ACL 2008 4Q and Annual Results

Thursday, March 05, 2009

American Commercial Lines Inc. (Nasdaq: ACLI) announced results for the fourth quarter and year ended December 31, 2008.

Revenues for the quarter were $289.9m, a 4.2% decrease compared with $302.5m for the fourth quarter of 2007. Income from continuing operations for the quarter was $23.5m or $0.47 per diluted share, compared to $23.6m or $0.46 per diluted share for the fourth quarter of 2007. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) from continuing operations for the fourth quarter of 2008 was $56m with an EBITDA margin of 19.3% compared to $54.5m for the fourth quarter of 2007 with an EBITDA margin of 18.0%. The attachment to this press release reconciles net income to EBITDA.

Results for the fourth quarter 2008 included after-tax expenses of $1m or $0.02 per diluted share related to refinancing costs incurred not related to the Company's extension of its credit facility and after tax expenses of $0.7m or $0.01 per diluted share related to impairment of goodwill on acquired businesses. Results for the fourth quarter 2007 included an after tax charge of $1.4m or $0.03 per diluted share related to the decision to withdraw from a multi-employer pension plan for certain represented employees of the Company's terminal operations and an after tax benefit of $1.8m or $0.04 per diluted share from the realization of certain deferred tax assets.

Revenues for the year ended December 31, 2008 were $1,196.8m, a 13.9% increase compared with $1,050.4m for 2007 due primarily to higher transportation and manufacturing revenue. The increase is also due to revenues from companies acquired in late 2007 and early 2008. Income from continuing operations for the year ended December 31, 2008 was $47.5m or $0.93 per diluted share, compared to $44.4m or $0.77 per diluted share for 2007. For the year ended December 31, 2008, EBITDA from continuing operations was $155.8m compared to $159.9m for the year ended December 31, 2007.

In addition to the items discussed above in regard to the respective fourth quarters of 2008 and 2007, the full-year results for each year included these additional non-comparable items. Full-year results for 2008 included after-tax debt retirement expenses of $1.5m or $0.03 per diluted share on the June 2008 amendment of the Company's credit facility and an after-tax benefit of $1.4m or $0.03 per diluted share related to the reversal of the prior year charge for withdrawal from a multi-employer pension plan. Full-year results for 2007 included after-tax debt retirement expenses of $16m related to the retirement of the Company's 9.5% senior notes and the Company's previous revolving credit facility, which reduced diluted earnings per share by $0.28.

Commenting on fourth quarter and full-year results, Michael P. Ryan, President and Chief Executive Officer, stated, "In 2008 we faced multiple challenges from many different fronts, including economic uncertainty, fuel price volatility, and operational disruptions due to weather events. I am very proud that our team rose to these challenges by focusing on reducing costs, improving productivity and growing the business in profitable markets.

"In the fourth quarter we delivered a $1.5m improvement in EBITDA from continuing operations over the prior year quarter, our third consecutive quarter of quarter-over-quarter EBITDA growth. For the full-year, we delivered EBITDA that was just short of our 2007 amount, despite significant weather disruptions, which reduced productivity by approximately $16m.

"We recognize that the economic environment is going to remain difficult, so we remain cautious about our 2009 outlook. As a consequence, we are continuing and accelerating efforts to drive costs out of the business in every area. We have frozen salaries for 2009. Last week we implemented a reduction of approximately 15% of our land-based salaried headcount which is expected to generate annualized savings of $9.1m, and approximately $3.3m in 2009 after related severance and other costs, including the estimated cost of approximately $2.5m of closing the Houston office, primarily a non-cash charge for the write-off of office leasehold improvements. With the amendment of our credit facility, extending the term through March 31, 2011, we believe we have the flexibility and liquidity to operate strategically through today's challenging economic conditions, allowing us to concentrate on achieving our business objectives."

The transportation segment's revenues were $231.3m in the fourth quarter 2008, an increase of 1.1% over the fourth quarter of the prior year. The revenue increase was driven by 13.7% higher pricing on affreightment contracts, partially offset by lower affreightment volume as ton-miles declined 8%, a 31% decline in towing/charter ton-miles and $5.3m lower revenue from scrapping barges. Slightly more than half of the affreightment rate increase was attributable to higher fuel-neutral pricing and the remainder to fuel escalations under the company's contracts. On average, compared to the fourth quarter of 2007, the fuel-neutral rate on dry freight business increased 7.1% and the liquid freight business increased 14.2%. Total volume measured in ton-miles declined in the fourth quarter of 2008 to 9.8 billion from 11.0 billion in the same period of the prior year, a decrease of 10.6%. On average, 6.3% or 169 fewer affreightment barges operated in the fourth quarter of this year compared to the fourth quarter of last year.

Operating income in the transportation segment increased 20%, or $8m, to $45m in the quarter ended December 31, 2008 compared to the fourth quarter 2007. The operating ratio, or the percentage of revenue that all operating costs represent, in the fourth quarter was 80.5%, the best in two years, substantially improved over the prior quarters of 2008 and 3.1 points better than the ratio in 2007. This increase was due primarily to fuel-neutral affreightment price increases and other rate increases totaling $19m, favorable fuel price recoveries of $6m, almost $2.5m in higher boat productivity, $2m in lower pension withdrawal costs and $2m in lower selling, general and administrative expenses before incentive compensation and refinancing costs. The increase was partially offset by the $7m margin impact of lower volume, $7m in wages and other non-fuel cost inflation, $3m in lower scrapping margin, $5m in higher target-based incentive compensation cost, the $1.5m cost of our refinancing effort that we terminated in the fourth quarter 2008 and a $0.6m reserve for bad debts relating to the bankruptcy of a liquids customer. Fuel prices increased 13% over fourth quarter 2007, though decreasing almost 21% from the third quarter of 2008. The average cost of fuel in the fourth quarter 2008 was $2.86 per gallon.

For the full-year 2008, revenue increased 11% to $897.3m compared to 2007, driven by a 21.0% pricing increase on affreightment contracts, increases in outside towing and charter/day rate revenues, and increased revenue from scrapping barges, partially offset by lower ton-mile volumes. Approximately 60% of the affreightment rate increases were driven by fuel escalations, with the remainder attributable to higher fuel-neutral pricing. On average the fuel-neutral rate on the dry and liquid freight businesses increased 7.8% and 12.9% respectively compared to 2007. Total 2008 volume measured in ton-miles declined in 2008 to 39.5 billion from 43.6 billion in 2007, a decrease of 9.5%. To a large extent, this was attributable to inclement weather conditions and severe flooding in 2008 compared to the prior year. On average, 6.2% or 182 fewer affreightment barges operated in the 2008 full-year compared to 2007.

Operating income for the year ended December 31, 2008 in the transportation segment decreased 8.1%, or $8.1 million, to $92.2m compared to $100.3m in 2007. The decline in operating income resulted from $32m in wage and non-fuel cost inflation, $16m lower boat productivity and $9m in ton-mile volumes, offset by $46m in fuel-neutral pricing and other revenue increases and by $4m in higher income from scrapping retired barges. Wage and non-fuel inflation resulted primarily from outside fleeting, shifting, towing cost increases, higher claims cost, higher boat and barge repair expenses and increased target-based incentive compensation payouts. Lower boat productivity was caused by weather-related operating conditions which primarily impacted the first three quarters and the lower volumes resulted from the significant weather events, weak economic conditions late in the year, and a 6% smaller fleet. Despite significant fuel volatility during the year, the rapid decline in fuel pricing late in the year enabled the Company to recover all but $1m of its $85m in fuel price increases for 2008, consistent with the contract mechanism for fuel price recovery in the Company's contracts. The negative impacts of fuel occurred primarily in the first half of the year largely offset by benefits in the second half. For the 2008 full-year operating disruptions caused by abnormally high precipitation levels along the inland waterways increased weather-related idle barge days to almost 42,000 days, equal to idling 115 barges for a full-year. This was an increase of 153%, or over 25,000 idle days, from 2007.

Manufacturing revenues were $37.9m in the fourth quarter of 2008 compared to $71.9m during the same period last year. Manufacturing operating margin declined by $7.1m or 14 points to negative 8.8% or an operating loss of $3.4m in the quarter. The revenue decline was driven primarily by a change in mix of internal ACL barges and external customer barges between years. In the fourth quarter of 2008 manufacturing delivered 11 tank barges for internal use compared to nine dry cargo barges for internal use in the fourth quarter 2007. During the fourth quarter 2008, manufacturing sold to third parties 15 tank barges and one special vessel compared to 81 dry cargo barges, 13 tank barges and two special vessels in the fourth quarter of 2007. The significant decline in operating margin was primarily driven by the accrual for the expected loss on one special vessel still under construction. The $5.5m loss on the vessel is due to significantly higher than anticipated engineering costs and construction inefficiencies. Associated costs of delays on other barge construction also contributed to the quarter's decline. Labor hours per ton of steel processed, a key productivity measure for the manufacturing segment's higher volume lines, continued the recent trend of improvement over the prior year quarter.

Manufacturing revenues were $254.8m for the full-year 2008 compared to $239.9m for 2007. This increase was driven by sales of more liquid barges, higher steel pricing and fewer internal builds. For the full-year manufacturing delivered 11 tank barges for internal use compared to 50 dry cargo barges and 13 liquid tank barges during 2007. During the year manufacturing sold to third parties 191 dry cargo barges, 53 tank barges, 10 hybrid vessels and four special vessels compared to 311 dry cargo barges, 28 tank barges and two special vessels during 2007. Through December 31, 2008, 34.5 production days were lost due to weather, over 25% more than the days lost in 2007. Manufacturing operating income was $9.7 million for the full-year. This translates to 3.8% operating margin compared to 3.2% in 2007 as a result of improved high volume line productivity offset by the anticipated loss on the special vessel. Excluding the prior year inventory reserves and write-downs of $3.3m operating margins declined by 0.8 points, driven by the losses on the special vessel. Our manufacturing sales backlog was $212m at December 31, 2008 and extended into 2010.

On February 20, 2008 the company amended and extended its credit agreement through March 31, 2011. A copy of the Amendment was filed on Form 8-K filed with the Securities and Exchange Commission on February 23, 2009.

Availability under the credit agreement in existence at December 31, 2008 was $128m. Under the reduced borrowing capacity of the amended credit agreement, availability would have been $53m at that date. At no time has ACL not been in compliance with the debt covenants in its credit facility.
Under the terms of the amended credit facility the Company has the flexibility to generate additional liquidity, with limitations, through sale leaseback and asset sale transactions, and through certain permitted indebtedness outside the amended facility.

During the fourth quarter the company had $42.5m of capital expenditures, generated $47.4m in cash from operations, and reduced its revolver by $14.2m to $418.6m. For the year ended December 31, 2008 ACL had $97.9m of capital expenditures, used $8.5m to complete the acquisition of Summit Contracting, received proceeds of $4m on asset sales and reduced its revolver by $20.5m.

ACL will conduct a conference call to discuss the company's fourth quarter and full-year 2008 earnings on March 5, 2009 at 10:00 a.m. Eastern time. ACL's live webcast, featuring a slide presentation, may be accessed at www.aclines.com. The telephone numbers to access the conference call are: Domestic (866) 804-6921; International (857) 350-1667; and the Participant Passcode is 30198970. For those unable to participate in the live call or webcast, the ACL Conference Call will be archived at www.aclines.com within three hours of the conclusion of the live call and will remain available through May 5, 2009.

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