||
Materials, supplies and other |
49,821 | | | | 49,821 | |||||||||||||||
Rent |
5,238 | | | | 5,238 | |||||||||||||||
Labor and fringe benefits |
29,039 | | | | 29,039 | |||||||||||||||
Fuel |
27,887 | | | | 27,887 | |||||||||||||||
Depreciation and amortization |
11,074 | | | | 11,074 | |||||||||||||||
Taxes, other than income taxes |
3,118 | | | | 3,118 | |||||||||||||||
Gain on disposition of equipment |
(3,871 | ) | | | | (3,871 | ) | |||||||||||||
Cost of goods sold |
| 10,532 | 746 | | 11,278 | |||||||||||||||
Total cost of sales |
122,306 | 10,532 | 746 | | 133,584 | |||||||||||||||
Selling, general & administrative |
9,807 | 664 | 1,149 | | 11,620 | |||||||||||||||
Total operating expenses |
132,113 | 11,196 | 1,895 | | 145,204 | |||||||||||||||
Operating income |
$ | 2,809 | $ | 246 | $ | 37 | $ | | $ | 3,092 | ||||||||||
1) | Financial data for a segment below the reporting threshold is attributable to a segment that provides architectural design services. |
11
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8. Financial Instruments and Risk Management
CBL has price risk for fuel not covered by contract escalation clauses and in time periods
from the date of price changes until the next monthly or quarterly contract reset. From time to
time CBL has utilized derivative instruments to manage volatility in addition to contracted rate
adjustment clauses. Beginning in December 2007 the Company began entering into fuel price swaps
with commercial banks. In the quarter ended March 31, 2011 settlements occurred on contracts for
5.5 million gallons at a net gain of $2,055. In the quarter ended March 31, 2010 settlements
occurred on contracts for 5.3 million gallons at a net gain of $981. These gains were recorded as
a decrease to fuel expense, a component of cost of sales, as the fuel was used. The fair value of
unsettled fuel price swaps is listed in the following table. These derivative instruments have
been designated and accounted for as cash flow hedges, and to the extent of their effectiveness,
changes in fair value of the hedged instrument will be accounted for through other comprehensive
income until the hedged fuel is used at which time the gain or loss on the hedge instruments will
be recorded as fuel expense (cost of sales). Other comprehensive
income at March 31, 2011 of $6,617 and December 31, 2010 of $104,
consisted of gains on fuel hedging, net of tax provisions of $4,231
and $62 respectively. Hedge ineffectiveness is recorded in income as a
component of fuel expense as incurred.
The carrying amounts and fair values of CBLs financial instruments are as follows:
Fair Value of | ||||||||
Measurements at | ||||||||
Reporting Date Using | ||||||||
Markets for Identical | ||||||||
Description | 3/31/2011 | Assets (Level 1) | ||||||
Fuel Price Swaps |
$ | 14,045 | $ | 14,045 |
The amounts in other comprehensive income are expected to be recorded in income as the
underlying gallons are used.
At March 31, 2011, the increase in the fair value of the financial instruments is recorded as
a net receivable of $14,045 and as a net-of-tax deferred gain, less hedge ineffectiveness, in other
comprehensive income in the consolidated balance sheet. Hedge ineffectiveness resulted in a
decrease in fuel expense of $444 in the first quarter of 2011. The fair value of the fuel price
swaps is based on quoted market prices for identical instruments, or Level 1 inputs as to fair
value. The maturity of the fuel price swap contracts extends through February 2012. The Company may
increase the quantity hedged or add additional months based upon active monitoring of fuel pricing
outlooks by the management team.
Gallons | Dollars | |||||||
Fuel Price Swaps at December 31, 2010 |
7,638 | $ | 2,919 | |||||
1st Quarter 2011 Fuel Hedge Expense |
(5,501 | ) | (2,055 | ) | ||||
1st Quarter 2011 Changes |
24,900 | 13,181 | ||||||
Fuel Price Swaps at March 31, 2011 |
27,037 | $ | 14,045 | |||||
12
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9. Contingencies
A number of legal actions are pending against CBL 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 CBLs consolidated statements of operations, balance sheets and cash flows.
Stockholder litigation. On October 22, 2010, a putative class action lawsuit was commenced
against ACL, the direct parent of the Company, ACLs directors,
Platinum Equity LLC (Platinum Equity), Finn and Merger Sub in
the Court of Chancery of the State of Delaware. The lawsuit is captioned Leonard Becker v. American
Commercial Lines Inc., et al, Civil Action No. 5919-VCL. Plaintiff amended his complaint on
November 5, 2010, prior to a formal response from any defendant. On November 9, 2010, a second
putative class action lawsuit was commenced against us, our
directors, Platinum Equity, Finn and Merger
Sub in the Superior/Circuit Court for Clark County in the State of Indiana. The lawsuit is
captioned Michael Eakman v. American Commercial Lines Inc., et al., Case No. 1002-1011-CT-1344. In
both actions, plaintiffs allege generally that our directors breached their fiduciary duties in
connection with the Transaction by, among other things, carrying out a process that they allege did
not ensure adequate and fair consideration to our stockholders. They also allege that various
disclosures concerning the Transaction included in the Definitive Proxy Statement are inadequate.
They further allege that Platinum Equity aided and abetted the alleged breaches of duties. Plaintiffs
purport to bring the lawsuits on behalf of the public stockholders of the Company and seek
equitable relief to enjoin consummation of the merger, rescission of the merger and/or rescissory
damages, and attorneys fees and costs, among other relief. The Company believes the lawsuits are
without merit. On December 3, 2010, counsel for the parties in the Delaware action entered into a
Memorandum of Understanding (MOU) in which they agreed on the terms of a settlement of the
Delaware litigation, which includes the supplementation of the Definitive Proxy Statement and the
dismissal with prejudice of all claims against all of the defendants in both the Delaware and
Indiana actions. The proposed settlement is conditional upon, among other things, the execution of
an appropriate stipulation of settlement and final approval of the proposed settlement by the
Delaware Court of Chancery. Counsel for the named plaintiffs in both actions agreed to stay the
actions pending consideration of final approval of the settlement in the Delaware Court of
Chancery. Assuming such approval, the named plaintiffs in both actions would dismiss their
respective lawsuits with prejudice against all defendants. In connection with the settlement agreed
upon in the MOU, the parties contemplate that plaintiffs counsel will seek an award of attorneys
fees and expenses as part of the settlement. There can be no assurance that the parties will
ultimately enter into a stipulation of settlement or that the Delaware Court of Chancery will
approve the settlement as stipulated by the parties. In such event, the proposed settlement as
contemplated by the MOU may be terminated.
We have been involved in the following environmental matters relating to the investigation or
remediation of locations where hazardous materials have or might have been released or where we or
our vendors have arranged for the disposal of wastes. These matters include situations in which we
have been named or are believed to be a potentially responsible party (PRP) under applicable
federal and state laws.
Collision Incident, Mile Marker 97 of the Mississippi River. ACL and American Commercial Lines
LLC, a wholly-owned subsidiary of CBL, (ACLLLC), have been named as defendants in the following
putative class action lawsuits, filed in the United States District Court for the Eastern District
of Louisiana (collectively the Class Action Lawsuits): Austin Sicard et al on behalf of
themselves and others similarly situated vs. Laurin Maritime (America) Inc., Whitefin Shipping Co.
Limited, D.R.D. Towing Company, LLC, American Commercial Lines, Inc. and the New Orleans-Baton
Rouge Steamship Pilots Association, Case No. 08-4012, filed on July 24, 2008; Stephen Marshall
Gabarick and Bernard Attridge, on behalf of themselves and others similarly situated vs. Laurin
Maritime (America) Inc., Whitefin Shipping Co. Limited, D.R.D. Towing Company, LLC, American
Commercial Lines, Inc. and the New Orleans-Baton Rouge Steamship Pilots Association, Case No.
08-4007, filed on July 24, 2008; and Alvin McBride, on behalf of himself and all others similarly
situated v. Laurin Maritime (America) Inc.; Whitefin Shipping Co. Ltd.; D.R.D. Towing Co. LLC;
American Commercial Lines Inc.; The New Orleans-Baton Rouge Steamship Pilots Association, Case No.
09-cv-04494 B, filed on July 24, 2009. The McBride v. Laurin Maritime, et al. action has been
dismissed with prejudice because it was not filed prior to the deadline set by the Court. The
claims in the Class Action Lawsuits stem from the incident on July 23, 2008, involving one of
ACLLLCs tank barges that was being towed by DRD Towing Company L.L.C. (DRD), an independent
towing contractor. The tank barge was involved in a collision with the motor vessel Tintomara,
operated by Laurin Maritime, at Mile Marker 97 of the Mississippi River in the New Orleans area.
The tank barge was carrying approximately 9,900 barrels of #6 oil, of which approximately
two-thirds was released. The tank barge was damaged in the collision and partially sunk. There was
no damage to the towboat. The Tintomara incurred minor damage. The Class Action Lawsuits include
various allegations of adverse health and psychological damages, disruption of business operations,
destruction and loss of use of natural resources, and seek unspecified economic, compensatory and
punitive damages for claims of negligence, trespass and nuisance. The Class Action Lawsuits were
stayed pending the outcome of the two actions filed in the United States District Court for the
Eastern District of Louisiana seeking exoneration from, or limitation of, liability related to the
incident as discussed in more detail below. All claims in the class actions have been settled with
payment to be made from funds on deposit with the court in the IINA interpleader, mentioned below.
IINA is DRDs primary insurer. The settlement is agreed to by all parties and we are awaiting final
approval from the court and a dismissal of all lawsuits against all parties, including our
13
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
company, with prejudice. Claims under the Oil Pollution Act (OPA 90) were dismissed without
prejudice. There is a separate administrative process for making a claim under OPA 90 that must be
followed prior to litigation. We are processing OPA 90 claims properly presented, documented and
recoverable. We have also received numerous claims for personal injury, property damage and various
economic damages, including notification by the National Pollution Funds Center of claims it has
received. Additional lawsuits may be filed and claims submitted. The claims that remain for
personal injury are by the three DRD crewmen on the vessel at the time of the incident. Two crew
members have agreed to a settlement of their claims to be paid from the funds on deposit in the
interpleader action mentioned below. We are in early discussions with the Natural Resource Damage
Assessment Group, consisting of various State and Federal agencies, regarding the scope of
environmental damage that may have been caused by the incident. Recently Buras Marina filed suit in
the Eastern District of Louisiana in Case No. 09-4464 against the Company seeking payment for
rental cost of its marina for cleanup operations. ACL and ACLLLC have also been named as
defendants in the following interpleader action brought by DRDs primary insurer IINA seeking court
approval as to the disbursement of the funds: Indemnity Insurance Company of North America v. DRD
Towing Company, LLC; DRD Towing Group, LLC; American Commercial Lines, LLC; American Commercial
Lines, Inc.; Waits Emmet & Popp, LLC, Daigle, Fisse & Kessenich; Stephen Marshall Gabarick; Bernard
Attridge; Austin Sicard; Lamont L. Murphy, individually and on behalf of Murphy Dredging; Deep
Delta Distributors, Inc.; David Cvitanovich; Kelly Clark; Timothy Clark, individually and on behalf
of Taylor Clark, Bradley Barrosse; Tricia Barrosse; Lynn M. Alfonso, Sr.; George C. McGee; Sherral
Irvin; Jefferson Magee; and Acy J. Cooper, Jr., United States District Court, Eastern District of
Louisiana, Civil Action 08-4156, Section I-5, filed on August 11, 2008. DRDs excess insurers,
IINA and Houston Casualty Company intervened into this action and deposited $9,000 into the Courts
registry. ACLLLC has filed two actions in the United States District Court for the Eastern District
of Louisiana seeking exoneration from or limitation of liability relating to the foregoing incident
as provided for in Rule F of the Supplemental Rules for Certain Admiralty and Maritime Claims and
in 46 U.S.C. sections 30501, 30505 and 30511. We have also filed a declaratory judgment action
against DRD seeking to have the contracts between them declared void ab initio. Trial has been
set for August of 2011 and discovery has begun. We participated in the U.S. Coast Guard
investigation of the matter and participated in the hearings which have concluded. A finding has
not yet been announced. We have also made demand on DRD (including its insurers as an additional
insured) and Laurin Maritime for reimbursement of cleanup costs, defense and indemnification.
However, there is no assurance that any other party that may be found responsible for the accident
will have the insurance or financial resources available to provide such defense and
indemnification. We have various insurance policies covering pollution, property, marine and
general liability. While the cost of cleanup operations and other potential liabilities are
significant, we believe our company has satisfactory insurance coverage and other legal remedies to
cover substantially all of the cost.
At March 31, 2011, approximately 600 employees of the Companys manufacturing segment were
represented by a labor union under a contract that expires in April 2013.
At March 31, 2011, approximately 20 positions at ACL Transportation Services LLCs terminal
operations in St. Louis, Missouri, are represented by the International Union of United Mine
Workers of America, District 12-Local 2452 (UMW), under a collective bargaining agreement that
expired March 14, 2011, after a short extension for negotiations. We have unilaterally implemented
new contract terms, mostly terms agreed with the UMW, and the employees continue to work without
interruption.
Although we believe that our relations with our employees and with the recognized labor unions
are generally good, we cannot assure that we will be able to reach agreement on renewal terms of
these contracts or that we will not be subject to work stoppages, other labor disruption or that we
will be able to pass on increased costs to our customers in the future.
Note 10. Share-Based Compensation
ACL initially reserved the equivalent of approximately 54,000 shares of Finn for
grants to employees and directors under the American Commercial Lines Inc. 2008 Omnibus Incentive
Plan (the Plan). According to the terms of the Plan, forfeited share awards and expired stock
options become available for future grants.
Prior to 2009 share-based awards were made to essentially all employees. Since 2009 the
Company has restructured its compensation plans and share-based awards have been granted to a
significantly smaller group of salaried employees. This change reduced the amount of share-based
compensation in the first quarters of both 2011 and 2010. No share-based awards were granted in
the first quarter 2011.
For all share-based compensation, as participants render service over the vesting periods,
expense is recorded to the same line items used for cash compensation. Generally, this expense is
for the straight-line amortization of the grant date fair market value adjusted for expected
forfeitures. Other capital is correspondingly increased as the compensation is recorded. Grant date
fair market value for all non-option share-based compensation is the closing market value on the
date of grant. Adjustments to estimated forfeiture rates are made when actual results are known,
generally when awards are fully earned. Adjustments to estimated forfeitures for awards not fully
vested occur when significant changes in turnover rates become evident.
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective as of the date of the Acquisition on December 21, 2010, all awards that had been
granted to non-executive employees and to the former ACL board members vested and were paid out
consistent with certain provisions in the Plan. The payment of the intrinsic value of these awards
totaling $14,284 was a part of the consideration paid for the Acquisition and included certain
previously vested executive shares. This payment by the Company is recorded as an element of the
intercompany receivable balance on the condensed consolidated balance sheet. Unvested awards
previously granted to Company executives under the Plan were assumed by Finn. There were no changes
in the terms and conditions of the awards, except for adjustment to denomination in Finn shares for
all award types and conversion to time-based vesting as to the performance units. At March 31,
2011, 8,799 shares were available under the Plan for future awards, but there is no intention that
any further awards will be granted under the Plan. See Note 12.
During the quarter ended March 31, 2011, 3,823 restricted stock units and 8,277 stock options,
held by Company executives vested. This vesting event resulted in an increase in additional paid
in capital and a tax benefit for the excess of the intrinsic value of the restricted units at the
vesting date over the fair value at the date of grant of $1,090.
In the quarter ended March 31, 2011, the Company recorded total stock-based employee
compensation of $1,493. This total included $619 for expense related to certain executive
outstanding awards which accelerated in accordance with the terms of the Plan at the date of their
separation from service during the quarter. The intrinsic value of awards held by separating
executives was paid by the Company to the participants upon their separation from the Company,
increasing the Companys intercompany receivable from Finn. An income tax benefit on the
compensation expense of $559 was recognized for the quarter ended March 31, 2011.
Also during the quarter ended March 31, 2011, subsequent to the issuance of $250,000 of
unsecured PIK Notes by ACL I, ACLs parent company (See Note 6), Finn declared a dividend of
$258.50 per share for each outstanding share which was paid to Finn shareholders during the
quarter. This reduced Finns initial capital of $460,000 to $201,500. Per the terms of the Plan,
holders of outstanding share-based equity awards were entitled to receive either dividend rights,
participation in the dividend or adjustment of awards to maintain the then-current intrinsic value
of the existing awards. Finn elected to pay the dividend per share to holders of vested restricted
stock units and performance units and to adjust the strike prices and number of options issued to
maintain the intrinsic value at date of dividend, or some combination of such actions. The
dividend resulted in payments of $3,659 to Company executives at the date of the dividend, with all
remaining share-based awards new intrinsic value based on shares of Finn valued at $201.50 per
share. The $3,659 payment was made by CBL and increased the Companys related receivable from
Finn.
As of March 31, 2011, there were 11,620 options outstanding with a weighted average exercise
price of $50.11 and 8,154 unvested restricted stock units outstanding.
Note 11. Acquisitions, Dispositions and Impairment
On December 21, 2010, Finn through the merger of Finn Merger Corporation,
a wholly-owned subsidiary of ACL I, (both of whom had no other business activity at the Acquisition date outside the
acquisition), completed the acquisition of all of the outstanding equity of ACL, which had its
common shares publicly traded since October 7, 2005. ACL is the direct parent of the Company. The
purchase price has been preliminarily (pending finalization of valuation of certain acquired
tangible and intangible assets and liabilities assessment) allocated and pushed down to the
Company. The periods after the Acquisition have been, where appropriate designated in these
condensed consolidated financial statements by the heading Successor Company.
The funding of the purchase was made by cash of $460,000 invested in ACL I. $418,277, in
aggregate was paid to acquire all of the outstanding shares on the Acquisition date. As further
discussed in Note 12 certain participants in the share-based compensation plans of ACL
(specifically all non-executive participants, including former board members and certain payments
to executives for vested share-based holdings) were paid a total of $14,284 representing the
intrinsic value of their vested and unvested shares at the acquisition date computed by multiplying
the number of restricted stock units and performance restricted stock units by $33.00 per unit,
with in the money non-qualified stock options valued by $33.00 minus the strike prices of the
underlying options. This payment was funded by the Company and represents a component of the
intercompany receivable from Finn on the Companys statement of financial position. This payment
brought the total cash consideration paid to $432,561. In addition ACL I assumed the concurrently
funded obligations under the Companys Existing Credit Facility in the amount of $169,204 including
obligation for the payment of $15,170 in debt costs which were paid out of the initial draw down on
the Existing Credit Facility. These debt costs were capitalized and will be amortized to interest
expense on the effective interest method over the expected life of the Existing Credit Facility.
All expenses associated with the transaction were expensed. As further discussed in Note 2, the
Company had previously issued $200,000 in 2017 maturity, 12.5% face rate senior notes which remain
in place. At the acquisition date these publicly traded senior notes were trading at 117.5,
yielding a fair market value of $235,000 on the acquisition date, an additional element of the
purchase consideration.
15
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The summation of the consideration paid is in the following table.
Paid to Zell affiliates |
$ | 101,077 | ||
Paid to remaining shareholders |
317,200 | |||
Payments to Share-based compensation holders |
14,284 | |||
Assumed Credit Facility |
169,204 | |||
Fair value of the 2017 Senior Notes |
235,000 | |||
Purchase price |
$ | 836,765 | ||
Allocation of the Purchase Price
The purchase price has been preliminarily (pending finalization of valuation of certain
acquired tangible and intangible assets and liabilities assessment) allocated as indicated in the
following table based primarily on third party appraisal of the major assets and liabilities. These
adjustments to fair value are based on Level 3 inputs as defined in FASB guidance on fair value.
The amounts allocated to goodwill consist primarily of the value of the Companys assembled
workforces in its transportation and manufacturing segments, but has not yet been allocated to
those segments at March 31, 2011. The amount of goodwill is not tax deductible.
Cash and cash equivalents |
$ | 22,468 | ||
Trade receivables acquired at fair value |
90,693 | |||
Other working capital, net |
(29,958 | ) | ||
Land |
20,002 | |||
Buildings/Land Improvements |
42,187 | |||
Boats |
294,534 | |||
Barges |
543,403 | |||
Construction-in-progress |
13,110 | |||
Other long-lived tangible assets |
67,780 | |||
Favorable charter contracts |
25,761 | |||
Other long term assets |
23,841 | |||
Equity Investments |
5,725 | |||
Jeffboat tradename and intangibles |
4,500 | |||
Unfavorable contracts |
(61,300 | ) | ||
Multi-employer pension liability |
(3,497 | ) | ||
Pension and post retirement |
(35,102 | ) | ||
Net deferred tax |
(207,852 | ) | ||
Goodwill |
20,470 | |||
Total |
$ | 836,765 | ||
16
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COMMERCIAL BARGE LINE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dispositions and Impairments
Three boats were placed into held for sale in the second quarter 2010. One has been returned
to active service. At the date returned to service depreciation expense was recorded for the
period of its classification as held for sale. The other two boats are, at March 31, 2011, still
being actively marketed.
Note 12. Subsequent Event
On April 12, 2011, Finn, the indirect parent of the Company, adopted the Finn Holding
Corporation 2011 Participation Plan (the Participation Plan) to provide incentive to key
employees of Finn and its subsidiaries by granting performance units
to key employees including
the Companys named executive officers, to provide incentive for
the key employees to maximize Finns performance and to provide maximum
returns to Finns stockholders. The Participation Plan may be altered, amended or terminated by
Finn at any time.
Under
the Participation Plan, the value of the performance units is related to the
appreciation in the value of Finn and its subsidiaries, which
includes the Company, from and after the date of grant and the performance units
vest over a period specified in the applicable award agreement. Participants in the Participation
Plan may be entitled to receive compensation for their vested units if certain performance-based
qualifying events occur during the participants employment with the Company. These qualifying
events are described below. The Compensation Committee for the Participation Plan (the Committee)
determines who is eligible to receive an award, the size and timing of the award and the value of
the award at the time of grant. The maximum number of performance units that may be awarded under
the Participation Plan is 36,800,000. The performance units generally mature according to the terms
approved by the Committee and set forth in a grant agreement. Payment on the performance units is
contingent upon the occurrence of either (i) a sale of some or all of Finn common stock by its
stockholders, or (ii) Finns payment of a cash dividend. The Participation Plan will expire April
1, 2016 and all performance units will terminate upon the expiration of the Participation Plan,
unless sooner terminated pursuant to the terms of the Participation Plan.
Upon the occurrence of a qualifying event, participants with vested units may receive an
amount equal to the difference between: (i) the value (as defined by the Participation Plan) of the
units on the date of the qualifying event, and (ii) the value of the units assigned on the date of
grant. No amounts are due to participants until the total cash dividends and net proceeds from the
sale of common stock exceed values pre-determined by the Participation Plan. The Company will
account for any grants made pursuant to this Participation Plan in accordance with FASB ASC 718,
"Compensation Stock Compensation (ASC 718). It is anticipated that since the occurrence of
future qualifying events is not determinable or estimable, no liability or expense will be
recognized until the qualifying event(s) becomes probable and can be estimated.
17
Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) |
This MD&A includes certain forward-looking statements that involve many risks and
uncertainties. When used, words such as anticipate, expect, believe, intend, may be,
will be and similar words or phrases, or the negative thereof, unless the context requires
otherwise, are intended to identify forward-looking statements. These forward-looking statements
are based on managements present expectations and beliefs about future events. As with any
projection or forecast, these statements are inherently susceptible to uncertainty and changes in
circumstances. The Company is under no obligation to, and expressly disclaims any obligation to,
update or alter its forward-looking statements whether as a result of such changes, new
information, subsequent events or otherwise.
See the risk factors included in Item 1A of this report for a detailed discussion of important
factors that could cause actual results to differ materially from those reflected in such
forward-looking statements. The potential for actual results to differ materially from such
forward-looking statements should be considered in evaluating our outlook.
INTRODUCTION
MD&A is provided as a supplement to the accompanying condensed consolidated financial
statements and footnotes to help provide an understanding of the financial condition, changes in
financial condition and results of operations of Commercial Barge Line Company (the Company).
MD&A should be read in conjunction with, and is qualified in its entirety by reference to, the
accompanying condensed consolidated financial statements and footnotes. MD&A is organized as
follows.
Overview. This section provides a general description of the Company and its business, as well
as developments the Company believes are important in understanding the results of operations and
financial condition or in understanding anticipated future trends.
Results of Operations. This section provides an analysis of the Companys results of
operations for the three months ended March 31, 2011 compared to the results of operations for the
three months ended March 31, 2010.
Liquidity and Capital Resources. This section provides an overview of the Companys sources of
liquidity, a discussion of the Companys debt that existed as of March 31, 2011, and an analysis of
the Companys cash flows for the three months ended March 31, 2011, and March 31, 2010.
Changes in Accounting Standards. This section describes certain changes in accounting and
reporting standards applicable to the Company.
Critical Accounting Policies. This section describes any significant changes in accounting
policies that are considered important to the Companys financial condition and results of
operations, require significant judgment and require estimates on the part of management in
application from those previously described in the Companys filing on Form 10-K for the year ended
December 31, 2010. The Companys significant accounting policies include those considered to be
critical accounting policies.
Quantitative and Qualitative Disclosures about Market Risk. This section discusses our
analysis of significant changes in exposure to potential losses arising from adverse changes in
fuel prices and interest rates since our filing on Form 10-K for the fiscal year ended December 31,
2010.
Due to the acquisition of the Companys parent, ACL, on December 21, 2010 more fully described
in the notes to the condensed consolidated financial statements and the push-down of the purchase
price allocation, the financial data in this MD&A as to the 2011 quarter should be regarded as
Successor Company data and as to the 2010 quarter as Predecessor Company data. Where appropriate,
significant fluctuations caused by the new basis of accounting due to the push-down of the purchase
price allocation are separately described herein.
OVERVIEW
Our Business
The Company
Commercial Barge Line Company (CBL or the Company), a Delaware corporation, is one of the
largest and most diversified inland marine transportation and service companies in the United
States. CBL provides barge transportation and related services under the provisions of the Jones
Act and manufactures barges, primarily for brown-water use. CBL also provides certain naval
architectural services to
18
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its customers. CBL was incorporated in 2004. CBL is a wholly-owned subsidiary of American
Commercial Lines Inc. (ACL). ACL is a wholly-owned subsidiary of ACL I Corporation (ACL I). ACL
I is a wholly owned subsidiary of Finn Holding Corporation (Finn). Finn is owned by certain
affiliates of Platinum Equity, LLC (Platinum). On December 21, 2010, we announced the
consummation of the previously announced acquisition of ACL by Platinum (the Acquisition). The
Acquisition was accomplished through the merger of Finn Merger Corporation, a Delaware corporation
and a wholly owned subsidiary of ACL I, a Delaware corporation, with
and into ACL.
The assets of ACL consist principally of its ownership of all of the stock of CBL. The assets
of CBL consist primarily of its ownership of all of the equity interests in American Commercial
Lines LLC, ACL Transportation Services LLC, and Jeffboat LLC, Delaware limited liability companies,
and their subsidiaries. Additionally, CBL owns ACL Professional Services, Inc., a Delaware
corporation. CBL is responsible for corporate income taxes. ACL and CBL do not conduct any
operations independent of their ownership interests in the consolidated subsidiaries.
The Platinum Equity group (Platinum Group) is a global acquisition firm headquartered in
Beverly Hills, California with offices in Boston, New York and London. Since its founding in 1995,
Platinum Group has completed more than 115 acquisition in a broad range of market sectors including
technology, industrials, logistics, distribution, maintenance and service. Platinum Groups current
portfolio includes over 30 companies. The firm has a diversified capital base that includes the
assets of its portfolio companies as well as capital commitments from institutional investors in
private equity funds managed by the firm.
We currently operate in two primary business segments, transportation and manufacturing. We
are the third largest provider of dry cargo barge transportation and second largest provider of
liquid tank barge transportation on the United States Inland Waterways, which consists of the
Mississippi River System, its connecting waterways and the Gulf Intracoastal Waterway (the Inland
Waterways), accounting for 11.6% of the total inland dry cargo barge fleet and 10.8% of the total
inland liquid cargo barge fleet as of December 31, 2010, according to InformaEconomics, Inc., a
private forecasting service (Informa).
Our operations are tailored to service a wide variety of shippers and freight types. We
provide additional value-added services to our customers, including warehousing and third-party
logistics through our BargeLink LLC joint venture. Our operations incorporate advanced fleet
management practices and information technology systems which allows us to effectively manage our
fleet.
Our manufacturing segment was the second largest manufacturer of brown-water barges in the
United States in 2010 according to Criton industry data.
Elliot Bay Design Group (EBDG), which we acquired during the fourth quarter of 2007, is much
smaller than either the transportation or manufacturing segment and is not significant to the
primary operating segments of CBL. EBDG is a naval architecture and marine engineering firm, which
provides architecture, engineering and production support to customers in the commercial marine
industry, while providing ACL with expertise in support of its transportation and manufacturing
businesses.
Certain of the Companys former operations have been recorded as discontinued operations in
all periods presented due to the sale of those entities in prior periods. We sold our wholly-owned
subsidiary, Summit Contracting LLC, in November 2009. All remaining activity relates to final sale
consideration settlement. All of our international operations in Venezuela and the Dominican
Republic were sold in 2006. The only remaining activity related to the international businesses is
the formal exit from the Dominican Republic.
The Industry
For purposes of industry analysis, the commodities transported in the Inland Waterways can be
broadly divided into four categories: grain, bulk, coal, and liquids. Using these broad cargo
categories, the following graph depicts the total millions of tons shipped through the United
States Inland Waterways for 2010, 2009 and the prior five year average by all carriers according to
data from the US Army Corps of Engineers Waterborne Commerce Statistics Center (the Corps). The
Corps does not estimate ton-miles, which we believe is a more accurate volume metric. Note that the
most recent periods are typically estimated for the Corps purposes by lockmasters and
retroactively adjusted as shipper data is received.
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Source: U.S. Army Corps of Engineers Waterborne Commerce Statistics Center
Consolidated Financial Overview
For the quarter ended March 31, 2011 the Company had a net loss of $13.9 million compared to a
net loss of $3.5 million in the quarter ended March 31, 2010. Approximately $9.2 million of the
decrease in net income was attributable to the push-down of the preliminary purchase price
allocation which impacted the Successor companys performance in the first quarter of 2011. The
impacts were primarily due to depreciation and lower gains on disposal of assets due to the impact
of higher fair values of assets in the Successor companys 2011 accounting basis and the negative
impact of amortization of favorable lease assets. Purchase price accounting also drove higher fuel
and steel costs in the quarter ended March 31, 2011, compared to the 2010 quarter due to the
write-up of these assets at December 21, 2010. These higher expenses were partially offset by
lower interest expense resulting from amortization of the premium on the Companys senior notes and
the deferred tax benefit related to the revaluations. The remaining change in the respective
periods resulted from a decline in the operating ratio on higher transportation segment revenues
driven by higher fuel costs, costs of less favorable operating conditions and lower manufacturing
margins, partially offset by the impact of lower interest rates on the credit facility negotiated
at the Acquisition date.
The primary causes of changes in operating income in our transportation and manufacturing
segments are generally described in the segment overview below in this consolidated financial
overview section and more fully described in the Operating Results by Business Segment within this
Item 2.
For the quarter ended March 31, 2011, EBITDA from continuing operations was $12.3 million
compared to $15.1 million in the same period of the prior year. EBITDA from continuing operations
as a percent of revenue of 6.9% decreased by 3.3 points quarter-over-quarter. See the table at
the end of this Consolidated Financial Overview and Selected Financial Data for a definition of
EBITDA and a reconciliation of EBITDA to consolidated net loss.
During the three months ended March 31, 2011, $10.0 million of capital expenditures was
primarily attributable to completion of 25 new covered, dry cargo barges for the transportation
segment, boat and barge capital improvements and facilities improvements.
During the first quarter of 2011, average face amount of outstanding debt increased
approximately $21.0 million from the fourth quarter of the prior year, primarily driven by the
timing of the payment of the 2010 incentive awards. Total interest expense for the first quarter
of 2011 was $7.5 million or $2.4 million lower than those expenses in the same quarter of 2010.
Approximately $1.4 million of the lower interest expense is attributable to the amortization of the
$35.0 million Acquisition date premium on the Companys $200 million in 2017 Notes
compared to the $0.3 amortization of the original issue discount on those notes in the first
quarter of 2010. Interest expense was also reduced by the lower effective rate on the Companys
new credit facility when compared to the facility in place in the first quarter of 2010 and lower
debt issuance cost amortization in 2011.
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Asset management actions including boat sales, impairment adjustments and scrapping of surplus
barges in the first quarter of 2011 was less than $0.1 million or $4.3 million lower than the same
period of 2010.
At March 31, 2011, we had total indebtedness of $428.3 million, including the $33.4 million
premium recorded at the Acquisition date to recognize the fair value of the Senior Notes, net of
amortization through March 31, 2011. At this level of debt we had $195.1 million in remaining
availability under our bank credit facility. The bank credit facility has no maintenance financial
covenants unless borrowing availability is generally less than $59.4 million. At March 31, 2011,
debt levels we were $135.7 million above this threshold.
Segment Overview
We operate in two predominant business segments: transportation and manufacturing.
Transportation
The transportation segment produces several significant revenue streams. Our customers engage
us to move cargo for a per ton rate from an origin point to a destination point along the Inland
Waterways on the Companys barges, pushed primarily by the Companys towboats under affreightment
contracts. Affreightment contracts include both term and spot market arrangements.
Non-affreightment revenue is generated either by demurrage charges related to affreightment
contracts or by one of three other distinct contractual arrangements with customers: charter/day
rate contracts, outside towing contracts, or other marine services contracts.
Under charter/day rate contracts the Companys boats and barges are leased to third parties
who control the use (loading, movement, unloading) of the vessels. The ton-miles for charter/day
rate contracts are not included in the Companys tracking of affreightment ton-miles, but are
captured and reported as part of ton-miles non-affreightment.
Outside towing revenue is earned by moving barges for other affreightment carriers at a
specific rate per barge move.
Marine services revenue is earned for fleeting, shifting and cleaning services provided to
third parties.
Transportation revenue for each contract type for the quarter ended March 31, 2011, is
summarized in the key operating statistics table.
Total affreightment volume measured in ton-miles increased in the first quarter of 2011 to 8.2
billion compared to 7.5 billion in the same period of the prior year with the 13.3% decline in
grain ton-mile volume more than offset by increases in coal, bulk, towing and liquid volume.
For the first quarter 2011, non-affreightment revenues increased by $3.4 million, or 8.2%,
primarily due to higher demurrage, and towing revenue. Our transportation segments revenue stream
within any year reflects the variance in seasonal demand, with revenues earned in the first half of
the year lower than those earned in the second half of the year. Historically, grain has
experienced the greatest degree of seasonality among all the commodity segments, with demand
generally following the timing of the annual harvest. Demand for grain movement generally begins
around the Gulf Coast and Texas regions and the southern portions of the Lower Mississippi River,
or the Delta area, in late summer of each year. The demand for freight spreads north and east as
the grain matures and harvest progresses through the Ohio Valley, the Mid-Mississippi River area,
and the Illinois River and Upper Mississippi River areas. System-wide demand generally peaks in
the mid-fourth quarter. Demand normally tapers off through the mid-first quarter, when traffic is
generally limited to the Ohio River as the Upper Mississippi River normally closes from
approximately mid-December to mid-March, and ice conditions can hamper navigation on the upper
reaches of the Illinois River. The annual differential between peak and trough rates averaged 106%
a year over the last five years. Our achieved grain pricing, across all river segments, which rose
9.3% for the 2010 full year, was up 22.9% in the quarter ended March 31, 2011 compared to the same
period of the prior year.
Overall transportation revenues increased approximately 11.3% on a fuel neutral basis in the
first quarter of 2011 compared to the same period of the prior year. The increase in the quarter
was driven by volume increases in chemicals, steel and pig iron, coal and energy and demurrage,
partially offset by lower salt volumes.
Revenues per average barge operated increased 24.2% in the first quarter of 2011, compared to
the same periods of the prior year. Approximately 84% of the increase in the quarter was driven by
increased affreightment revenue with the remainder attributable to the change in non-affreightment
revenue.
The $17.0 million decline in the transportation segments operating income in the quarter was
attributable to depreciation and amortization increases of $14.4 million, $7.9 million higher fuel
costs, selling, general and administrative expense increases of $7.3 million, higher operating
costs of $7.0 million and $3.8 million lower gains on disposition of equipment which were not fully
absorbed by the $26.2 million increase in segment revenue.
The increases in depreciation and amortization were driven by the push-down of the Acquisition
date purchase price allocation resulting in a higher depreciable cost basis in the 2011 quarter.
The lower gains on asset disposition resulted from the rollover impact of a 2010 first
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quarter gain
on the sale of a boat.
The
increase in SG&A resulted primarily from higher consulting
expenses related to the post-Acquisition transition, higher severance related expenses, the Platinum
Equity Advisors, LLC management fee,
partially offset by improved bad debt levels, lower outside legal expenses and lower public company
expenses.
The $7.0 million in higher operating costs were primarily related to higher boat and barge
repairs, higher cargo claims, higher outside shifting, fleeting, cleaning and towing expenses.
Net fuel prices increased in the quarter by 1.5 points to 22.2% of segment revenues or $35.8
million. Fuel consumption was up approximately 2.0% for the quarter compared to the same period of
the prior year driven by the increase in ton-miles. The average net-of-hedge-impact price per
gallon increased 26.0% to $2.61 per gallon in the quarter.
Key operating statistics regarding our transportation segment are summarized in the following
table.
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Key Operating Statistics
Three | % Change to | |||||||
Months Ended | Prior Year Quarter | |||||||
March 31, 2011 | Increase (Decrease) | |||||||
Ton-miles (000s): |
||||||||
Total dry |
6,798,112 | 7.8 | % | |||||
Total liquid |
564,577 | 16.7 | % | |||||
Total affreightment ton-miles |
7,362,689 | 8.4 | % | |||||
Total non-affreightment ton-miles |
867,245 | 28.3 | % | |||||
Total ton-miles |
8,229,934 | 10.2 | % | |||||
Average ton-miles per affreightment barge |
3,249 | 13.2 | % | |||||
Rates per ton mile: |
||||||||
Dry rate per ton-mile |
15.3 | % | ||||||
Fuel neutral dry rate per ton-mile |
12.3 | % | ||||||
Liquid rate per ton-mile |
7.7 | % | ||||||
Fuel neutral liquid rate per-ton mile |
1.5 | % | ||||||
Overall rate per ton-mile |
$ | 15.84 | 14.8 | % | ||||
Overall fuel neutral rate per ton-mile |
$ | 15.35 | 11.3 | % | ||||
Revenue per average barge operated |
$ | 66,996 | 24.2 | % | ||||
Fuel price and volume data: |
||||||||
Fuel price |
$ | 2.61 | 26.0 | % | ||||
Fuel gallons |
13,748 | 2.0 | % | |||||
Revenue data (in thousands): |
||||||||
Affreightment revenue |
$ | 116,396 | 24.4 | % | ||||
Towing |
10,933 | 30.6 | % | |||||
Charter and day rate |
17,000 | 4.7 | % | |||||
Demurrage |
11,838 | 22.6 | % | |||||
Other |
4,959 | (29.8 | %) | |||||
Total non-affreightment revenue |
44,730 | 8.2 | % | |||||
Total transportation segment revenue |
$ | 161,126 | 19.4 | % | ||||
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Data regarding changes in our barge fleet for the quarter ended March 31, 2011, is summarized
in the following table.
Barge Fleet Changes
Current Quarter | Dry | Tankers | Total | |||||||||
Barges operated as of the end of the 4th qtr of 2010 |
2,086 | 325 | 2,411 | |||||||||
Retired (includes reactivations) |
(28 | ) | (7 | ) | (35 | ) | ||||||
New builds |
25 | | 25 | |||||||||
Purchased |
| | | |||||||||
Change in number of barges leased |
(3 | ) | | (3 | ) | |||||||
Barges
operated as of the end of the 1st qtr of 2011 |
2,080 | 318 | 2,398 | |||||||||
Data regarding our boat fleet at March 31, 2011, is contained in the following table.
Owned Boat Counts and Average Age by Horsepower Class
Average | ||||||||
Horsepower Class | Number | Age | ||||||
1950 or less |
35 | 33.0 | ||||||
Less than 4300 |
22 | 35.0 | ||||||
Less than 6200 |
43 | 36.3 | ||||||
7000 or over |
11 | 32.5 | ||||||
Total/overall age |
111 | 34.6 | ||||||
In addition, the Company had 17 chartered boats in service at March 31, 2011. Average life of
a boat (with refurbishment) exceeds 50 years. At March 31, 2011, two boats were classified as
assets held for sale.
We had significantly less weather-related lost barge days in the quarter ended March 31, 2011
than in the prior year quarter which resulted in approximately $1.6 million higher boat
productivity in the quarter.
Manufacturing
The manufacturing segment had an operating loss of $1.0 million in the quarter ended March 31,
2011 compared to $0.2 million of operating income the comparable period of 2010. Though we sold 25
total barges more than in the first quarter of 2010, the mix of tank barges and hoppers was
different. In 2011, the manufacturing segment completed the final six deck barges of a production
run of forty deck barges begun in the third quarter of 2010 which resulted in breakeven operating
income in the quarter as the expected losses on the remaining deck barges had been accrued in 2010.
The lack of operating income on these deck barges, combined with the impact of purchase accounting
push-down of Acquisition date steel values on the remaining 23 hopper barges drove the small
operating loss in the quarter. During the first quarter of 2010 the segment sold three over-sized
liquid tank barges and one ocean-going tank barge. First quarter 2011 production was primarily bid
during the recent recession at very thin margins, which ultimately were not sufficient to absorb
the higher acquisition date value of steel, most of which had been pre-bought at lower cost to lock
in positive margins.
Manufacturing had 21 weather-related lost production days in the quarter, a decrease of four
days in the quarter compared to the same period of the prior year.
Jeffboat built 25 and 33 dry covered hoppers, respectively, in the first quarter of 2011 and
2010 for our transportation segment. Our external backlog was $96.6 million at March 31, 2011
compared to $102.4 million at December 31, 2010. This represents full capacity at the shipyard for
the balance of 2011, since remaining slots are expected to be utilized for internal use barges.
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Manufacturing Segment Units Produced for External Sales or Internal Use
Quarters Ended March 31, | ||||||||
2011 | 2010 | |||||||
External sales: |
||||||||
Liquid tank barges |
| 3 | ||||||
Ocean tank barges |
| 1 | ||||||
Deck barges |
6 | | ||||||
Dry cargo barges |
23 | | ||||||
Total external units sold |
29 | 4 | ||||||
Internal sales: |
||||||||
Liquid tank barges |
| | ||||||
Dry cargo barges |
25 | 33 | ||||||
Total units into production |
25 | 33 | ||||||
Total units produced |
54 | 37 | ||||||
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Consolidated Financial Overview Non-GAAP Financial Measure Reconciliation
NET LOSS TO EBITDA RECONCILIATION
(Dollars in thousands - Unaudited)
Successor | Predecessor | |||||||
Quarter Ended | Quarter Ended | |||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Net loss from continuing operations |
$ | (13,868 | ) | $ | (3,480 | ) | ||
Discontinued operations, net of income taxes |
(8 | ) | | |||||
Consolidated net loss |
$ | (13,876 | ) | $ | (3,480 | ) | ||
Adjustments from continuing operations: |
||||||||
Interest income |
(55 | ) | (1 | ) | ||||
Interest expense |
7,468 | 9,853 | ||||||
Depreciation and amortization |
27,525 | 11,999 | ||||||
Taxes |
(8,803 | ) | (3,227 | ) | ||||
Adjustments from discontinued operations: |
||||||||
Interest income |
| | ||||||
Interest expense |
| | ||||||
Depreciation and amortization |
| | ||||||
Taxes |
| | ||||||
EBITDA from continuing operations |
12,267 | 15,144 | ||||||
EBITDA from discontinued operations |
(8 | ) | | |||||
Consolidated EBITDA |
$ | 12,259 | $ | 15,144 | ||||
Selected segment EBITDA calculations: |
||||||||
Transportation net loss |
$ | (12,757 | ) | $ | (3,745 | ) | ||
Interest income |
(55 | ) | (1 | ) | ||||
Interest expense |
7,468 | 9,853 | ||||||
Depreciation and amortization |
25,519 | 11,074 | ||||||
Taxes |
(8,803 | ) | (3,227 | ) | ||||
Transportation EBITDA |
$ | 11,372 | $ | 13,954 | ||||
Manufacturing net loss |
$ | (1,021 | ) | $ | 228 | |||
Depreciation and amortization |
1,987 | 841 | ||||||
Total Manufacturing EBITDA |
966 | 1,069 | ||||||
Intersegment profit |
| | ||||||
External Manufacturing EBITDA |
$ | 966 | $ | 1,069 | ||||
Management considers EBITDA to be a meaningful indicator of operating performance and uses it
as a measure to assess the operating performance of the Companys business segments. EBITDA
provides management with an understanding of one aspect of earnings before the impact of investing
and financing transactions and income taxes. Additionally, covenants in our debt agreements
contain financial ratios based on EBITDA. EBITDA should not be construed as a substitute for net
income or as a better measure of liquidity than cash flow from operating activities, which is
determined in accordance with generally accepted accounting principles (GAAP). EBITDA excludes
components that are significant in understanding and assessing our results of operations and cash
flows. In addition, EBITDA is not a term defined by GAAP and as a result our measure of EBITDA
might not be comparable to similarly titled measures used by other companies.
The Company believes that EBITDA is relevant and useful information, which is often reported
and widely used by analysts, investors and other interested parties in our industry. Accordingly,
the Company is disclosing this information to allow a more comprehensive analysis of its operating
performance.
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Outlook
Second Quarter 2011 Weather Event
As the Companys second quarter of 2011 began, consistent, continuing heavy rains have
exacerbated the high water impacts of record winter snowfalls in the northern United States,
resulting in record floods throughout the Inland Waterways. Though some level of
spring flooding is normal, the impacts in the current year have been more prolonged and severe. We
incurred over 4,000 lost barge days for the month of April, 2011, or almost 150% of the total lost
barge days for the entire second quarter of 2010. The Companys
terminals and many of our customers terminals have had
logistical interruptions during the flooding.
As of the beginning of May, the National Oceanic and Atmospheric Administrations forecast of
anticipated river crests, which assume only 24 hours of additional rainfall in affected areas, call
for crests, on average, more than 10 feet above flood stage at all reporting points along the
southern Ohio and southern Mississippi Rivers occurring through late May. The upper Mississippi
River remained closed through early May due to multiple lock closures and high river levels. The
lower Ohio River, similarly, was also closed from late April due to closure of multiple locks and
high water. At existing levels bridge clearance has also become a near-term issue. As the Mississippi River
flooding continues moving south, the river and the southern canals
could be closed to navigation for some periods of time.
It is currently not possible to predict the ultimate length of
the period for which these conditions will impact the Companys normal operations and, therefore
the ultimate financial impact. Longer-term forecasts in early May, 2011 continue to support severe
weather and heavy rain events over the Mississippi River Valley for the next few weeks. If these
forecasts are accurate it could prolong or exacerbate the current circumstances.
It is also not possible to predict the post-event impact on pricing and barge availability
across the industry. The rainfall levels, without consideration of the impact of strategic rural
levee relief solutions which have and could further render many acres unplantable this growing
season, have significantly impacted the planting season for crops throughout the Midwest and may
ultimately significantly affect production, particularly for export corn, reducing industry harvest
season demand. The Company has responded to the current conditions through cost containment
measures on and off the rivers, by concentration on moving only deliverable cargoes and, in some
instances, by invoking force majeure for contract relief.
Longer-term Outlook
We were acquired by Platinum on December 21, 2010. Though we expect to accelerate many of our
strategic initiatives under the direction of our new parent, we will continue to proactively work
with our customers, focusing on barge transportations position as the lowest cost, most
ecologically friendly provider of domestic transportation.
Although we have continued to see some economic recovery beginning in the second half of 2010
through the end of the first quarter of 2011, we do not expect the economy to reach pre-recession
levels in 2011. Historically, we generate stronger financial results in the last half of the year,
driven by demand from the grain harvest and the impact of that demand on grain and spot shipping
rates. With a slow recovery, however, we remain focused on reducing costs, generating strong cash
flow from operations and implementing and accelerating our strategic initiatives. In the second
half of 2010 we saw a continuing rebound in demand in our metals and liquids markets driven by the
improving economy. Compared to the same periods of the prior year for the transportation segment,
in the six months ended June 30, 2010 revenues decreased 5.3%, while in the six months ended
December 31, 2010 revenues increased by 8.7%. We also saw a firming of pricing in the second half
of 2010, particularly in the fourth quarter, in both the dry and the liquid spot markets. During
the first quarter of 2011 our revenues increased 20.5% over the first quarter of 2010. In the
first quarter of 2011, we saw the same continuing trend of improved demand in the metals and
liquids markets and we are started to see improved pricing opportunities. Demand for export coal
has increased significantly in the past six months, driven by increased demand in Asia and mining
supply disruptions in some foreign locations. This has firmed up the dry barge supply/demand
balance and has lead to significantly improved pricing compared to the prior year in the dry spot
market, for grain and other dry commodities, as well as for spot and contract coal volumes. There
is no assurance this will be a long term dynamic but we expect the strength for export coal will be
sustainable for the balance of 2011. In manufacturing at Jeffboat, since the fall of 2010, we have
seen an increase in new barge construction demand. Our backlog for external barge production at
March 31, 2011 is in excess of $96 million. We are currently expecting to utilize remaining 2011
capacity to construct barges for internal use by our transportation segment.
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OPERATING RESULTS by BUSINESS SEGMENT
Quarter Ended March 31, 2011 as compared with March 31, 2010
Quarter Ended March 31, 2011 as compared with March 31, 2010
% of Consolidated | ||||||||||||||||||||
Quarter Ended March 31, | Revenue | |||||||||||||||||||
Successor | Predecessor | Quarter Ended | ||||||||||||||||||
2011 | 2010 | Variance | 2011 | 2010 | ||||||||||||||||
REVENUE |
||||||||||||||||||||
Transportation and Services |
$ | 162,654 | $ | 136,854 | $ | 25,800 | 91.0 | % | 92.3 | % | ||||||||||
Manufacturing (external and internal) |
27,981 | 25,485 | 2,496 | 15.7 | % | 17.2 | % | |||||||||||||
Intersegment manufacturing
elimination |
(11,974 | ) | (14,043 | ) | 2,069 | (6.7 | %) | (9.5 | %) | |||||||||||
Consolidated Revenue |
178,661 | 148,296 | 30,365 | 100.0 | % | 100.0 | % | |||||||||||||
OPERATING EXPENSE |
||||||||||||||||||||
Transportation and Services |
176,942 | 134,008 | 42,934 | |||||||||||||||||
Manufacturing (external and internal) |
29,026 | 25,239 | 3,787 | |||||||||||||||||
Intersegment manufacturing
elimination |
(11,974 | ) | (14,043 | ) | 2,069 | |||||||||||||||
Consolidated Operating Expense |
193,994 | 145,204 | 48,790 | 108.6 | % | 97.9 | % | |||||||||||||
OPERATING (LOSS) INCOME |
||||||||||||||||||||
Transportation and Services |
(14,288 | ) | 2,846 | (17,134 | ) | |||||||||||||||
Manufacturing (external and internal) |
(1,045 | ) | 246 | (1,291 | ) | |||||||||||||||
Consolidated Operating (Loss) Income |
(15,333 | ) | 3,092 | (18,425 | ) | (8.6 | %) | 2.1 | % | |||||||||||
Interest Expense |
7,468 | 9,853 | (2,385 | ) | ||||||||||||||||
Other Expense (Income) |
(130 | ) | (54 | ) | (76 | ) | ||||||||||||||
Loss Before Income Taxes |
(22,671 | ) | (6,707 | ) | (15,964 | ) | ||||||||||||||
Income Tax Benefit |
(8,803 | ) | (3,227 | ) | (5,576 | ) | ||||||||||||||
Discontinued Operations |
(8 | ) | | (8 | ) | |||||||||||||||
Net Loss |
$ | (13,876 | ) | $ | (3,480 | ) | $ | (10,396 | ) | |||||||||||
Domestic Barges Operated (average of
period beginning and end) |
2,405 | 2,501 | (96 | ) | ||||||||||||||||
Revenue per Barge Operated (Actual) |
$ | 66,996 | $ | 53,947 | $ | 13,049 |
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RESULTS OF OPERATIONS
Quarter ended March 31, 2011 comparison to quarter ended March 31, 2010
Revenue. Consolidated revenue increased by $30.4 million to $178.7 million, a 20.5%
increase compared with $148.3 million for the first quarter of 2010.
Transportation revenues increased by $26.2 million or 19.4% on 22.9% higher grain pricing
(although on 13.3% fewer grain ton-miles) and improved sales mix with 20.0%, 18.9% and 16.7%
respective coal, bulk and liquid ton-mile volume increases, while manufacturing revenue increased
$4.6 million or 39.9% primarily due to production of a greater number of external barges during the
current year first quarter. These increases were partially offset by professional services revenue
which decreased by $0.4 million.
Compared to the first quarter of 2010, revenues per average barge operated increased
24.2% in the first quarter 2011. Approximately 84% of the increase was due to higher affreightment
revenue, with the remainder attributable to higher non-affreightment revenue. Our overall
fuel-neutral rate increased 11.3% over the first quarter of 2010, with a 12.3% increase in dry
cargo and a 1.5% increase in the liquid rate. The strong improvement in the dry cargo rate was
primarily due to favorable mix shift. Total volume measured in ton-miles increased in the first
quarter of 2010 to 8.2 billion from 7.5 billion in the same quarter of the prior year, an increase
of 10.2%. On average, 3.8% or 96 fewer barges operated during the 2011 quarter compared to the
2010 quarter.
In 2011, the manufacturing segment completed 23 hopper barges and the final six deck barges of
a production run of forty deck barges begun in the third quarter of 2010. During the first quarter
of 2010 the segment sold three over-sized liquid tank barges and one ocean-going tank barge.
Operating Expense. Consolidated operating expense increased by $48.8 million or 33.6% to
$194.0 million in the first quarter of 2011 compared to the first quarter of 2010.
Transportation segment expenses, which include gains from asset management actions, were
$43.2 million higher in the first quarter of 2011 than in the comparable quarter of 2010. The
increase in transportation segment operating expenses was partially attributable to a $14.4 million
increase in depreciation and amortization on the higher depreciable asset base in 2011, as a result
of the purchase price allocation push-down. Additional factors in the operating expense increase
included $7.9 million higher fuel costs, selling, general and administrative expense increases of
$7.3 million, higher other operating costs of $7.0 million and $3.8 lower gains on disposition of
equipment. The increase in SG&A resulted primarily from higher consulting expenses related to the
post-Acquisition transition, higher severance-related expenses, the
Platinum Equity Advisors, LLC management fee,
partially offset by improved bad debt levels, lower outside legal expenses and lower public company
expenses. The $7.0 million in higher operating costs were primarily related to higher boat and
barge repairs, higher cargo claims, higher outside shifting, fleeting, cleaning and towing
expenses. The lower gains on asset disposition resulted from the rollover impact of a 2010 first
quarter gain on the sale of a boat.
Manufacturing operating expenses increased by $5.9 million due primarily to a higher number of
external barges produced in the 2011 quarter as well as $0.6 million attributable to the
Acquisition date write-up to market value of steel inventories on hand.
Operating Loss. Consolidated operating income decreased by $18.4 million to an
operating loss of $15.3 million in the first quarter of 2011 compared to the first quarter of 2010.
Operating income in the transportation segment decreased by $17.0 million and in the manufacturing
segment declined by $1.3 million.
The transportation segments operating loss resulted primarily from the excess of the
increases in operating expenses, discussed above, over the $26.5 million positive volume/rate/mix
benefit in the quarter, which included approximately $6.4 million benefit of higher grain pricing.
The manufacturing segments operating loss of $1.0 million represented a decline of $1.3
million compared to the same period of 2010. Though a total of 25 more barges were sold than in
the first quarter of 2011, the mix of tank barges and hoppers was different. In 2011, the
manufacturing segment completed the final six deck barges of a production run of forty deck barges
begun in the third quarter of 2010 which resulted in breakeven operating income in the quarter as the expected losses on these
remaining deck barges had been accrued in 2010. The lack of operating income on these deck barges,
combined with the impact of purchase accounting push-down of Acquisition date steel values of $0.6
million on the tank barges and the remaining 23 hopper barges drove the small operating loss in the
quarter.
Interest Expense. Interest expense decreased $2.4 million to $7.5 million compared to the
first quarter of 2010. The decrease was primarily attributable to amortization of the Acquisition
purchase allocation push-down of the premium on the Companys 2017 $200 million in senior notes in
2011 compared to the amortization of the original issue discount on those notes in the first
quarter of 2010. Interest expense was also reduced by the lower effective rate on the Companys
new credit facility when compared to the facility in place in the first quarter of 2010 and to
lower debt issuance cost amortization in 2011. During the first quarter of 2011, average
outstanding face amount of outstanding debt increased approximately $21.0 million from the fourth
quarter of the prior year, primarily driven by the timing of the payment of the 2010 incentive
awards.
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Income Tax Expense. The effective tax rates in the respective first quarters of 2011
and 2010 were 38.8% and 48.1%. Both rates represent the application of statutory rates to taxable
income impacted by consistent levels of permanent book tax differences on differing expected full
year income in 2011 compared to 2010.
Net Income (Loss). The net income was lower in the current year quarter due to the reasons
noted above.
LIQUIDITY AND CAPITAL RESOURCES
Based on past performance and current expectations we believe that cash generated from
operations and the liquidity available under our capital structure, described below, will satisfy
the working capital needs, capital expenditures and other liquidity requirements associated with
our operations in 2011.
Our funding requirements include capital expenditures (including new barge purchases), vessel
and barge fleet maintenance, interest payments and other working capital requirements. Our primary
sources of liquidity at March 31, 2011, were cash generated from operations and borrowings under
our revolving credit facility. Other potential sources of liquidity include proceeds from sale
leaseback transactions for fleet assets and barge scrapping and the sale of non-core assets,
surplus boats and assets not needed for future operations. We currently expect that our gross 2011
capital expenditures may be up to $85 million.
Our cash operating costs consist primarily of purchased services, materials and repairs, fuel,
labor and fringe benefits and taxes (collectively presented as Cost of Sales on the consolidated
statements of operations) and selling, general and administrative costs.
Concurrently with the Acquisition, on December 21, 2010, CBL, American Commercial Lines LLC,
ACL Transportation Services LLC and Jeffboat LLC as borrowers, and ACL and certain subsidiaries as
guarantors, entered into the credit agreement, consisting of a senior secured asset-based revolving
credit facility in an aggregate principal amount of $475.0 million with a final maturity date of
December 21, 2015 (Existing Credit Facility). The proceeds of the Existing Credit Agreement are
available for use for working capital and general corporate purposes, including certain amounts
payable by ACL in connection with the Acquisition. Availability under the Existing Credit Facility
is capped at a borrowing base, calculated based on certain percentages of the value of the
Companys vessels, inventory and receivables and subject to certain blocks and reserves, all as
further set forth in the Credit Agreement. We are currently prohibited from incurring more than
$390.0 million of indebtedness under the Existing Credit Facility regardless of the size of the
borrowing base until (a) all of the obligations (other than unasserted contingent obligations)
under the indenture governing the 2017 Notes are repaid, defeased, discharged or otherwise
satisfied or (b) the indenture governing the 2017 Notes is replaced or amended or otherwise
modified in a manner such that such additional borrowings would be permitted. At the Companys
option, the Existing Credit Facility may be increased by $75.0 million, subject to certain
requirements set forth in the Credit Agreement. The Credit Agreement is secured by, among other
things, a lien on substantially all of their tangible and intangible personal property (including
but not limited to vessels, accounts receivable, inventory, equipment, general intangibles,
investment property, deposit and securities accounts, certain owned real property and intellectual
property), a pledge of the capital stock of each of ACLs wholly owned restricted domestic
subsidiaries, subject to certain exceptions and thresholds.
For any period that availability is less than a certain defined level set forth in the Credit
Agreement (currently $59.4 million) and until no longer less than such level for a 30-day period,
the Credit Agreement imposes several financial covenants on ACL and its subsidiaries, including (a)
a minimum fixed charge coverage ratio (as defined in the Credit Agreement) of at least 1.1 to 1;
and (b) a maximum first lien leverage ratio of 4.25 to 1.0. In addition, the Company has agreed to
maintain all cash (subject to certain exceptions) in deposit or security accounts with financial
institutions that have agreed to control agreements whereby the lead bank, as agent for the
lenders, has been granted control under specific circumstances. The Credit Agreement requires that
ACL and its subsidiaries comply with covenants relating to customary matters (in addition to those
financial covenants described above), including with respect to incurring indebtedness and liens,
using the proceeds received under the Credit Agreement, effecting transactions with affiliates,
making investments and acquisitions, effecting mergers and asset sales, prepaying indebtedness and
paying dividends.
On July 7, 2009, the Company issued $200 million aggregate principal amount of 12.5% senior
secured second lien notes due July 15, 2017, (the Notes). The issue price was 95.181% of the
principal amount of the Notes. The Notes are guaranteed by ACL and by certain of CBLs existing and
future domestic subsidiaries.
Our debt level under the Existing Credit Facility and the 2017 Notes outstanding totaled
$428.3 million at March 31, 2011, including the unamortized purchase accounting debt premium of
$33.4 million that arose on our parents Acquisition in December 2010. We were in compliance with
all debt covenants on March 31, 2011. At the March 31, 2011, debt level we had $195.1 million in
remaining availability under our Existing Credit Facility. The bank credit facility has no
maintenance financial covenants unless borrowing availability is generally less than $59.4 million.
At March 31, 2011, debt levels we were $135.7 million above this threshold. Additionally, we are
allowed to sell certain assets and consummate sale leaseback transactions on other assets to
enhance our liquidity position.
With the four-year term on the Existing Credit Facility and remaining seven-year term on the
Notes, we believe that we have an appropriate longer term, lower cost, and more flexible capital
structure that will provide adequate liquidity and allow us to focus on executing our tactical and
strategic plans through the various economic cycles.
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Our Indebtedness
At March 31, 2011, we had total indebtedness of $428.3 million, including the $33.4
million unamortized premium recorded at the Acquisition date to recognize the fair value of the
Senior Notes. Our availability is further discussed in Liquidity above.
Net Cash, Capital Expenditures and Cash Flow
Our net cash flow used in operations was $30.6 million for the quarter ended March 31, 2011.
In the quarter ended March 31, 2010, net cash from operations was essentially breakeven. The
change in cash used in operations is primarily attributable to the use of cash for working capital
in the 2011 quarter of $30.5 million compared to a use of $4.5 million in the prior year quarter.
The higher use for working capital in the current year relates primarily to the pre-buy of steel
inventories in the manufacturing segment to lock in steel prices for current year builds and to
higher sales in the first quarter of 2011 which decreased the reduction in accounts receivable in
the quarter. The remaining increase in use of cash from operations resulted from lower net income
adjusted for non-cash items in the current year quarter.
Cash used in investing activities increased $7.8 million in the 2011 first quarter to $14.2
million, despite total property additions and other investing activities declining to $14.3 million
in 2011 from $15.9 million in 2010. The overall increase was due to approximately $7.2 million in
proceeds from property dispositions in the 2010 quarter related to the sale of a boat. Cash used
in investing activities in 2010 was also reduced by the receipt of the proceeds of a government
capital investment stimulus grant of $2.3 million. The capital expenditures in both the 2011 and
2010 quarters were primarily for new barge construction, capital repairs and investments in our
facilities.
Net cash provided by financing activities in the quarter ended March 31, 2011 was $47.0
million, compared to net cash provided by financing activities of $6.8 million in the quarter ended
March 31, 2010. Cash provided by financing activities in 2011 primarily related to borrowings on
the revolving credit facility and a net increase in the level of bank overdrafts on our zero
balance accounts, representing checks disbursed but not yet presented for payment. The impact of
the tax benefit of share-based compensation was $1.1 million in the quarter ended March 31, 2011.
The higher level of cash provided from financing activities, primarily from borrowing on the
revolving credit facility funded the working capital increases, the lower other operating cash flow
and the cash used in investing activities.
CHANGES IN ACCOUNTING STANDARDS
Subsequent to July 2009 the Financial Accounting Standards Board (FASB) has issued
additional Accounting Standards Updates (ASUs). ASUs considered to have a potential impact on the
Company where the impact is not yet determined are discussed as follows.
In January 2010, the FASB issued new guidelines and clarifications for improving disclosures
about fair value measurements. This guidance requires enhanced disclosures for purchases, sales,
issuances, and settlements on a gross basis for Level 3 fair value measurements. The adoption of
this guidance did not materially impact the Company. These new disclosures are effective for
interim and annual reporting periods beginning after December 15, 2010 and have been incorporated
herein.
For further information, refer to the consolidated financial statements and footnotes
thereto, included in the Companys annual filing on Form 10-K filed with the Securities and
Exchange Commission (SEC) for the year ended December 31, 2010.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Some of the significant estimates underlying these
financial statements include amounts recorded as reserves for doubtful accounts, probable loss
estimates regarding long-term construction contracts, reserves for obsolete and slow moving
inventories, pension and post-retirement liabilities, incurred but not reported medical claims,
insurance claims and related insurance receivables, deferred tax liabilities, assets held for sale,
revenues and expenses on special vessels using the percentage-of-completion method, environmental
liabilities, valuation allowances related to deferred tax assets, expected forfeitures of
share-based compensation, liabilities for unbilled barge and boat maintenance, liabilities for
unbilled harbor and towing services, recoverability of acquisition goodwill and depreciable lives
of long-lived assets.
No significant changes have occurred to these policies, which are more fully described in
the Companys filing on Form 10-K for the year ended December 31, 2010. Operating results for the
interim periods presented herein are not necessarily indicative of the results that may be expected
for the year ending December 31, 2011. Our quarterly revenues and profits historically have been
lower during the first six months of the year and higher in the last six months of the year due
primarily to the timing of the North American grain harvest.
The accompanying unaudited condensed consolidated financial statements have been prepared
on a going concern basis in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. As such, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. The condensed
consolidated balance sheet as of December 31, 2010 has been derived from the audited consolidated
balance sheet at that date. In the opinion of management, all adjustments (consisting of normal
recurring accruals)
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considered necessary for a fair presentation have been included.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates and
prices, such as fuel prices and interest rates, and changes in the market value of financial
instruments. We are exposed to various market risks, including those which are inherent in our
financial instruments or which arise from transactions entered into in the course of business. A
discussion of our primary market risk exposures is presented below. The Company neither holds nor
issues financial instruments for trading purposes.
Fuel Price Risk
For the quarter ended March 31, 2011, fuel expenses for fuel purchased directly and used
by our boats represented 22.2% of our transportation revenues. Each one cent per gallon rise in
fuel price increases our annual operating expense by approximately $0.6 million. We partially
mitigate our direct fuel price risk through contract adjustment clauses in our term contracts.
Contract adjustments are deferred either one quarter or one month, depending primarily on the age
of the term contract. We have been increasing the frequency of contract adjustments to monthly as
contracts renew to further limit our timing exposure. Additionally, fuel costs are only one
element of the potential movement in spot market pricing, which generally respond only to long-term
changes in fuel pricing. All of our grain movements, which comprised 21.8% of our total
transportation segment revenues in the first quarter of 2011, are priced in the spot market. Spot
grain contracts are normally priced at, or near, the quoted tariff rates in effect for the river
segment of the move at the time they are contracted, which ranges from immediately prior to the
transportation services to 90 days or more in advance. We generally manage our risk related to
spot rates by contracting for business over a period of time and holding back some capacity to
leverage the higher spot rates in periods of high demand. Despite these measures fuel price risk
impacts us for the period of time from the date of the price increase until the date of the
contract adjustment (either one month or one quarter), making us most vulnerable in periods of
rapidly rising prices. We also believe that fuel is a significant element of the economic model of
our vendors on the river, with increases passed through to us in the form of higher costs for
external shifting and towing. From time to time we have utilized derivative instruments to manage
volatility in addition to our contracted rate adjustment clauses. Since 2008 we have entered into
fuel price swaps with commercial banks for a portion of our expected fuel usage. These derivative
instruments have been designated and accounted for as cash flow hedges, and to the extent of their
effectiveness, changes in fair value of the hedged instrument will be accounted for through Other
Comprehensive Income until the fuel hedged is used, at which time the gain or loss on the hedge
instruments will be recorded as fuel expense. At March 31, 2011, a net asset of approximately
$14.0 million has been recorded in the condensed consolidated balance sheet and the gain on the
hedge instrument recorded in Other Comprehensive Income, net of hedge ineffectiveness of $0.4
million which was recorded as a reduction of fuel expense. Ultimate gains or losses will not be
determinable until the fuel swaps are settled. Realized gains from our hedging program were $2.1
million in the three months ended March 31, 2011. We believe that the hedge program can decrease
the volatility of our results and protects us against fuel costs greater than our swap price.
Further information regarding our hedging program is contained in Note 8 to our condensed
consolidated financial statements. We may increase the quantity hedged based upon active monitoring of fuel pricing outlooks by the
management team.
Interest Rate and Other Risks
At March 31, 2011, we had $194.9 million of floating rate debt outstanding, which
represented the outstanding balance of the revolving credit facility. If interest rates on our
floating rate debt increase significantly, our cash flows could be reduced, which could have a
material adverse effect on our business, financial condition and results of operations. Each 100
basis point increase in interest rates, at our existing debt level, would increase our cash
interest expense by approximately $1.9 million annually. This amount would be mitigated, in part,
by the tax deductibility of the increased interest payments.
Foreign Currency Exchange Rate Risks
The Company currently has no direct exposure to foreign currency exchange risk although
exchange rates do impact the volume of goods imported and exported that are transported by barge.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are incorporated herein by
reference from Item 2.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and
procedures designed to ensure that information required to be disclosed in our filings under the
Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed,
summarized and reported accurately within the time periods specified in the Securities and Exchange
Commissions (SEC) rules and forms. As of the end of the period covered by this report, an
evaluation was performed under the supervision and with the participation of
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management, including
the Chief Executive Officer (CEO) and Interim Chief Financial Officer (ICFO), of the
effectiveness of the design and operation of our disclosure controls and procedures (pursuant to
Exchange Act Rule 13a-15(b)). Based upon this evaluation, the CEO and ICFO concluded that our
disclosure controls and procedures were effective as of such date to ensure that information
required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms.
The conclusions of the CEO and ICFO from this evaluation were communicated to the Audit Committee.
We intend to continue to review and document our disclosure controls and procedures, including our
internal controls and procedures for financial reporting, and may from time to time make changes
aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Changes in Internal Control over Financial Reporting. There were no changes in our
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) that occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The nature of our business exposes us to the potential for legal proceedings
relating to labor and employment, personal injury, property damage and environmental matters.
Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on
present information, including our assessment of the merits of each particular claim, as well as
our current reserves and insurance coverage, we do not expect that any known legal proceeding will
in the foreseeable future have a material adverse impact on our financial condition or the results
of our operations. See Note 9. Contingencies contained in the Notes to the condensed
consolidated financial statements for additional detail regarding ongoing legal proceedings.
ITEM 1A. RISK FACTORS
Set forth below are some of the more significant factors that could affect our industry, our
business and our results of operations. In addition to the other information in this document, you
should consider carefully the following risk factors. Any of these risks or the occurrence of any
one or more of the uncertainties described below could have a material adverse effect on our
financial condition and the performance of our business.
Risks Related to Our Industry
| The aftermath of the global economic crisis, which began in 2008, may continue to have detrimental impacts on our business. | ||
| Freight transportation rates for the Inland Waterways fluctuate from time to time and may decrease. | ||
| An oversupply of barging capacity may lead to reductions in freight rates. | ||
| Yields from North American and worldwide grain harvests could materially affect demand for our barging services. | ||
| Any decrease in future demand for new barge construction may lead to a reduction in sales volume and prices for new barges. | ||
| Volatile steel prices may lead to a reduction in or delay of demand for new barge construction. | ||
| Higher fuel prices, if not recouped from our customers, could dramatically increase operating expenses and adversely affect profitability. | ||
| Our operating margins are impacted by a low margin legacy contract and by spot rate market volatility for grain volume and pricing. | ||
| We are subject to adverse weather and river conditions, including marine accidents. | ||
| Seasonal fluctuations in industry demand could adversely affect our operating results, cash flow and working capital requirements. | ||
| The aging infrastructure on the Inland Waterways may lead to increased costs and disruptions in our operations. | ||
| The inland barge transportation industry is highly competitive; increased competition could adversely affect us. | ||
| Global trade agreements, tariffs and subsidies could decrease the demand for imported and exported goods, adversely affecting the flow of import and export tonnage through the Port of New Orleans and the demand for barging services. | ||
| Our failure to comply with government regulations affecting the barging industry, or changes in these regulations, may cause us to incur significant expenses or affect our ability to operate. | ||
| Our maritime operations expose us to numerous legal and regulatory requirements, and violation of these regulations could result in criminal liability against us or our officers. | ||
| The Jones Act restricts foreign ownership of our stock, and the repeal, suspension or substantial amendment of the Jones Act could increase competition on the Inland Waterways and have a material adverse effect on our business. |
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Risks Related to Our Business
| We are named as a defendant in lawsuits and we are in receipt of other claims and we cannot predict the outcome of such litigation and claims, which may result in the imposition of significant liability. | ||
| Our insurance may not be adequate to cover our operational risks. | ||
| Our aging fleet of dry cargo barges may lead to a decline in revenue if we do not replace the barges or drive efficiency in our operations. | ||
| Our cash flows and borrowing facilities may not be adequate for our additional capital needs and our future cash flow and capital resources may not be sufficient for payments of interest and principal of our substantial indebtedness. | ||
| A significant portion of our borrowings are tied to floating interest rates which may expose us to higher interest payments should interest rates increase substantially. | ||
| We face the risk of breaching covenants in our Existing Credit Facility. | ||
| The loss of one or more key customers, or material nonpayment or nonperformance by one or more of our key customers, could cause a significant loss of revenue and may adversely affect profitability. | ||
| A major accident or casualty loss at any of our facilities or affecting free navigation of the Gulf or the Inland Waterways could significantly reduce production. | ||
| Potential future acquisitions or investments in other companies may have a negative impact on our business. | ||
| A temporary or permanent closure of the river to barge traffic in the Chicago area in response to the threat of Asian carp migrating into the Great Lakes may have an adverse effect on operations in the area. | ||
| Interruption or failure of our information technology and communications systems, or compliance with requirements related to controls over our information technology protocols, could impair our ability to effectively provide our services or the integrity of our information. | ||
| Many of our employees are covered by federal maritime laws that may subject us to job-related claims. | ||
| We have experienced work stoppages by union employees in the past, and future work stoppages may disrupt our services and adversely affect our operations. | ||
| The loss of key personnel, including highly skilled and licensed vessel personnel, could adversely affect our business. | ||
| Failure to comply with environmental, health and safety regulations could result in substantial penalties and changes to our operations. | ||
| We are subject to, and may in the future be subject to disputes, or legal or other proceedings that could involve significant expenditures by us. | ||
| Our substantial debt could adversely affect our financial condition. | ||
| We may be unable to service our indebtedness. |
These risk are described in more detail under Risk Factors in Part I, Item 1A of our Form
10-K for the year ended December 31, 2010. We encourage you to read these risk factors in their
entirety.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS
Exhibit No. | Description | |
10.1* |
Employment Letter Agreement, dated January 7, 2011, by and between American Commercial Lines | |
and Brian McDonald. | ||
10.2* |
Supplement to Employment Letter Agreement, dated April 5, 2011, by and between Commercial | |
Barge Line Company and Brian McDonald. | ||
31.1* |
Certification by Michael P. Ryan, Chief Executive Officer, required by Rule 13a-14(a) of the | |
Securities Exchange Act of 1934. | ||
31.2* |
Certification by Brian P. McDonald, Interim Chief Financial Officer, required by Rule | |
13a-14(a) of the Securities Exchange Act of 1934. | ||
32.1* |
Certification by Michael P. Ryan, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350. | |
32.2 * |
Certification by Brian P. McDonald, Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350. |
* | Filed herein |
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SIGNATURES
Pursuant to the requirements 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.
COMMERCIAL BARGE LINE COMPANY |
||||
By: | /s/ Michael P. Ryan | |||
Michael P. Ryan | ||||
President and Chief Executive Officer |
By: | /s/ Brian P. McDonald | |||
Brian P. McDonald | ||||
Interim Chief Financial Officer (Principal Financial Officer) |
Date:
May 16, 2011
Table of Contents
INDEX TO EXHIBITS
Exhibit No. | Description | |
10.1*
|
Employment Letter Agreement, dated January 7, 2011, by and between American Commercial Lines and Brian McDonald. | |
10.2*
|
Supplement to Employment Letter Agreement, dated April 5, 2011, by and between Commercial Barge Line Company and Brian McDonald. | |
31.1*
|
Certification by Michael P. Ryan, Chief Executive Officer, required by Rule 13a-14(a) of the Securities Exchange Act of 1934. | |
31.2*
|
Certification by Brian P. McDonald, Interim Chief Financial Officer, required by Rule 13a-14(a)of the Securities Exchange Act of 1934. | |
32.1*
|
Certification by Michael P. Ryan, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350. | |
32.2 *
|
Certification by Brian P. McDonald, Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350. |
* | Filed herein |