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February 9, 2010

American Commercial Lines beats analysts' expectations

Shares in American Commercial Lines Inc. (NASDAQ:ACLI ) were up sharply after it reported fourth quarter earnings of $1.09 per share, -- substantially better than the $0.06 analysts had been expecting.

Commenting on fourth quarter and full year results, Michael P. Ryan, President and Chief Executive Officer, stated, "We are pleased with our fourth quarter results, finishing 2009 on a positive note after a second straight year of difficult economic conditions. Our earnings power was greatly impacted this year as our clients shipped less to their customers, and to their own production facilities. With the economy beyond our control, we focused on improving the fundamentals of our business. We aggressively improved our cost structure and productivity by realigning and reducing our assets and personnel. These actions will stabilize our program in the near term and position us to reap greater financial dividends in the coming years. Despite all the economic turmoil, we were still able to pay down debt in 2009 after successfully refinancing our bank loan facility. We continue to be well positioned to pursue our long term strategy of business mix improvement with aggressive cost control."

Fourth Quarter 2009 Results

Revenues for the quarter ended December 31, 2009 were $226.9 million, a 16.4 percent decrease compared with $271.6 million for the fourth quarter of 2008. The company says the decrease was primarily due to changes in the mix of commodities shipped by customers, decreased towing revenue, lower grain freight rates and lower fuel prices (which are generally passed through to customers). Total ton-mile volume declined by 1.4 percent compared to the fourth quarter 2008.

Net income for the fourth quarter 2009 was impacted by an after-tax loss of $4.8 million or $0.37 per diluted share on the previously announced sale of Summit Contracting. The results of operations and the sale of Summit Contracting are reflected as discontinued operations for all periods presented.

Full-Year 2009 Results

Revenues for the year ended December 31, 2009 were $846.0 million compared with $1,159.9 million for 2008, a 27.1 percent decrease, due primarily to lower transportation revenues. Manufacturing revenues from shipbuilder Jeffboat were also lower as 81 fewer barges were built in 2009. The loss from continuing operations for the year ended December 31, 2009 was $2.0 million or $0.16 per diluted share, compared to income from continuing operations of $47.4 million or $3.73 per diluted share for 2008. For the year ended December 31, 2009, EBITDA from continuing operations was $107.8 million compared to $154.1 million for the year ended December 31, 2008. EBITDA margin declined by 0.6 points to 12.7 percent in 2009.

For the year, significant non-comparable items which impacted the loss from continuing operations included debt retirement expenses of $11.3 million. charges of $2.7 million related to manufacturing segment contract disputes and settlements, non-cash charges related to the Houston office closure of $2.3 million, severance charges of $2.0 million and charges of $0.4 million related to the bankruptcy of a transportation customer. These charges were partially offset by an accrued vacation reversal due to a change in vacation policy of $1.0 million after-tax.

For the full-year 2009, though average outstanding debt declined $42.6 million from the prior year levels, higher effective interest rates on outstanding balances drove after-tax interest expenses $9.1 million higher, negatively impacting 2009 compared to 2008 by $0.72 per diluted share. Full year 2009 results also benefitted from higher after-tax net gains from asset management actions of $4.9 million or $0.38 per diluted share as 2009 gains on asset sales exceeded the prior year, but were offset by lower 2009 income from scrapping surplus barges.

Net income for 2009 was additionally impacted by after-tax charges of $9.9 million related to the sale of Summit Contracting in November 2009. These charges include the loss on the sale of Summit Contracting, the impairment charge recognized in the third quarter 2009 and Summit's operating losses in 2009.

Transportation Results

The transportation segment's revenues were $177.5 million in the fourth quarter 2009, a decrease of 23.3 percent over the fourth quarter of the prior year. The revenue decrease was driven by 24.5 percent lower gross ton-mile pricing on affreightment contracts, 9.8 percent lower non-grain affreightment ton-mile volume, a 12.4 percent decline in towing ton-miles and $16.6 million in lower grain pricing that more than offset a 20 percent increase in grain ton-mile volume. Approximately three quarters of the overall affreightment rate decrease was attributable to lower fuel-neutral pricing on the current year mix of commodities when compared to the prior year. The remainder of the decline was attributable to fuel de-escalations under the company's contracts. On average, compared to the fourth quarter of 2008, the fuel-neutral rate on dry freight business decreased 17.5 percent and the liquid freight business decreased 13.5 percent. Total volume measured in ton-miles declined slightly in the fourth quarter of 2009 to 9.7 billion from 9.8 billion in the same period of the prior year, a decrease of 1.4 percent. On average, 5.5 percent or 146 fewer barges operated in the quarter compared to the fourth quarter of the prior year.

Operating income in the transportation segment decreased 37.3 percent, or $16.8 million, to $28.3 million in the quarter ended December 31, 2009 compared to the fourth quarter 2008. The operating ratio, or the percentage of revenue that all operating costs represent, in the fourth quarter was 84.1 percent, a substantial improvement over the prior quarters of 2009 and a decrease of only 3.6 points from the 2008 quarter despite less favorable price/volume/mix. The decrease in operating income was primarily due to the $24.3 million margin impact of lower non-grain rate/volume/mix, $4.2 million in lower grain profitability as the 20 percent increase in grain volume did not offset the $16.6 million decline in grain pricing, and the $2.2 million incremental cost of relocating empty barges. These negative factors were partially offset by $5.3 million lower SG&A expenses and $8.6 million in improved boat and crewing productivity and other cost reductions. The lower SG&A is attributable to the lower salaried wage base in 2009 as a result of reduction in force actions, decreases in bonus accruals, decreased bank fees and less advertising spending. Fuel prices decreased 32 percent over fourth quarter 2008. The average cost of fuel in the fourth quarter 2009 was $1.95 per gallon.

The transportation segment's revenues were $621.6 million in 2009, a decrease of 30.8 percent over the prior year. The revenue decrease was driven by 30.0 percent lower gross ton-mile pricing on affreightment contracts, 17.2 percent lower non-grain affreightment ton-mile volume, a 24.9 percent decline in towing ton-miles and $56.4 million in lower grain pricing that more than offset a 34 percent increase in grain ton-mile volume. Approximately three quarters of the overall affreightment rate decrease was attributable to lower fuel-neutral pricing on the current year mix of commodities when compared to the prior year. The remainder of the decline was attributable to fuel de-escalations under the Company's contracts. On average, compared to 2008, the fuel-neutral rate on dry freight business decreased 21.9 percent and the liquid freight business decreased 2.0 percent. Total volume measured in ton-miles declined in 2009 to 37.1 billion from 39.5 billion in the prior year, a decrease of 6.0 percent. On average, 5.8 percent or 159 fewer barges operated during 2009 compared to 2008.

Operating income for the year ended December 31, 2009 in the transportation segment decreased 65.7 percent, or $60.6 million, to $31.6 million. The decline in operating income resulted primarily from an $84.9 million decline in non-grain price/volume/mix as higher margin commodity volumes continued to be weak throughout the year. The 34 percent increase in grain volume did not offset the $56.4 million decline in grain pricing, lowering margins by approximately $14.8 million. The incremental cost of relocating empty barges during 2009 was estimated to be $18.3 million. These negative impacts were partially offset by $37.3 million in improved boat productivity, $8.5 million lower SG&A spending, $7.5 million in gains from asset management transactions and $4.1 in other cost reductions. The lower SG&A is attributable to the lower salaried wage base in 2009 as a result of reduction in force actions, decreases in bonus accruals, decreased bank fees and less advertising spending offset by the cost of the Houston office closure and bad debt attributable to the bankruptcy of a customer. Fuel prices decreased 39 percent over 2008. The average cost of fuel in 2009 was $1.95 per gallon.

Manufacturing Results

Manufacturing revenues were $45.2 million in the fourth quarter of 2009 compared to $37.9 million during the same period last year. Manufacturing operating margin increased by $5.9 million or 14.5 points to 5.7 percent resulting in an operating income of $2.6 million in the quarter. The revenue increase was driven primarily by a change in mix of internal ACL barges and external customer barges between years. During the fourth quarter 2009 manufacturing sold to third parties 58 dry hopper barges, four tank barges and one special vessel compared to no dry cargo barges, 15 tank barges and one special vessel in the fourth quarter of 2008. The significant improvement in operating margin was primarily driven by the accrual for the $5.5 million loss on one special vessel still under construction during the fourth quarter of 2008.

Manufacturing revenues were $215.5 million for the full-year 2009 compared to $254.8 million for 2008. This decrease was driven by sales of 81 fewer barges and lower steel pricing. During the year manufacturing sold to third parties 130 dry cargo barges, 43 tank barges and four special vessels compared to 191 dry cargo barges, 53 tank barges, 10 hybrid barges and four special vessels during 2008. Manufacturing operating income was $21.4 million for the full-year. This translates to a 9.9 percent operating margin compared to 3.8 percent in 2008 as a result of improved pricing, productivity, improved safety and the prior year loss on the special vessel. Our manufacturing sales backlog was $49.4 million at December 31, 2009.

Cash Flow and Debt

At December 31, 2009, the company had $354.6 million in total debt outstanding. In 2009, the company generated $129.3 million of cash flow from operations, compared to $122.8 million in the prior year. The increase, on lower net income, was primarily due to working capital changes, mainly lower accounts receivable, lower inventory levels and higher accrued interest. At December 31, 2009, the company had approximately $234 million in available liquidity under its revolver. During 2009 the company had $37.7 million of capital expenditures and other investing activities, the cash flow impact of which was largely offset by $31.1 million in proceeds from the disposition of vessels and the sale of Summit Contracting. ACLI reduced its total debt outstanding by $64.0 million. In addition, the company paid debt costs related to its refinancing activities of $50.1 million, including the $9.6 million of original issue discount on its Senior Notes in July 2009.


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