Effective May 29, 2002, the Danielson Recapitalization was consummated with $58.5 million of the Old Senior Notes and interest thereon, if any, contributed by Danielson to ACL Holdings; $230 million, plus accrued interest, of the remaining $236.5 million in Old Senior Notes exchanged for new Senior Notes, and new PIK Notes and the Senior Credit Facilities amended. As part of the Danielson Recapitalization, DHC contributed $25.0 million in cash to ACL Holdings, which was immediately used to reduce the outstanding term loan debt under the Senior Credit Facilities. In addition, $50.0 million of the amount outstanding under the Old Revolving Credit Facility was converted into a new Term Loan.
In late 2002, ACL received a notification from Bank One stating that ACL was in violation of the cross-default provisions contained in the Pre-Petition Receivables Facility, which provides that a failure to maintain the financial ratios provided by the Credit Agreement, whether or not amended or waived, constitutes a default under the Pre-Petition Receivables Facility. Subsequent to the notice of default, Bank One and ACL agreed to an amendment to the Receivables Facility which permitted ACL to continue utilizing the Receivables Facility, although the loss reserve and certain facility fees were increased and the termination date changed from May 29, 2003 to January 31, 2003.
Operating Revenue. On a pro forma basis, Marine Services' revenue declined $26.1 million or 3.3% for the year 2002 as compared to 2001. The revenue decrease was primarily due to lower domestic barging freight rates and volumes and the strike at Jeffboat, partially offset by higher sales at Jeffboat when 2001 revenue from the sale of barges to Vessel Leasing is excluded and increased revenue from ACL's international business units.
Domestic barging revenue decreased $54.2 million to $581.8 million due to lower barging rates for grain, bulk, coal and liquid freight, lower liquid freight volume, lower coal freight volume, lower demurrage revenue and lower towing revenue, partially offset by increased grain freight volumes primarily due to better operating conditions in the first half of the year and increased bulk freight volume as a result of increased demand in the last six months of the year.
The operations of DHC's insurance subsidiary, NAICC, are primarily property and casualty insurance. The results discussed below exclude NAICC's share of any undistributed earnings related to its proportional ownership of ACLines.
DHC is a holding company that conducts substantially all of its operations through its subsidiaries. As such, DHC has limited liquidity and capital resources at the parent company level. As more fully described elsewhere in this filing, DHC's subsidiaries are currently unable to distribute or loan funds to DHC. As a result, DHC is dependent on income from its holding company investments, and monetizing its holding company investments to provide liquidity and capital resources. In addition, DHC may be able to raise funds
DHC's primary sources of liquidity are cash flows from the operating activities of the Marine Services group, borrowings under ACL's DIP Credit Facility and other bank debt, and cash flows from the operating activities and investments of the insurance subsidiaries. Cash provided by operating activities totaled $0.05 million for 2002 compared to cash used by operating activities of $4.7 million for 2001. The increase in cash provided was primarily due to the cash provided from the operations of the Marine Services group partially offset by cash used from Insurance Services' operations, discussed below.
At December 27, 2002, ACL had $39.3 million outstanding under the Pre-Petition Receivables Facility, its accounts receivable securitization facility, and had $27.6 million of net residual interest in the securitized receivables. The fair value of the net residual interest is measured at the time of the sale and is based on the sale of similar assets. In 2002, Marine Services received gross proceeds of $20.3 million from the sale of receivables and made gross payments of $23.6 million under the Pre-Petition Receivables Facility.
The following table sets forth a summary of NAICC's investment portfolio at December 31, 2002 (dollars in thousands):
Danielson accounts for its 50% ownership in UABL Limited and UABL Terminals Ltd. (collectively, "UABL"), companies with operations in South America, by the equity method (see Note 25). Danielson's investment in UABL is $48,627 at December 27, 2002. Marine Service's share of UABL's losses included in other income in the consolidated statement of operations was $1,130 for 2002.
In July 2001, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes the accounting for goodwill and other intangible assets following their recognition. SFAS 142 applies to all goodwill and other intangible assets whether acquired singly, as part of a group, or in a business combination. SFAS 142 provides that goodwill and intangible assets with indefinite lives should not be amortized but should be tested for impairment annually using a fair-value based approach. In addition, SFAS 142 provides that other intangible assets should be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 has been superceded by SFAS 144 which is described below. The adoption of SFAS 142 on December 29, 2001 has not had a significant effect on DHC's financial position or results of operations.
The expected maturities of fixed maturity securities, by amortized cost and fair value, as of the year ended December 2002, are shown below. Expected maturities may differ from contractual maturities due to borrowers having the right to call or prepay their obligations with or without call or prepayment penalties. Expected maturities of mortgage-backed securities are estimated based upon the remaining principal balance, the projected cash flows and the anticipated prepayment rates of each security:
Danielson considers the following factors in determining whether declines in the fair value of securities are "other than temporary":
a. the significance of the decline in fair value compared to the cost basis,
Gross realized gains relating to fixed maturities were $14,848, $370 and $60 for the years ended December 2002, 2001 and 2000, respectively. Gross realized losses relating to fixed maturities were $21, $24 and $17 for the years ended December 2002, 2001 and 2000, respectively. Gross realized gains relating to equity securities were $100, $2,427 and $8,734 for the years ended December 2002, 2001 and 2000, respectively. Gross realized losses relating to equity securities were $5,080, $1,215 and $12 for the years ended December 2002, 2001 and 2000, respectively.
A substantial portion of DHC's net assets are restricted. Various state insurance requirements restrict the amounts that may be transferred to DHC in the form of dividends or loans from its insurance subsidiaries without prior regulatory approval. In 2000, NAICC received regulatory approval and paid a $1.5 million dividend to DHC. Also, as noted above, ACL is currently in Chapter 11 so it cannot transfer assets to DHC. DHC's investments in the net assets of its Insurance Services subsidiaries and its Marine Services subsidiaries total approximately $67.3 million as of December 27, 2002.
COMBINING STATEMENT OF CASH FLOWS FOR AMERICAN COMMERCIAL LINES LLC FOR THE PERIOD MAY 29, 2002 THROUGH DECEMBER 27, 2002
COMBINING STATEMENT OF FINANCIAL POSITION FOR AMERICAN COMMERCIAL LINES LLC DECEMBER 27, 2002