Attached files
file | filename |
---|---|
EX-32.1 - EX-32.1 - COMMERCIAL BARGE LINE CO | c65630exv32w1.htm |
EX-10.3 - EX-10.3 - COMMERCIAL BARGE LINE CO | c65630exv10w3.htm |
EX-32.2 - EX-32.2 - COMMERCIAL BARGE LINE CO | c65630exv32w2.htm |
EX-31.1 - EX-31.1 - COMMERCIAL BARGE LINE CO | c65630exv31w1.htm |
EX-10.2 - EX-10.2 - COMMERCIAL BARGE LINE CO | c65630exv10w2.htm |
EX-31.2 - EX-31.2 - COMMERCIAL BARGE LINE CO | c65630exv31w2.htm |
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
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 June 30, 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, Jeffersonville, Indiana (Address of principal executive offices) |
47130 (Zip Code) |
(812) 288-0100
(Registrants telephone number, including area code)
Former name or former address, if changed since last
report:
N/A
1701 East Market Street Jeffersonville, Indiana (Address of principal executive offices) |
47130 (Zip Code) |
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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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
None
COMMERCIAL
BARGE LINE COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED June 30, 2011
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED June 30, 2011
TABLE OF CONTENTS
2
Table of Contents
ITEM 1. | FINANCIAL STATEMENTS |
COMMERCIAL
BARGE LINE COMPANY
(Unaudited
In thousands)
Successor |
Predecessor |
Successor |
Predecessor |
|||||||||||||||
Company | Company | Company | Company | |||||||||||||||
Three Months |
Three Months |
Six Months |
Six Months |
|||||||||||||||
Ended |
Ended |
Ended |
Ended |
|||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
Revenues
|
||||||||||||||||||
Transportation and Services
|
$ | 165,029 | $ | 152,422 | $ | 327,683 | $ | 289,276 | ||||||||||
Manufacturing
|
36,547 | 11,879 | 52,554 | 23,321 | ||||||||||||||
Revenues
|
201,576 | 164,301 | 380,237 | 312,597 | ||||||||||||||
Cost of Sales
|
||||||||||||||||||
Transportation and Services
|
168,259 | 135,245 | 327,068 | 258,297 | ||||||||||||||
Manufacturing
|
35,001 | 11,462 | 51,445 | 21,994 | ||||||||||||||
Cost of Sales
|
203,260 | 146,707 | 378,513 | 280,291 | ||||||||||||||
Gross (Loss) Profit
|
(1,684 | ) | 17,594 | 1,724 | 32,306 | |||||||||||||
Selling, General and Administrative Expenses
|
14,024 | 10,565 | 32,765 | 22,185 | ||||||||||||||
Operating (Loss) Income
|
(15,708 | ) | 7,029 | (31,041 | ) | 10,121 | ||||||||||||
Other Expense (Income)
|
||||||||||||||||||
Interest Expense
|
7,624 | 9,766 | 15,092 | 19,619 | ||||||||||||||
Other, Net
|
(214 | ) | (107 | ) | (344 | ) | (161 | ) | ||||||||||
Other Expense
|
7,410 | 9,659 | 14,748 | 19,458 | ||||||||||||||
Loss from Continuing Operations Before Income Taxes
|
(23,118 | ) | (2,630 | ) | (45,789 | ) | (9,337 | ) | ||||||||||
Income Tax Benefit
|
(7,495 | ) | (1,267 | ) | (16,298 | ) | (4,494 | ) | ||||||||||
Loss from Continuing Operations
|
(15,623 | ) | (1,363 | ) | (29,491 | ) | (4,843 | ) | ||||||||||
Discontinued Operations, Net of Tax
|
18 | (2 | ) | 10 | (2 | ) | ||||||||||||
Net Loss
|
$ | (15,605 | ) | $ | (1,365 | ) | $ | (29,481 | ) | $ | (4,845 | ) | ||||||
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
Table of Contents
COMMERCIAL
BARGE LINE COMPANY
(In
thousands)
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS
|
||||||||
Current Assets
|
||||||||
Cash and Cash Equivalents
|
$ | 1,588 | $ | 3,707 | ||||
Accounts Receivable, Net
|
77,673 | 83,518 | ||||||
Inventory
|
81,261 | 50,834 | ||||||
Deferred Tax Assets
|
2,882 | 10,072 | ||||||
Assets Held for Sale
|
1,223 | 2,133 | ||||||
Prepaid and Other Current Assets
|
29,439 | 32,075 | ||||||
Total Current Assets
|
194,066 | 182,339 | ||||||
Properties, Net
|
938,731 | 979,655 | ||||||
Investment in Equity Investees
|
5,950 | 5,743 | ||||||
Accounts Receivable, Affiliates
|
12,508 | 17,400 | ||||||
Other Assets
|
50,547 | 53,665 | ||||||
Goodwill
|
20,470 | 20,470 | ||||||
Total Assets
|
$ | 1,222,272 | $ | 1,259,272 | ||||
LIABILITIES | ||||||||
Current Liabilities
|
||||||||
Accounts Payable
|
$ | 47,593 | $ | 44,782 | ||||
Accrued Payroll and Fringe Benefits
|
12,582 | 27,992 | ||||||
Deferred Revenue
|
21,017 | 14,132 | ||||||
Accrued Claims and Insurance Premiums
|
12,616 | 12,114 | ||||||
Accrued Interest
|
11,797 | 11,667 | ||||||
Customer Deposits
|
| 500 | ||||||
Other Liabilities
|
27,177 | 25,810 | ||||||
Total Current Liabilities
|
132,782 | 136,997 | ||||||
Long Term Debt
|
418,023 | 385,152 | ||||||
Pension and Post Retirement Liabilities
|
38,265 | 38,615 | ||||||
Deferred Tax Liabilities
|
186,497 | 208,651 | ||||||
Other Long Term Liabilities
|
53,618 | 60,901 | ||||||
Total Liabilities
|
829,185 | 830,316 | ||||||
SHAREHOLDERS EQUITY
|
||||||||
Other Capital
|
432,774 | 435,487 | ||||||
Retained Deficit
|
(42,647 | ) | (6,635 | ) | ||||
Accumulated Other Comprehensive Income
|
2,960 | 104 | ||||||
Total Shareholders Equity
|
393,087 | 428,956 | ||||||
Total Liabilities and Shareholders Equity
|
$ | 1,222,272 | $ | 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 STATEMENT OF CASH FLOWS
(Unaudited
In thousands)
Successor |
Predecessor |
||||||||
Company | Company | ||||||||
Six Months |
Six Months |
||||||||
Ended |
Ended |
||||||||
June 30, |
June 30, |
||||||||
2011 | 2010 | ||||||||
OPERATING ACTIVITIES
|
|||||||||
Net Loss
|
$ | (29,481 | ) | $ | (4,845 | ) | |||
Adjustments to Reconcile Net Loss to Net Cash (Used in)
|
|||||||||
Provided by Operating Activities:
|
|||||||||
Depreciation and Amortization
|
55,432 | 23,911 | |||||||
Debt Premium and Debt Issuance Cost Amortization
|
(1,336 | ) | 2,651 | ||||||
Deferred Taxes
|
(21,449 | ) | 16,438 | ||||||
Gain on Property Dispositions/Impairment of Assets Held for Sale
|
(1,329 | ) | (3,593 | ) | |||||
Share-Based Compensation
|
1,816 | 1,623 | |||||||
Other Operating Activities
|
(4,162 | ) | 386 | ||||||
Changes in Operating Assets and Liabilities:
|
|||||||||
Accounts Receivable
|
8,919 | 26,414 | |||||||
Inventory
|
(30,427 | ) | (17,521 | ) | |||||
Other Current Assets
|
10,736 | (13,803 | ) | ||||||
Accounts Payable
|
1,359 | (4,198 | ) | ||||||
Accrued Interest
|
130 | (817 | ) | ||||||
Other Current Liabilities
|
(4,653 | ) | (13,731 | ) | |||||
Net Cash (Used in) Provided by Operating Activities
|
(14,445 | ) | 12,915 | ||||||
INVESTING ACTIVITIES
|
|||||||||
Property Additions
|
(16,109 | ) | (21,909 | ) | |||||
Proceeds from Property Dispositions
|
3,307 | 7,288 | |||||||
Proceeds from Government Grant
|
| 2,302 | |||||||
Other Investing Activities
|
(5,642 | ) | 1,359 | ||||||
Net Cash Used in Investing Activities
|
(18,444 | ) | (10,960 | ) | |||||
FINANCING ACTIVITIES
|
|||||||||
Revolving Credit Facility Borrowings
|
35,736 | 4,192 | |||||||
Bank Overdrafts on Operating Accounts
|
1,452 | (3,970 | ) | ||||||
Debt Issuance/Refinancing Costs
|
(100 | ) | (150 | ) | |||||
Dividends Paid
|
(6,531 | ) | | ||||||
Tax Benefit (Expense) of Share-Based Compensation
|
213 | (1,252 | ) | ||||||
Exercise of Stock Options
|
| 438 | |||||||
Acquisition of Treasury Stock
|
| (721 | ) | ||||||
Other Financing Activities
|
| (200 | ) | ||||||
Net Cash Provided by (Used in) Financing Activities
|
30,770 | (1,663 | ) | ||||||
Net (Decrease) Increase in Cash and Cash Equivalents
|
(2,119 | ) | 292 | ||||||
Cash and Cash Equivalents at Beginning of Period
|
3,707 | 1,198 | |||||||
Cash and Cash Equivalents at End of Period
|
$ | 1,588 | $ | 1,490 | |||||
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
Table of Contents
COMMERCIAL
BARGE LINE COMPANY
(Unaudited
In thousands)
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
|
213 | | | 213 | ||||||||||||
Cash Dividends
|
| (6,531 | ) | | (6,531 | ) | ||||||||||
Comprehensive Loss:
|
||||||||||||||||
Net Loss
|
| (29,481 | ) | | (29,481 | ) | ||||||||||
Net Gain in Fuel Swaps Designated as Cash Flow Hedging
Instrument, Net of Tax
|
| | 2,856 | 2,856 | ||||||||||||
Other
|
(2,926 | ) | | | (2,926 | ) | ||||||||||
Total Comprehensive Loss
|
$ | 2,856 | ||||||||||||||
Balance at June 30, 2011
|
$ | 432,774 | $ | (42,647 | ) | $ | 2,960 | $ | 393,087 | |||||||
The accompanying notes are an integral part of the condensed
consolidated financial statements.
6
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
(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.
In addition, the Company manufactures marine equipment for
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.
CBL is a wholly-owned subsidiary of American Commercial Lines
Inc. (ACL). CBL does not conduct any operations
independent of its ownership interests in the consolidated
subsidiaries. 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 primarily owned by certain affiliates of Platinum Equity, LLC
(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
American Commercial Lines Inc. 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 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, each a Delaware
limited liability company, and their subsidiaries. Additionally,
CBL owns ACL Professional Services, Inc., a Delaware
corporation. Prior to 2010, CBL was responsible for corporate
income taxes. Following the Acquisition, CBL files as part of
the consolidated federal tax return of its indirect parent Finn.
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
7
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 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. This recurring phenomenon was
exacerbated by the record flooding in the second quarter of 2011
which disrupted normal operations and increased costs throughout
that quarter.
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.
ASU Number
2011-5 was
issued in June 2011, amending Topic 220
Comprehensive Income. The ASU modifies alternative presentation
standards, eliminating the option for disclosure of the elements
of other comprehensive income within the statement of
stockholders equity. Adoption of this ASU by the Company
will change our existing presentation, but will not impact the
components of other comprehensive income. The ASU is effective
for fiscal periods beginning after December 15, 2011.
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 |
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
Revolving Credit Facility
|
$ | 186,046 | $ | 150,310 | ||||
2017 Senior Notes
|
200,000 | 200,000 | ||||||
Plus Purchase Premium
|
31,977 | 34,842 | ||||||
Total Long Term Debt
|
$ | 418,023 | $ | 385,152 | ||||
Following the Acquisition, on December 21, 2010, the
Company entered into a new 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.
8
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 its 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.
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 June 30, 2011,
exceeds the specified level by approximately $144,579. 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.
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
Raw Materials
|
$ | 35,492 | $ | 19,255 | ||||
Work in Process
|
17,305 | 5,844 | ||||||
Parts and Supplies
|
28,464 | 25,735 | ||||||
$ | 81,261 | $ | 50,834 | |||||
9
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Company, following the
Acquisition, files as part of Finns U.S. and certain
state consolidated returns.
The effective tax rates were 32.42% and 48.17% in the respective
second quarters and 35.59% and 48.13% in the respective six
months ended June 30, 2011, and June 30, 2010. 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.
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
Successor |
Predecessor |
Successor |
Predecessor |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Pension Components:
|
||||||||||||||||
Service cost
|
$ | 1,120 | $ | 1,200 | $ | 2,240 | $ | 2,400 | ||||||||
Interest cost
|
2,634 | 2,590 | 5,268 | 5,180 | ||||||||||||
Expected return on plan assets
|
(3,250 | ) | (3,130 | ) | (6,500 | ) | (6,260 | ) | ||||||||
Amortization of unrecognized losses
|
| 15 | | 30 | ||||||||||||
Net periodic benefit cost
|
$ | 504 | $ | 675 | $ | 1,008 | $ | 1,350 | ||||||||
Post-retirement Components:
|
||||||||||||||||
Service cost
|
$ | 3 | $ | 5 | $ | 6 | $ | 10 | ||||||||
Interest cost
|
55 | 87 | 110 | 174 | ||||||||||||
Amortization of net gain
|
| (270 | ) | | (540 | ) | ||||||||||
Net periodic benefit cost
|
$ | 58 | $ | (178 | ) | $ | 116 | $ | (356 | ) | ||||||
Note 6. | Related Party Transactions |
There were no related party freight revenues in the three and
six month periods ended June 30, 2011 and 2010, and there
were no related party receivables included in accounts
receivable on the consolidated balance sheets at June 30,
2011 or December 31, 2010, except as contained in the
caption Accounts Receivable, Affiliates. Amounts included in
that caption relate primarily to the receivable from Finn for a
$14,284 portion of the funding of the Acquisition purchase price
which represented the intrinsic value of the share-based
compensation for certain non-executive level employees which was
paid by the Company. Per the American Commercial Lines 2008
Omnibus Incentive Plan, which was assumed by Finn (See
Note 10), 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.
Additionally, during the second quarter of 2011 some of the
remaining executive share-based compensation restricted stock
units vested and were purchased from each executive by Finn.
These purchases were paid by the Company with the aggregate
amount recorded as a receivable from Finn. The Company
subsequently
10
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
declared and paid dividends equal to the aggregate amount of
these payments and was reimbursed by Finn for these
expenditures. See Note 10.
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
proceeds of the PIK Notes offering, net of original issue
discount, were used primarily to pay a special dividend to
Finns shareholders to redeem equity advanced in connection
with the acquisition of the Company by certain affiliates of
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 |
The Company 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 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 the
Companys 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.
11
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reportable Segments |
All Other |
Intersegment |
||||||||||||||||||
Successor
|
Transportation | Manufacturing | Segments(1) | Eliminations | Total | |||||||||||||||
Three Months ended June 30, 2011
|
||||||||||||||||||||
Total revenue
|
$ | 163,652 | $ | 36,600 | $ | 1,753 | $ | (429 | ) | $ | 201,576 | |||||||||
Intersegment revenues
|
335 | 53 | 41 | (429 | ) | | ||||||||||||||
Revenue from external customers
|
163,317 | 36,547 | 1,712 | | 201,576 | |||||||||||||||
Operating expense
|
||||||||||||||||||||
Materials, supplies and other
|
61,413 | | | | 61,413 | |||||||||||||||
Rent
|
6,977 | | | | 6,977 | |||||||||||||||
Labor and fringe benefits
|
25,683 | | | | 25,683 | |||||||||||||||
Fuel
|
45,749 | | | | 45,749 | |||||||||||||||
Depreciation and amortization
|
25,908 | | | | 25,908 | |||||||||||||||
Taxes, other than income taxes
|
3,246 | | | | 3,246 | |||||||||||||||
Gain on disposition of equipment
|
(1,303 | ) | | | | (1,303 | ) | |||||||||||||
Cost of goods sold
|
| 35,001 | 586 | | 35,587 | |||||||||||||||
Total cost of sales
|
167,673 | 35,001 | 586 | | 203,260 | |||||||||||||||
Selling, general & administrative
|
12,613 | 400 | 1,011 | | 14,024 | |||||||||||||||
Total operating expenses
|
180,286 | 35,401 | 1,597 | | 217,284 | |||||||||||||||
Operating (loss) income
|
$ | (16,969 | ) | $ | 1,146 | $ | 115 | $ | | $ | (15,708 | ) | ||||||||
Reportable Segments |
All Other |
Intersegment |
||||||||||||||||||
Predecessor
|
Transportation | Manufacturing | Segments(1) | Eliminations | Total | |||||||||||||||
Three Months ended June 30, 2010
|
||||||||||||||||||||
Total revenue
|
$ | 150,578 | $ | 19,015 | $ | 2,024 | $ | (7,316 | ) | $ | 164,301 | |||||||||
Intersegment revenues
|
180 | 7,136 | | (7,316 | ) | | ||||||||||||||
Revenue from external customers
|
150,398 | 11,879 | 2,024 | | 164,301 | |||||||||||||||
Operating expense
|
||||||||||||||||||||
Materials, supplies and other
|
52,602 | | | | 52,602 | |||||||||||||||
Rent
|
5,151 | | | | 5,151 | |||||||||||||||
Labor and fringe benefits
|
31,038 | | | | 31,038 | |||||||||||||||
Fuel
|
31,122 | | | | 31,122 | |||||||||||||||
Depreciation and amortization
|
11,000 | | | | 11,000 | |||||||||||||||
Taxes, other than income taxes
|
3,216 | | | | 3,216 | |||||||||||||||
Gain on disposition of equipment
|
278 | | | | 278 | |||||||||||||||
Cost of goods sold
|
| 11,462 | 838 | | 12,300 | |||||||||||||||
Total cost of sales
|
134,407 | 11,462 | 838 | | 146,707 | |||||||||||||||
Selling, general & administrative
|
8,834 | 625 | 1,106 | | 10,565 | |||||||||||||||
Total operating expenses
|
143,241 | 12,087 | 1,944 | | 157,272 | |||||||||||||||
Operating income (loss)
|
$ | 7,157 | $ | (208 | ) | $ | 80 | $ | | $ | 7,029 | |||||||||
12
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reportable Segments |
All Other |
Intersegment |
||||||||||||||||||
Successor | Transportation | Manufacturing | Segments(1) | Eliminations | Total | |||||||||||||||
Six Months ended June 30, 2011
|
||||||||||||||||||||
Total revenue
|
$ | 324,980 | $ | 64,581 | $ | 3,297 | $ | (12,621 | ) | $ | 380,237 | |||||||||
Intersegment revenues
|
537 | 12,027 | 57 | (12,621 | ) | | ||||||||||||||
Revenue from external customers
|
324,443 | 52,554 | 3,240 | | 380,237 | |||||||||||||||
Operating expense
|
||||||||||||||||||||
Materials, supplies and other
|
118,256 | | | | 118,256 | |||||||||||||||
Rent
|
13,964 | | | | 13,964 | |||||||||||||||
Labor and fringe benefits
|
55,926 | | | | 55,926 | |||||||||||||||
Fuel
|
81,572 | | | | 81,572 | |||||||||||||||
Depreciation and amortization
|
51,427 | | | | 51,427 | |||||||||||||||
Taxes, other than income taxes
|
6,113 | | | | 6,113 | |||||||||||||||
Gain on disposition of equipment
|
(1,328 | ) | | | | (1,328 | ) | |||||||||||||
Cost of goods sold
|
| 51,445 | 1,138 | | 52,583 | |||||||||||||||
Total cost of sales
|
325,930 | 51,445 | 1,138 | | 378,513 | |||||||||||||||
Selling, general & administrative
|
29,680 | 1,008 | 2,077 | | 32,765 | |||||||||||||||
Total operating expenses
|
355,610 | 52,453 | 3,215 | | 411,278 | |||||||||||||||
Operating (loss) income
|
$ | (31,167 | ) | $ | 101 | $ | 25 | $ | | $ | (31,041 | ) | ||||||||
13
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reportable Segments |
All Other |
Intersegment |
||||||||||||||||||
Predecessor
|
Transportation | Manufacturing | Segments(1) | Eliminations | Total | |||||||||||||||
Six Months ended June 30, 2010
|
||||||||||||||||||||
Total revenue
|
$ | 285,642 | $ | 44,500 | $ | 3,956 | $ | (21,501 | ) | $ | 312,597 | |||||||||
Intersegment revenues
|
322 | 21,179 | | (21,501 | ) | | ||||||||||||||
Revenue from external customers
|
285,320 | 23,321 | 3,956 | | 312,597 | |||||||||||||||
Operating expense
|
||||||||||||||||||||
Materials, supplies and other
|
102,423 | | | | 102,423 | |||||||||||||||
Rent
|
10,389 | | | | 10,389 | |||||||||||||||
Labor and fringe benefits
|
60,077 | | | | 60,077 | |||||||||||||||
Fuel
|
59,009 | | | | 59,009 | |||||||||||||||
Depreciation and amortization
|
22,074 | | | | 22,074 | |||||||||||||||
Taxes, other than income taxes
|
6,334 | | | | 6,334 | |||||||||||||||
Gain on disposition of equipment
|
(3,593 | ) | | | | (3,593 | ) | |||||||||||||
Cost of goods sold
|
| 21,994 | 1,584 | | 23,578 | |||||||||||||||
Total cost of sales
|
256,713 | 21,994 | 1,584 | | 280,291 | |||||||||||||||
Selling, general & administrative
|
18,641 | 1,289 | 2,255 | | 22,185 | |||||||||||||||
Total operating expenses
|
275,354 | 23,283 | 3,839 | | 302,476 | |||||||||||||||
Operating income
|
$ | 9,966 | $ | 38 | $ | 117 | $ | | $ | 10,121 | ||||||||||
(1) | Financial data for a segment below the reporting threshold is attributable to a segment that provides naval architectural design services. |
Note 8. | Financial Instruments, Risk Management and Comprehensive Income (Loss) |
The Company 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 the Company has utilized derivative instruments to
manage volatility in addition to contracted rate adjustment
clauses. For several years the Company has been entering into
fuel price swaps with commercial banks. The number of gallons
settled and related net gains, as well as additional gallons
hedged and unrealized changes in market value are contained in
the following table by quarter for the six months ended
June 30, 2011. As the hedged fuel is used, these gains were
recorded as a decrease to fuel expense, a component of cost of
sales.
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. 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 June 30,
2011 of $2,960 and December 31, 2010 of $104
14
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consisted of gains on fuel hedging, net of the provisions of
$1,352 and $62, respectively. Hedge ineffectiveness is recorded
in income as a component of fuel expense as incurred.
The carrying amounts and fair values of the Companys
financial instruments, which are recorded in Prepaid and Other
Current Assets, are as follows:
Fair Value of |
||||||||
Measurements at |
||||||||
Reporting Date Using |
||||||||
Markets for Identical |
||||||||
Description | 6/30/2011 | Assets (Level 1) | ||||||
Fuel Price Swaps
|
$ | 6,363 | $ | 6,363 |
The amounts in other comprehensive income are expected to be
recorded in income as the underlying gallons are used.
For the three and six months ended June 30, 2011 and 2010
the Companys change in other comprehensive income
(expense) and total comprehensive income are contained in the
following table. The changes in other comprehensive income in
all periods was driven by changes in the values of open fuel
hedges in each period, net of related ineffectiveness and income
taxes.
Comprehensive
Income (Loss)
Successor |
Predecessor |
Successor |
Predecessor |
|||||||||||||||
Company | Company | Company | Company | |||||||||||||||
Three Months |
Three Months |
Six Months |
Six Months |
|||||||||||||||
Ended |
Ended |
Ended |
Ended |
|||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
Net Loss
|
$ | (15,605 | ) | $ | (1,365 | ) | $ | (29,481 | ) | $ | (4,845 | ) | ||||||
Other Comprehensive Income (Loss)
|
(3,657 | ) | (1,587 | ) | 2,856 | (1,762 | ) | |||||||||||
Total Comprehensive Loss
|
$ | (19,262 | ) | $ | (2,952 | ) | $ | (26,625 | ) | $ | (6,607 | ) | ||||||
At June 30, 2011, the increase in the fair value of the
financial instruments is recorded as a net receivable of $6,363
and as a
net-of-tax
deferred gain, less hedge ineffectiveness, in other
comprehensive income in the consolidated balance sheet. Hedge
ineffectiveness resulted in an increase in fuel expense of $172
and a decrease in fuel expense of $272 in the three and six
months ended June 30, 2011, respectively. 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
July 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 | ||||||
2nd Quarter 2011 Fuel Hedge Expense
|
(7,813 | ) | (4,158 | ) | ||||
2nd Quarter 2011 Changes
|
9,501 | (3,524 | ) | |||||
Fuel Price Swaps at June 30, 2011
|
28,725 | $ | 6,363 | |||||
15
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 9. | Contingencies |
A number of legal actions are pending against the Company in
which claims are made in substantial amounts. While the ultimate
results of pending litigation cannot be predicted with
certainty, management does not currently expect that resolution
of these matters will have a material adverse effect on the
Companys 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, 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, 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
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 entered into a Stipulation and
Agreement of Compromise and Settlement, dated as of
June 18, 2011, which sets forth the terms and conditions of
a proposed settlement of the Delaware and Indiana actions,
including the dismissal with prejudice and on the merits of all
claims against all of the defendants in both the Delaware and
Indiana actions in consideration for the supplementation of the
Definitive Proxy Statement. The Stipulation and Agreement of
Compromise and Settlement, dated as of June 18, 2011, also
provides that the defendants will not oppose Plaintiffs
counsels application to the Delaware Court of Chancery for
an award of attorneys fees and expenses provided that the
application does not exceed $400. The proposed settlement is
conditioned upon, among other things, approval by the Delaware
Court of Chancery. A hearing on the proposed settlement has been
scheduled by the Delaware Court of Chancery for
September 9, 2011. There can be no assurance that the
Delaware Court of Chancery will approve the proposed settlement
as stipulated by the parties.
Shareholder Appraisal Action. On
April 12, 2011, IQ Holdings, Inc. filed a Verified Petition
for Appraisal of Stock against ACL, the direct parent of the
Company, in the Court of Chancery in the State of Delaware.
Among other things, the appraisal petition seeks a judicial
determination of the fair value of their 250,000 shares of
common stock pursuant to 8 Del. C. § 262, and
order by the Delaware Court directing ACL to pay the petitioner
fair value for any shares entitled to statutory appraisal,
together with interest from the effective date of the Merger,
taxes, attorneys fees, and costs. ACL has begun producing
documents to Petitioners and the parties are currently
negotiating the terms of limited further production. While it is
not possible at this time to determine the potential outcome of
this action, we do not believe the action will result in a
payment by ACL that would materially affect the financial
condition of the Company.
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
16
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 and IINA and Houston Casualty Company
interpleader, mentioned below. IINA is DRDs primary
insurer and IINA and Houston Casualty Company are DRDs
excess insurers. The settlement has final approval from the
court. Settlement funds were provided to claimants counsel
and we expect final dismissal of all lawsuits against all
parties will be entered, including the 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 loss related to the oil spill, including
notification by the National Pollution Funds Center of claims it
has received. Additional lawsuits may be filed and claims
submitted. The claims by two of the three DRD crewmen on the
vessel at the time of the incident have been settled with funds
paid from the funds on deposit in the interpleader action
mentioned below and a final dismissal with prejudice has been
entered. The third crew member was the operator of the vessel at
the time of the incident and is also a defendant. His claim
remains unsettled. 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
17
Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. This action has been consolidated with the
limitation actions and stayed pending the outcome of the
limitation actions. Trial began August 8, 2011 and is
anticipated to continue for several weeks. 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) and Laurin Maritime for reimbursement
of cleanup costs, indemnification and other damages sustained by
our Company. 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 June 30, 2011, approximately 700 employees of the
Companys manufacturing segment were represented by a labor
union under a contract that expires in April 2013.
At June 30, 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 |
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 stakeholders, including the
Companys named executive officers, 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 from and
after the date of grant. The performance units vest over a
period specified in the applicable award agreements.
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 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.
18
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COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The maximum number of performance units that may be awarded
under the Participation Plan is 36,800,000. During the quarter
ended June 30, 2011, 35,305,000 performance units were
granted. None have vested or been forfeited. The fair value of
the performance units on their grant date was zero.
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
accounts for 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.
Prior to the Acquisition, ACL had reserved the equivalent of
approximately 54,000 shares of Finn Holding 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 quarters
and six months ended June 30, 2011 and 2010. No share-based
awards were granted under this Plan in the six months ended
June 30, 2011.
For all share-based compensation under the Plan, 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.
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 was 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 June 30, 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 11.
During the quarter ended June 30, 2011, 1,700 restricted
stock units, held by separating 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 $170.
In the quarter ended June 30, 2011, the Company recorded
total stock-based employee compensation of $322. This total
included $196 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
19
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COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
separation from the Company, increasing the Companys
intercompany receivable from Finn Holdings. An income tax
benefit on the compensation expense of $559 was recognized for
the quarter ended June 30, 2011. As of June 30, 2011,
there were 7,952 options outstanding with a weighted average
exercise price of $50.94 and 6,454 unvested restricted stock
units outstanding.
After the payouts to the executives, during the six months ended
June 30, 2011, the Company declared and paid dividends to
Finn in an amount equal to the gross payments. Finn, in turn,
used the proceeds to reimburse the Company for payments made on
its behalf to separating executives and to holders of vested
restricted units under the Plan.
During the three months ended March 31, 2011, after 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. The
dividend was paid to Finn shareholders during the first quarter.
This reduced Finns initial capitalization from $460,000 to
$201,500.
Per the terms of the Plan, in the event of such dividend,
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 the Company and increased
the Companys related receivable from Finn.
Note 11. | Acquisitions, Dispositions and Impairment |
Acquisition
of ACL by Finn Holding Corporation (owned primarily by certain
affiliates of Platinum Equity, LLC)
On December 21, 2010, Finn Holding Corporation completed
the acquisition of all of the outstanding equity of ACL, which
had its common shares publicly traded since October 7,
2005. The Acquisition was accomplished through the merger of
Finn Merger Corporation, a wholly-owned subsidiary of Finn
Intermediate Holding Corporation, subsequently renamed ACL I
Corporation, (both of whom had no other business activity at the
Acquisition date outside the acquisition). ACL is the direct
parent of CBL. 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. 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
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Table of Contents
COMMERCIAL
BARGE LINE COMPANY.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. The
summation of the consideration paid is in the following table.
Paid to former largest shareholder
|
$ | 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 June 30, 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 | ||
Dispositions
and Impairments
At June 30, 2011, two boats that were placed into assets
held for sale in the second quarter 2010 are still expected to
be sold and are being actively marketed.
21
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
and our
Form 10-K
for the year ended December 31, 2010, 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 (CBL). Unless the
context indicates otherwise, the Company refers to
CBL and its subsidiaries on a consolidated basis. 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 and six months ended June 30, 2011, compared to the
results of operations for the three and six months ended
June 30, 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
June 30, 2011, and an analysis of the Companys cash
flows for the six months ended June 30, 2011, and
June 30, 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 three and six months ended
June 30, 2011, should be regarded as Successor Company data
and as to the 2010 three and six months ended June 30,
2010, 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.
22
Table of Contents
OVERVIEW
Our
Business
The
Company
CBL is a Delaware corporation. The Company is one of the largest
and most diversified inland marine transportation and service
companies in the United States. The Company provides barge
transportation and related services under the provisions of the
Jones Act and manufactures barges, primarily for brown-water
use. The Company also provides certain naval architectural
services to 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 American
Commercial Lines Inc.
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. Prior to 2010, CBL was responsible for
corporate income taxes. Following the Acquisition, CBL files as
part of the consolidated federal tax return of its indirect
parent Finn. 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 acquired more than 120
businesses 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 the Company.
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 the
Company 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
23
Table of Contents
of our international operations in Venezuela and the Dominican
Republic were disposed of 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
the three and six months ended June 30, 2011 and
June 30, 2010 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.
Source: U.S. Army Corps of Engineers Waterborne Commerce
Statistics Center
Consolidated
Financial Overview
For the three and six months ended June 30, 2011, the
Company had net losses of $15.6 million and
$29.5 million compared to net losses of $1.4 million
and $4.8 million in the three and six months ended
June 30, 2010.
The increased losses largely resulted from the impact of new
basis accounting subsequent to the Acquisition and the estimated
after-tax negative margin impact of $6.7 million on the
second quarter of record flooding of the Inland Waterway from
April through early June of 2011.
The push-down of the preliminary purchase price allocation
resulted in after-tax non-comparable net charges of
approximately $10.3 million in the second quarter and
$19.2 million in the six months ended June 30, 2011.
These impacts were primarily related to higher 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
24
Table of Contents
and steel costs in the six months ended June 30, 2011,
compared to the same period of 2010 due to the
write-up of
these inventories to fair value at the Acquisition date. 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 losses
resulted from a decline in the operating ratio on higher
transportation segment revenues and higher acquisition
transition expenses. Consistent manufacturing margins on higher
external sales partially offset lower transportation segment
results. The decline in transportation segment operating margin
was driven by higher fuel costs and costs related to the less
favorable operating conditions due to record flooding during the
second quarter. The change in loss levels were also impacted by
higher current year debt levels partially offset by the 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 and six months ended June 30, 2011, EBITDA
from continuing operations was $12.3 million and
$24.6 million compared to $19.0 million and
$34.2 million in the comparable periods of the prior year.
EBITDA from continuing operations as a percent of revenue was
6.1% for the second quarter and 6.5% for the six months ended
June 30, 2011, or decreases of 5.5 points
quarter-over-quarter
and 4.4 points six months over six months. The decreases in
EBITDA were largely attributable to the increased costs during
the record flooding in the second quarter of 2011. 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 six months ended June 30, 2011,
$16.1 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 half of 2011, average face amount of
outstanding debt increased approximately $34 million from
the December 31, 2010 amount, primarily driven by working
capital changes, net capital spending and the payment of the
2010 incentive awards. Total interest expense for the second
quarter and six months ended June 30, 2011, was
$7.6 million and $15.1 million respectively, or
$2.1 million and $4.5 million lower than those
expenses in the same periods of 2010. The decline in interest
expense was attributable to approximately $1.4 million in
the quarter and $2.9 million for the six months ended
June 30, 2011, in amortization of the $35.0 million
Acquisition date premium on the Companys $200 million
in 2017 Notes compared to the $0.3 million and
$0.6 million for the quarter and six months ended
June 30, 2010 in amortization of the original issue
discount on those notes in the first quarter of 2010.
Asset management actions including boat sales, impairment
adjustments and scrapping of surplus barges in the first quarter
of 2011 was $1.3 million for both the quarter and six
months ended June 30, 2010, or $1.5 million and
$5.8 million lower than the respective periods of 2010.
At June 30, 2011, we had total indebtedness of
$418.0 million, including the $32.0 million premium
recorded at the Acquisition date to recognize the fair value of
the Senior Notes, net of amortization through June 30,
2011. At this level of debt we had $204.0 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 June 30, 2011, debt levels we were
$144.6 million above this threshold.
Segment
Overview
We operate in two predominant business segments: transportation
and manufacturing.
25
Table of Contents
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
and six months ended June 30, 2011, is summarized in the
key operating statistics table.
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 35.4% in the six months ended June 30,
2011, compared to the same period of the prior year, though
grain
ton-mile
volume declined by over 30% in the same period.
Total affreightment volume measured in
ton-miles
decreased in the second quarter of 2011 to 8.0 billion
compared to 8.6 billion in the same period of the prior
year primarily as a result of persistent high water
restrictions. The lower
ton-mile
volumes in the second quarter essentially erased the increases
attained in the first quarter, with
ton-mile
volume for the six months ended June 30, 2011, up only 0.9%.
For the quarter and six months ended June 30, 2011,
non-affreightment revenues increased by $4.4 million and
$7.8 million, or 10.2% and 9.2%, primarily due to higher
charter/day-rate, towing and demurrage, partially offset by
lower scrapping revenue.
Overall transportation revenues increased approximately 7% on a
fuel neutral basis in the six months ended June 30, 2011
compared to the same period of the prior year. The increase in
the six months ended June 30, 2011 was driven by volume
increases in coal and energy, chemicals, petroleum, steel and
pig iron, all other bulk and demurrage, partially offset by
lower salt volumes and grain volumes.
Revenues per average barge operated increased 12.6% and 18.0% in
the quarter and six months ended June 30, 2011, compared to
the same periods of the prior year. Approximately two-thirds and
three-quarters of the increase in the quarter and six months
ended June 30, 2011, respectively, was driven by increased
affreightment revenue with the remainder attributable to the
change in non-affreightment revenue.
26
Table of Contents
The $24.1 million decline in the transportation
segments operating income in the quarter ended
June 30, 2011, compared to the same period of the prior
year was attributable to higher costs not fully absorbed by the
$12.9 million increase in segment revenue. Cost increases
included $14.9 million in depreciation and amortization,
$14.6 million in fuel costs, $3.8 million in selling,
general and administrative expenses, $1.7 million in higher
favorable lease amortization and higher other operating costs of
$3.6 million, partially offset by $1.6 million higher
gains on disposition of equipment.
The $41.1 million decline in the transportation
segments operating income in the six months ended
June 30, 2011, compared to the same period of the prior
year was attributable to higher costs not fully absorbed by the
$39.1 million increase in segment revenue. Cost increases
included $29.4 million in depreciation and amortization,
$22.6 million in fuel costs, $11.0 million in selling,
general and administrative expenses, $3.4 million in higher
favorable lease amortization, higher other operating costs of
$11.6 million and $2.3 million lower gains on
disposition of equipment.
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 quarter and
six months ended June 30, 2011. The change in gains on
asset disposition resulted from boat sales in the first quarter
of 2010 and the second quarter of 2011.
The increases in SG&A resulted primarily from higher
consulting expenses related to the Platinum transition, higher
severance related expenses, the Platinum Equity management fee
and higher medical and claims expenses, partially offset by
improved bad debt levels, lower wage and employee related
expenses and lower public company expenses.
The higher operating costs were primarily related to higher boat
charter expenses, higher repairs expenses, higher claims and,
higher outside shifting, fleeting, cleaning and towing expenses.
These cost increases more than offset lower wages and incentive
expenses and the amortization of an unfavorable contract
recorded as part of purchase price accounting.
Net fuel prices increased in the quarter by 7.3 points to 28.0%
of segment revenues or $45.7 million. Fuel consumption was
up approximately 7.4% for the quarter compared to the same
period of the prior year driven by lower boat efficiency in high
water conditions. The average
net-of-hedge-impact
price per gallon increased 36.9% to $3.04 per gallon in the
quarter.
Net fuel prices increased in the six months ended June 30,
2011, by 4.4 points to 25.1% of segment revenues or
$81.6 million. Fuel consumption was up approximately 4.7%
for the six month period compared to the same period of the
prior year driven by lower boat efficiency in the second quarter
high water conditions. The average
net-of-hedge-impact
price per gallon increased 32.0% to $2.83 per gallon in the six
months ended June 30, 2011.
27
Table of Contents
Key operating statistics regarding our transportation segment
are summarized in the following table.
Key
Operating Statistics
Three |
% Change to |
Six |
% Change to |
|||||||||||||
Months Ended |
Prior Year Quarter |
Months Ended |
Prior Year YTD |
|||||||||||||
June 30, 2011 | Increase (Decrease) | June 30, 2011 | Increase (Decrease) | |||||||||||||
Ton-miles
(000s):
|
||||||||||||||||
Total dry
|
6,683,036 | (10.2 | )% | 13,481,148 | (2.0 | )% | ||||||||||
Total liquid
|
456,708 | (8.6 | )% | 1,021,285 | 3.8 | % | ||||||||||
Total affreightment
ton-miles
|
7,139,744 | (10.1 | )% | 14,502,433 | (1.6 | )% | ||||||||||
Total non-affreightment
ton-miles
|
865,438 | 28.2 | % | 1,732,683 | 28.3 | % | ||||||||||
Total
ton-miles
|
8,005,182 | (7.1 | )% | 16,235,116 | 0.9 | % | ||||||||||
Average
ton-miles
per affreightment barge
|
3,176 | (6.8 | )% | 6,426 | 2.4 | % | ||||||||||
Rates per ton mile:
|
||||||||||||||||
Dry rate per
ton-mile
|
20.1 | % | 17.7 | % | ||||||||||||
Fuel neutral dry rate per
ton-mile
|
11.3 | % | 11.9 | % | ||||||||||||
Liquid rate per
ton-mile
|
19.0 | % | 12.8 | % | ||||||||||||
Fuel neutral liquid rate per-ton mile
|
4.1 | % | 2.7 | % | ||||||||||||
Overall rate per
ton-mile
|
$ | 16.26 | 20.1 | % | $ | 16.05 | 17.5 | % | ||||||||
Overall fuel neutral rate per
ton-mile
|
$ | 14.96 | 10.5 | % | $ | 15.16 | 11.0 | % | ||||||||
Revenue per average barge operated
|
$ | 68,248 | 12.6 | % | $ | 135,185 | 18.0 | % | ||||||||
Fuel price and volume data:
|
||||||||||||||||
Fuel price
|
$ | 3.04 | 36.9 | % | $ | 2.83 | 32.0 | % | ||||||||
Fuel gallons
|
15,043 | 7.4 | % | 28,791 | 4.7 | % | ||||||||||
Revenue data (in thousands):
|
||||||||||||||||
Affreightment revenue
|
$ | 115,845 | 7.9 | % | $ | 232,241 | 15.6 | % | ||||||||
Towing
|
11,301 | 16.5 | % | 22,234 | 23.0 | % | ||||||||||
Charter and day rate
|
21,195 | 31.8 | % | 38,195 | 18.2 | % | ||||||||||
Demurrage
|
8,672 | 17.2 | % | 20,510 | 20.3 | % | ||||||||||
Other
|
6,304 | (36.3 | )% | 11,263 | (33.6 | )% | ||||||||||
Total non-affreightment revenue
|
47,472 | 10.2 | % | 92,202 | 9.2 | % | ||||||||||
Total transportation segment revenue
|
$ | 163,317 | 8.6 | % | $ | 324,443 | 13.7 | % | ||||||||
28
Table of Contents
Data regarding changes in our barge fleet for the quarter and
six months ended June 30, 2011, is summarized in the
following table.
Barge
Fleet Changes
Current Quarter
|
Dry | Tankers | Total | |||||||||
Barges operated as of March 31, 2011
|
2,080 | 318 | 2,398 | |||||||||
Retired (includes reactivations)
|
(6 | ) | (4 | ) | (10 | ) | ||||||
Barges operated as of June 30, 2011
|
2,074 | 314 | 2,388 | |||||||||
Year-to-date
|
Dry | Tankers | Total | |||||||||
Barges operated as of December 31, 2010
|
2,086 | 325 | 2,411 | |||||||||
Retired (includes reactivations)
|
(34 | ) | (11 | ) | (45 | ) | ||||||
New builds
|
25 | | 25 | |||||||||
Change in number of barges leased
|
(3 | ) | | (3 | ) | |||||||
Barges operated as of June 30, 2011
|
2,074 | 314 | 2,388 | |||||||||
Data regarding our boat fleet at June 30, 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 | 33.2 | ||||||
Less than 4300
|
22 | 35.2 | ||||||
Less than 6200
|
42 | 36.3 | ||||||
7000 or over
|
11 | 32.8 | ||||||
Total/overall age
|
110 | 34.8 | ||||||
In addition, the Company had 17 chartered boats in service at
June 30, 2011. Average life of a boat (with refurbishment)
exceeds 50 years. At June 30, 2011, two boats were
classified as assets held for sale.
Manufacturing
The manufacturing segment had operating income of
$1.1 million in the quarter ended June 30, 2011,
compared to a $0.2 million operating loss in the comparable
period of 2010. This operating income essentially erased the
2011 first quarters operating loss in the segment. The
first quarter 2011 loss resulted primarily from the impact of
purchase accounting push-down of Acquisition date steel values
on the hopper barges constructed in that quarter. The
Acquisition date steel values were substantially higher than the
historical cost of the steel which had been pre-bought at costs
which would have generated positive margins if not for the
revaluation.
Manufacturing had 16.5 weather-related lost production days in
the quarter, an increase of five and a half days in the quarter
compared to the same period of the prior year. For the six
months ended June 30, 2011, lost one and one half more
production days than in the prior year. Though high water
conditions on the Ohio River during the second quarter caused
some level of inefficiency, better labor efficiency and better
matching of steel costs with contract pricing in the quarter
resulted in the positive operating income performance. Though we
sold 58 total barges more than in the second quarter of 2010,
the mix of barges was different. In 2011, the manufacturing
segment completed six deck barges and 64 dry hopper barges
compared to nine dry hoppers, two tank barges and one
ocean-going tanker in the prior year quarter. For the six months
ended June 30, 2011, the manufacturing segment completed 12
deck barges and 87 dry hopper barges for external customers, as
well as 25 dry covered hoppers for the transportation segment
compared to nine dry hoppers,
29
Table of Contents
five tank barges and two ocean-going tankers for external
customers as well as 50 dry covered hoppers for the
transportation segment in the prior year.
Our external backlog was $105.8 million at June 30,
2011, representing 144 barges for 2011 production and 55 barges
for 2012 production. The backlog at December 31, 2010, was
$102.4 million.
Manufacturing
Segment Units Produced for External Sales or Internal
Use
Quarters Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
External sales:
|
||||||||||||||||
Liquid tank barges
|
| 2 | | 5 | ||||||||||||
Ocean tank barges
|
| 1 | | 2 | ||||||||||||
Deck barges
|
6 | | 12 | | ||||||||||||
Dry cargo barges
|
64 | 9 | 87 | 9 | ||||||||||||
Total external units sold
|
70 | 12 | 99 | 16 | ||||||||||||
Internal sales:
|
||||||||||||||||
Dry cargo barges
|
| 17 | 25 | 50 | ||||||||||||
Total units into production
|
| 17 | 25 | 50 | ||||||||||||
Total units produced
|
70 | 29 | 124 | 66 | ||||||||||||
30
Table of Contents
Consolidated
Financial Overview Non-GAAP Financial Measure
Reconciliation
NET LOSS
TO EBITDA RECONCILIATION
Successor | Predecessor | Successor | Predecessor | |||||||||||||||
Three Months |
Three Months |
Six Months |
Six Months |
|||||||||||||||
Ended |
Ended |
Ended |
Ended |
|||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
(Dollars in thousands) |
||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Net Loss from Continuing Operations
|
$ | (15,623 | ) | $ | (1,363 | ) | $ | (29,491 | ) | $ | (4,843 | ) | ||||||
Discontinued Operations, Net of Income Taxes
|
18 | (2 | ) | 10 | (2 | ) | ||||||||||||
Consolidated Net Loss
|
$ | (15,605 | ) | $ | (1,365 | ) | $ | (29,481 | ) | $ | (4,845 | ) | ||||||
Adjustments from Continuing Operations:
|
||||||||||||||||||
Interest Income
|
(103 | ) | | (158 | ) | (1 | ) | |||||||||||
Interest Expense
|
7,624 | 9,766 | 15,092 | 19,619 | ||||||||||||||
Depreciation and Amortization
|
27,907 | 11,912 | 55,432 | 23,911 | ||||||||||||||
Taxes
|
(7,495 | ) | (1,267 | ) | (16,298 | ) | (4,494 | ) | ||||||||||
Adjustments from Discontinued Operations:
|
||||||||||||||||||
Interest Income
|
(18 | ) | | (18 | ) | | ||||||||||||
EBITDA from Continuing Operations
|
12,310 | 19,048 | 24,577 | 34,192 | ||||||||||||||
EBITDA from Discontinued Operations
|
| (2 | ) | (8 | ) | (2 | ) | |||||||||||
Consolidated EBITDA
|
$ | 12,310 | $ | 19,046 | $ | 24,569 | $ | 34,190 | ||||||||||
EBITDA from Continuing Operations by Segment:
|
||||||||||||||||||
Transportation Net Loss
|
$ | (16,900 | ) | $ | (1,229 | ) | $ | (29,657 | ) | $ | (4,974 | ) | ||||||
Interest Income
|
(103 | ) | | (158 | ) | (1 | ) | |||||||||||
Interest Expense
|
7,624 | 9,766 | 15,092 | 19,619 | ||||||||||||||
Depreciation and Amortization
|
25,908 | 11,000 | 51,427 | 22,074 | ||||||||||||||
Taxes
|
(7,495 | ) | (1,267 | ) | (16,298 | ) | (4,494 | ) | ||||||||||
Transportation EBITDA
|
$ | 9,034 | $ | 18,270 | $ | 20,406 | $ | 32,224 | ||||||||||
Manufacturing Net Income (Loss)
|
$ | 1,162 | $ | (214 | ) | $ | 141 | $ | 14 | |||||||||
Depreciation and Amortization
|
1,980 | 828 | 3,967 | 1,669 | ||||||||||||||
External Manufacturing EBITDA
|
$ | 3,142 | $ | 614 | $ | 4,108 | $ | 1,683 | ||||||||||
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.
31
Table of Contents
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.
Outlook
Second
Quarter 2011 Weather Event
During the Companys second quarter of 2011 we incurred
almost 14,000 lost barge days compared to less than 3,000 lost
barge days in the same period of the prior year. The consistent
heavy rains exacerbated the high water impacts of record winter
snowfalls in the northern United States, resulting in above
flood stage conditions throughout the Inland Waterways for over
two months in the 2011 quarter.
In addition to the impact of the lost barge days, much of the
Inland Waterway throughout the duration of the flooding was
subject to
daylight-hours
operations only and tow-size restrictions. We estimate that the
flood event drove lower revenue and higher costs with a negative
margin impact of approximately $10.4 million.
Normal river operating conditions resumed in mid-July.
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
second 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. 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
on a 10.2% increase in
ton-mile
volumes. Despite a 7.1% decline in second quarter
ton-mile
volume our transportation revenues increased by 8.6% over the
prior year quarter.
We expect to continue to see improved pricing opportunities as
the system normalizes and grain begins moving. Demand for export
coal which we had seen increase significantly in the six months
prior to the second quarter of 2011, driven by increased demand
in Asia and mining supply disruptions in some foreign locations,
should return as the ship channels return to normal operation.
The demand resulting from the lower industry freight volumes
that could move in the second quarter due to flooding combined
with demand in dry spot market, for grain and other dry
commodities, as well as for spot and contract coal volumes
should continue to firm up the dry barge supply/demand balance
and should lead to continued improved pricing compared to the
prior year. 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 the manufacturing segment, since the fall of 2010, we have
seen an increase in new barge construction demand. Our backlog
for external barge production at June 30, 2011, was
$105.8 million, extending into 2012 production. We are
currently expecting to utilize remaining 2011 capacity to
construct barges for internal use by our transportation segment.
32
Table of Contents
COMMERCIAL
BARGE LINE COMPANY OPERATING RESULTS by BUSINESS SEGMENT
Quarter Ended June 30, 2011 as compared with Quarter Ended June 30, 2010
Quarter Ended June 30, 2011 as compared with Quarter Ended June 30, 2010
% of Consolidated |
|||||||||||||||||||||
Quarter Ended June 30, | Revenue | ||||||||||||||||||||
Successor | Predecessor | 2nd Quarter | |||||||||||||||||||
2011 | 2010 | Variance | 2011 | 2010 | |||||||||||||||||
(Dollars in thousands except where noted) |
|||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
REVENUE
|
|||||||||||||||||||||
Transportation and Services
|
$ | 165,029 | $ | 152,422 | $ | 12,607 | 81.9 | % | 92.8 | % | |||||||||||
Manufacturing (external and internal)
|
36,600 | 19,015 | 17,585 | 18.2 | % | 11.6 | % | ||||||||||||||
Intersegment manufacturing elimination
|
(53 | ) | (7,136 | ) | 7,083 | (0.1 | )% | (4.4 | )% | ||||||||||||
Consolidated Revenue
|
201,576 | 164,301 | 37,275 | 100.0 | % | 100.0 | % | ||||||||||||||
OPERATING EXPENSE
|
|||||||||||||||||||||
Transportation and Services
|
181,883 | 145,185 | 36,698 | ||||||||||||||||||
Manufacturing (external and internal)
|
35,454 | 19,223 | 16,231 | ||||||||||||||||||
Intersegment manufacturing elimination
|
(53 | ) | (7,136 | ) | 7,083 | ||||||||||||||||
Consolidated Operating Expense
|
217,284 | 157,272 | 60,012 | 107.8 | % | 95.7 | % | ||||||||||||||
OPERATING INCOME
|
|||||||||||||||||||||
Transportation and Services
|
(16,854 | ) | 7,237 | (24,091 | ) | ||||||||||||||||
Manufacturing (external and internal)
|
1,146 | (208 | ) | 1,354 | |||||||||||||||||
Intersegment manufacturing elimination
|
| | | ||||||||||||||||||
Consolidated Operating (Loss) Income
|
(15,708 | ) | 7,029 | (22,737 | ) | (7.8 | )% | 4.3 | % | ||||||||||||
Interest Expense
|
7,624 | 9,766 | (2,142 | ) | |||||||||||||||||
Debt Retirement Expenses
|
| 0 | |||||||||||||||||||
Other Expense (Income)
|
(214 | ) | (107 | ) | (107 | ) | |||||||||||||||
Loss Before Income Taxes
|
(23,118 | ) | (2,630 | ) | (20,488 | ) | |||||||||||||||
Income Tax Benefit
|
(7,495 | ) | (1,267 | ) | (6,228 | ) | |||||||||||||||
Discontinued Operations
|
18 | (2 | ) | 20 | |||||||||||||||||
Net Loss
|
$ | (15,605 | ) | $ | (1,365 | ) | $ | (14,240 | ) | ||||||||||||
Domestic Barges Operated (average of period beginning and end)
|
2,393 | 2,482 | (89 | ) | |||||||||||||||||
Revenue per Barge Operated (Actual)
|
$ | 68,248 | $ | 60,595 | $ | 7,653 |
RESULTS
OF OPERATIONS
Quarter
ended June 30, 2011 comparison to quarter ended
June 30, 2010
Revenue. Consolidated revenue increased by
$37.3 million to $201.6 million, a 22.7% increase
compared with $164.3 million for the second quarter of 2010.
Transportation revenues increased by $12.9 million or 8.6%
on 20.1% higher pricing on 7.1% less
ton-miles.
Manufacturing segment revenue increased $24.7 million or
207.7% primarily due to production of a greater number of
external barges during the current year first quarter.
Compared to the second quarter of 2010, revenues per average
barge operated increased 12.6% in the second quarter 2011.
Approximately two-thirds of the increase was due to higher
affreightment revenue, with the remainder attributable to higher
non-affreightment revenue. Our overall fuel-neutral rate
increased 10.5% over the second quarter of 2010, with an 11.3%
increase in dry cargo and a 4.1% increase in the liquid rate.
33
Table of Contents
The strong improvement in the dry cargo rate was primarily due
to favorable mix shift into export coal. Total volume measured
in ton-miles
decreased in the second quarter of 2011 to 8.0 billion from
8.6 billion in the same quarter of the prior year, a
decrease of 7.1%. On average, 3.6% or 89 fewer barges operated
during the 2011 quarter compared to the 2010 quarter.
In 2011, the manufacturing segment completed the six deck barges
and 64 dry hopper barges compared to nine dry hoppers, two tank
barges and one ocean-going tanker in the prior year quarter.
Operating Expense. Consolidated operating
expense increased by $60.0 million or 38.2% to
$217.3 million in the second quarter of 2011 compared to
the second quarter of 2010.
Transportation segment expenses, which include gains from asset
management actions, were $37.0 million higher in the second
quarter of 2011 than in the comparable quarter of 2010. The
increase in transportation segment operating expenses was
partially attributable to a $14.9 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 $14.6 million higher fuel costs, selling, general
and administrative expense increases of $3.8 million,
$1.7 million higher rent due to Acquisition purchase price
allocation recognition of favorable barge leases and higher
other operating costs of $3.6 million, partially offset by
$1.6 higher gains on disposition of equipment. The increases in
SG&A resulted primarily from higher consulting expenses
related to the Platinum transition, higher severance related
expenses, the Platinum Equity management fee and higher medical
and claims expenses, partially offset by improved bad debt
levels, lower wage and employee related expenses and lower
public company expenses. The higher operating costs were
primarily related to higher boat charter expenses, higher
repairs expenses, higher claims and higher outside shifting,
fleeting, cleaning and towing expenses. These cost increases
more than offset lower wages and incentive expenses and the
amortization of an unfavorable contract recorded as part of
purchase price accounting.
Manufacturing operating expenses increased by $23.3 million
due primarily to a higher number of external barges produced in
the 2011 quarter.
Operating Loss. Consolidated operating income
decreased by $22.7 million to an operating loss of
$15.7 million in the second quarter of 2011 compared to the
second quarter of 2010. Operating income in the transportation
segment decreased by $24.1 million and operating income in
the manufacturing segment improved by $1.4 million.
The transportation segments operating loss resulted
primarily from the increases in operating expenses, discussed
above, not fully absorbed by the $12.9 million increase in
segment revenue in the quarter.
The manufacturing segment had operating income of
$1.1 million in the quarter ended June 30, 2011,
compared to a $0.2 million operating loss in the comparable
period of 2010. Though high water conditions on the Ohio River
during the second quarter caused some level of inefficiency,
better labor efficiency and lower steel costs as a percent of
contract revenue for contracts produced in the quarter resulted
in the positive operating income performance.
Interest Expense. Total interest expense for
the second quarter ended June 30, 2011, was
$7.6 million or $2.1 million lower than those expenses
in the same periods of 2010. The decline in interest expense was
attributable to approximately $1.4 million in amortization
of the $35.0 million Acquisition date premium on CBLs
$200 million in 2017 Notes which reduced interest expense,
compared to the $0.3 million for the quarter ended
June 30, 2010 in amortization of the original issue
discount on those notes in the second quarter of 2010 which
increased expense in that period.
Income Tax Expense. The effective tax rates in
the respective second quarters of 2011 and 2010 were 32.4% and
48.2%. 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.
34
Table of Contents
COMMERCIAL
BARGE LINE COMPANY OPERATING RESULTS by BUSINESS SEGMENT
Six Months Ended June 30, 2011 as compared with Six Months Ended June 30, 2010
Six Months Ended June 30, 2011 as compared with Six Months Ended June 30, 2010
% of Consolidated |
|||||||||||||||||||||
Six Months Ended June 30, | Revenue | ||||||||||||||||||||
Successor | Predecessor | Six Months | |||||||||||||||||||
2011 | 2010 | Variance | 2011 | 2010 | |||||||||||||||||
(Dollars in thousands except where noted) |
|||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
REVENUE
|
|||||||||||||||||||||
Transportation and Services
|
$ | 327,683 | $ | 289,276 | $ | 38,407 | 86.2 | % | 92.5 | % | |||||||||||
Manufacturing (external and internal)
|
64,581 | 44,500 | 20,081 | 17.0 | % | 14.2 | % | ||||||||||||||
Intersegment manufacturing elimination
|
(12,027 | ) | (21,179 | ) | 9,152 | (3.2 | )% | (6.7 | )% | ||||||||||||
Consolidated Revenue
|
380,237 | 312,597 | 67,640 | 100.0 | % | 100.0 | % | ||||||||||||||
OPERATING EXPENSE
|
|||||||||||||||||||||
Transportation and Services
|
358,825 | 279,193 | 79,632 | ||||||||||||||||||
Manufacturing (external and internal)
|
64,480 | 44,462 | 20,018 | ||||||||||||||||||
Intersegment manufacturing elimination
|
(12,027 | ) | (21,179 | ) | 9,152 | ||||||||||||||||
Consolidated Operating Expense
|
411,278 | 302,476 | 108,802 | 108.2 | % | 96.8 | % | ||||||||||||||
OPERATING INCOME
|
|||||||||||||||||||||
Transportation and Services
|
(31,142 | ) | 10,083 | (41,225 | ) | ||||||||||||||||
Manufacturing (external and internal)
|
101 | 38 | 63 | ||||||||||||||||||
Intersegment manufacturing elimination
|
| | | ||||||||||||||||||
Consolidated Operating (Loss) Income
|
(31,041 | ) | 10,121 | (41,162 | ) | (8.2 | )% | 3.2 | % | ||||||||||||
Interest Expense
|
15,092 | 19,619 | (4,527 | ) | |||||||||||||||||
Other Income
|
(344 | ) | (161 | ) | (183 | ) | |||||||||||||||
Loss Before Income Taxes
|
(45,789 | ) | (9,337 | ) | (36,452 | ) | |||||||||||||||
Income Tax Benefit
|
(16,298 | ) | (4,494 | ) | (11,804 | ) | |||||||||||||||
Discontinued Operations
|
10 | (2 | ) | 12 | |||||||||||||||||
Net Loss
|
$ | (29,481 | ) | $ | (4,845 | ) | $ | (24,636 | ) | ||||||||||||
Domestic Barges Operated (average of period beginning and end)
|
2,400 | 2,491 | (91 | ) | |||||||||||||||||
Revenue per Barge Operated (Actual)
|
$ | 135,185 | $ | 114,540 | $ | 20,645 |
RESULTS
OF OPERATIONS
Six
months ended June 30, 2011 comparison to six months ended
June 30, 2010
Revenue. Consolidated revenue increased by
$67.6 million to $380.2 million, a 21.6% increase
compared with $312.6 million for the six months ended
June 30, 2010.
Transportation revenues increased by $39.1 million or 13.7%
on 17.5% higher pricing on approximately a one percent increase
in ton-mile
volumes, while manufacturing revenue increased
$29.2 million or 125.4% primarily due to production of a
greater number of external barges during the six months ended
June 30, 2011, compared to the same period of the prior
year. These increases were partially offset by professional
services revenue which decreased by $0.7 million.
Compared to the six months ended June 30, 2010, revenues
per average barge operated increased 18.0% in the six months
ended June 30, 2011. Approximately three quarters of the
increase was due to higher affreightment revenue, with the
remainder attributable to higher non-affreightment revenue. Our
overall fuel-neutral rate increased 11.0% over the six month
ended June 30, 2010, with an 11.9% increase in dry cargo
and
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a 2.7% increase in the liquid rate. The strong improvement in
the dry cargo rate was primarily due to favorable mix shift into
export coal and bulk cargoes. Total volume measured in
ton-miles
increased in the six months ended June 30, 2011, to
16.2 billion from 16.1 billion in the same period of
the prior year. On average, 3.7% or 91 fewer barges operated
during the six months ended June 30, 2011, compared to the
same period of 2010.
For the six months ended June 30, 2011, the manufacturing
segment completed the 12 deck barges and 87 dry hopper barges
for external customers as well as 25 dry covered hoppers for the
transportation segment compared to nine dry hoppers, five tank
barges and two ocean-going tankers for external customers as
well as 50 dry covered hoppers for the transportation segment in
the prior year.
Operating Expense. Consolidated operating
expense increased by $108.8 million or 36.0% to
$411.3 million in the six months ended June 30, 2011,
compared to the same period of 2010.
Transportation segment expenses, which include gains from asset
management actions, were $80.3 million higher in the six
months ended June 30, 2011, than in the comparable period
of 2010. The increase in transportation segment operating
expenses was partially attributable to a $29.4 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 $22.6 million higher fuel costs,
selling, general and administrative expense increases of
$11.0 million, higher other operating costs of
$11.6 million, $3.4 million in amortization of
favorable barge leases and $2.3 million lower gains on
disposition of equipment. The increases in SG&A resulted
primarily from higher consulting expenses related to the
Platinum transition, higher severance related expenses, the
Platinum Equity management fee and higher medical and claims
expenses, partially offset by improved bad debt levels, lower
wage and employee related expenses and lower public company
expenses.
The higher operating costs were primarily related to higher boat
charter expenses, higher repairs expenses, higher claims and
higher outside shifting, fleeting, cleaning and towing expenses.
These cost increases more than offset lower wages and incentive
expenses and the amortization of an unfavorable contract
recorded as part of purchase price accounting.
Manufacturing operating expenses increased by $29.2 million
due primarily to a higher number of external barges produced in
2011.
Operating Loss. Consolidated operating income
decreased by $41.2 million to an operating loss of
$31.0 million in the six months ended June 30, 2011,
compared to the same period of 2010. Operating income in the
transportation segment decreased by $41.1 million, with
minimal changes in the operating income from other segments.
The transportation segments operating loss resulted
primarily from the excess of the increases in operating
expenses, discussed above, over the $39.1 million revenue
increase for the period.
For the six months ended June 30, 2011, the manufacturing
segment had operating income of $0.1 million, with
operating income in the second quarter essentially offsetting
the first quarter loss. The manufacturing segment had operating
income of $1.1 million in the quarter ended June 30,
2011, compared to a $0.2 million operating loss in the
comparable period of 2010. Though high water conditions on the
Ohio River during the second quarter caused some level of
inefficiency, better labor efficiency and better matching of
steel costs with contracts produced in the quarter resulted in
the positive operating income performance. The first quarter
loss resulted primarily from the impact of purchase accounting
push-down of Acquisition date steel values on the hopper barges
constructed in that quarter. 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.
Interest Expense. Total interest expense for
the six months ended June 30, 2011, was $15.1 million,
or $4.5 million lower than those expenses in the same
periods of 2010. The decline in interest expense was
attributable to approximately $2.9 million in amortization
of the $35.0 million Acquisition date premium on the
Companys $200 million in 2017 Notes which reduced
interest expense in the current year. For the six
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months ended June 30, 2010, total interest expense included
$0.6 million of amortization of the original issue discount
on those same notes which increased interest expense in the
prior year. Interest expense was also impacted by the lower
effective rate on the Companys new credit facility when
compared to the facility in place in 2010.
Income Tax Expense. The effective tax rates in
the respective six month periods ended June 30, 2011 and
2010 were 35.6% 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 six months ended June 30, 2011 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 June 30, 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 Existing Credit Facility
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
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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 Existing Credit
Facility, effecting transactions with affiliates, making
investments and acquisitions, effecting mergers and asset sales,
prepaying indebtedness and paying dividends.
On July 7, 2009, CBL 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 $418.0 million at June 30,
2011, including the unamortized purchase accounting debt premium
of $32.0 million that arose on our parents
Acquisition in December 2010. We were in compliance with all
debt covenants on June 30, 2011. At the June 30, 2011,
debt level we had $204.0 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 June 30,
2011, debt levels we were $144.6 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.
Our
Indebtedness
At June 30, 2011, we had total indebtedness of
$418.0 million, including the $32.0 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 $14.4 million for
the six months ended June 30, 2011. In the six months ended
June 30, 2010, net cash provided by operations was
$12.9 million. The change in cash used in operations is
primarily attributable to the lower net income adjusted for
non-cash charges in the current year first six months, partially
offset by a lower use of cash for working capital in the first
six months of 2011 of $13.9 million compared to a use of
$23.7 million in the first six months of 2010.
Cash used in investing activities increased $7.5 million in
the first six months of 2011 to $18.4 million. The overall
increase in cash used in investing activities was due to
slightly higher current year investments offset by
$3.3 million in proceeds from property dispositions in 2011
compared to approximately $7.3 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 six months
ended June 30, 2011, was $30.8 million, compared to
net cash used by financing activities of $1.7 million in
the six months ended June 30 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. Dividends
paid of $6.5 million are equal to the amounts paid for
share based compensation holdings to Company executives and
former executives. These dividends were in turn used by Finn to
repay the intercompany receivable created by the share-based
compensation payments. The impact of the tax benefit of
share-based compensation was $0.2 million in the six months
ended June 30, 2011. The higher level of cash provided from
financing activities, primarily from borrowing on the revolving
credit facility funded the lower other operating cash flow and
the cash used in investing activities.
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CHANGES
IN ACCOUNTING STANDARDS
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.
ASU Number
2011-5 was
issued in June 2011, amending Topic 220
Comprehensive Income. The ASU modifies alternative presentation
standards, eliminating the option for disclosure of the elements
of other comprehensive income within the statement of
stockholders equity. Adoption of this ASU by the Company
will change our existing presentation, but will not impact the
components of other comprehensive income. The ASU is effective
for fiscal periods beginning after December 15, 2011.
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) 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 June 30, 2011, fuel expenses for fuel
purchased directly and used by our boats represented 28.0% of
our transportation revenues. Each one cent per gallon rise in
fuel price increases our annual
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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 19.1% of our total transportation segment
revenues in the first six months 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 June 30, 2011, a net
asset of approximately $6.4 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 $0.3 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 $6.2 million in the six
months ended June 30, 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 June 30, 2011, we had $186.0 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
40
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management, including the Interim Chief Executive Officer
(ICEO) 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 ICEO 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 ICEO 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. |
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| 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. |
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. |
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| 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 risks 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.
ITEM 6. | EXHIBITS |
Exhibit No. | Description | |
10.1+
|
Commercial Barge Line Company 2011 Annual Incentive Plan Corporate Employees (Incorporated by reference to the Companys Current Report on Form 8-K, filed on July 19, 2011). | |
10.2*+
|
Employment Letter Agreement, dated July 20, 2011, by and between American Commercial Lines Inc. and Mark Klee Knoy. | |
10.3*+
|
Employment Letter Agreement, dated July 19, 2011, by and between American Commercial Lines Inc. and David Huls. | |
31.1*
|
Certification by Paul Bridwell, Interim 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 Paul Bridwell, Interim 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. | |
101**
|
The following financial statements from the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL: (i) Consolidated Statement of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements. |
* | Filed herein | |
+ | Management contract or compensatory plan or arrangement | |
** | To be filed by amendment. |
43
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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.
AMERICAN COMMERCIAL LINES INC.
By: |
/s/ Paul
Bridwell
|
Paul Bridwell
Interim Chief Executive Officer
By: |
/s/ Brian
P. McDonald
|
Brian P. McDonald
Interim Chief Financial Officer
(Principal Financial Officer)
Date: August 15, 2011
Table of Contents
INDEX TO
EXHIBITS
Exhibit No. | Description | |
10.1+
|
Commercial Barge Line Company 2011 Annual Incentive Plan Corporate Employees (Incorporated by reference to the Companys Current Report on Form 8-K, filed on July 19, 2011). | |
10.2*+
|
Employment Letter Agreement, dated July 20, 2011, by and between American Commercial Lines Inc. and Mark Klee Knoy. | |
10.3*+
|
Employment Letter Agreement, dated July 19, 2011, by and between American Commercial Lines Inc. and David Huls. | |
31.1*
|
Certification by Paul Bridwell, Interim 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 Paul Bridwell, Interim 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. | |
101**
|
The following financial statements from the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL: (i) Consolidated Statement of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements. |
* | Filed herein | |
+ | Management contract or compensatory plan or arrangement | |
** | To be filed by amendment. |