-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Upo+/221qElwckKbsA4GHf+WlY9dKWjAqvfs5eMab0c4/KK3Ne1mHmTbdqT7Vs9b 8GykgGsioC0E/MtmQdAVfA== 0000278041-03-000007.txt : 20030514 0000278041-03-000007.hdr.sgml : 20030514 20030514151648 ACCESSION NUMBER: 0000278041-03-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL SHIPHOLDING CORP CENTRAL INDEX KEY: 0000278041 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 362989662 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10852 FILM NUMBER: 03698728 BUSINESS ADDRESS: STREET 1: 650 POYDRAS ST STE 1700 CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5045295470 10-Q 1 q1st03.txt 1 INTERNATIONAL SHIPHOLDING CORPORATION AND SUBSIDIARIES UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 -------------- __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from___________ to _____________ Commission file number: 2-63322 --------- INTERNATIONAL SHIPHOLDING CORPORATION ------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-2989662 - -------------------------------- -------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 650 Poydras Street New Orleans, Louisiana 70130 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (504) 529-5461 - ---------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 for the past 90 days. YES x NO ----------- ----------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock $1 Par Value 6,082,887 shares (March 31, 2003) - ------------------------------ ------------------ ---------------- 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (All Amounts in Thousands Except Share Data) (Unaudited)
Three Months Ended March 31, 2003 2002 ---------- ---------- Revenues $ 64,806 $ 60,452 Operating Expenses: Voyage Expenses 49,618 49,693 Vessel and Barge Depreciation 4,654 4,830 Impairment Loss - 54 ---------- ---------- Gross Voyage Profit 10,534 5,875 ---------- ---------- Administrative and General Expenses 4,011 4,446 (Gain) Loss on Sale of Other Assets (4) 20 ---------- ---------- Operating Income 6,527 1,409 ---------- ---------- Interest and Other: Interest Expense 3,481 4,620 Investment Income (228) (312) Other Income (22) (1,282) (Gain) Loss on Early Extinguishment of Debt (1,260) 48 ---------- ---------- 1,971 3,074 ---------- ---------- Income (Loss) Before Provision (Benefit) for Income Taxes and Equity in Net Income of Unconsolidated Entities 4,556 (1,665) ---------- ---------- Provision (Benefit) for Income Taxes: Deferred 1,587 (576) State 42 - ---------- ---------- 1,629 (576) ---------- ---------- Equity in Net Income of Unconsolidated Entities (Net of Applicable Taxes) 67 169 ---------- ---------- Net Income (Loss) $ 2,994 $ (920) ========== ========== Basic and Diluted Earnings Per Share: Net Income (Loss) $ 0.49 $ (0.15) ========== ========== Weighted Average Shares of Common Stock Outstanding 6,082,887 6,082,887 The accompanying notes are an integral part of these statements.
3 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (All Amounts in Thousands) (Unaudited)
March 31, December 31, ASSETS 2003 2002 ---------- ---------- Current Assets: Cash and Cash Equivalents $ 6,314 $ 3,529 Restricted Cash 8,473 8,096 Marketable Securities 2,105 2,211 Accounts Receivable, Net of Allowance for Doubtful Accounts of $345 and $332 in 2003 and 2002, Respectively: Traffic 15,025 16,341 Agents' 3,966 4,343 Claims and Other 16,079 9,408 Federal Income Taxes Receivable 5,755 5,755 Deferred Income Tax 576 576 Net Investment in Direct Financing Lease 1,985 1,944 Other Current Assets 4,329 6,212 Material and Supplies Inventory, at Lower of Cost or Market 3,482 3,492 Current Assets Held for Disposal 2,718 2,762 ---------- ---------- Total Current Assets 70,807 64,669 ---------- ---------- Marketable Equity Securities 200 200 ---------- ---------- Investment in Unconsolidated Entities 8,413 8,251 ---------- ---------- Net Investment in Direct Financing Lease 50,761 51,264 ---------- ---------- Vessels, Property, and Other Equipment, at Cost: Vessels and Barges 336,934 336,755 Other Equipment 5,506 5,507 Terminal Facilities 329 336 Furniture and Equipment 9,077 9,042 ---------- ---------- 351,846 351,640 Less - Accumulated Depreciation (115,357) (110,535) ---------- ---------- 236,489 241,105 ---------- ---------- Other Assets: Deferred Charges, Net of Accumulated Amortization of $13,889 and $13,572 in 2003 and 2002, Respectively 13,466 14,628 Acquired Contract Costs, Net of Accumulated Amortization of $20,340 and $19,976 in 2003 and 2002, Respectively 10,186 10,550 Due from Related Parties 2,584 2,609 Other 13,167 13,476 ---------- ---------- 39,403 41,263 ---------- ---------- $ 406,073 $ 406,752 ========== ========== The accompanying notes are an integral part of these statements.
4 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (All Amounts in Thousands Except Share Data) (Unaudited)
March 31, December 31, LIABILITIES AND STOCKHOLDERS' INVESTMENT 2003 2002 ---------- ---------- Current Liabilities: Current Maturities of Long-Term Debt $ 20,958 $ 21,362 Accounts Payable and Accrued Liabilities 34,578 34,252 ---------- ---------- Total Current Liabilities 55,536 55,614 ---------- ---------- Billings in Excess of Income Earned and Expenses Incurred 3,336 1,207 ---------- ---------- Long-Term Debt, Less Current Maturities 185,769 192,297 ---------- ---------- Other Long-Term Liabilities: Deferred Income Taxes 16,115 14,358 Claims and Other 26,658 28,049 ---------- ---------- 42,773 42,407 ---------- ---------- Commitments and Contingent Liabilities Stockholders' Investment: Common Stock 6,756 6,756 Additional Paid-In Capital 54,450 54,450 Retained Earnings 67,433 64,439 Less - Treasury Stock (8,704) (8,704) Accumulated Other Comprehensive Loss (1,276) (1,714) ---------- ---------- 118,659 115,227 ---------- ---------- $ 406,073 $ 406,752 ========== ========== The accompanying notes are an integral part of these statements.
5 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT (All Amounts in Thousands) (Unaudited)
Accumulated Additional Other Common Paid-In Retained Treasury Comprehensive Stock Capital Earnings Stock Income (Loss) Total ------- ------- -------- -------- ----------- ------- Balance at December 31, 2001 $6,756 $54,450 $64,575 $(8,704) $(2,172) $114,905 Comprehensive Income: Net Loss for Year Ended December 31, 2002 - - (136) - - (136) Other Comprehensive Income (Loss): Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($194) - - - - (362) (362) Recognition of Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of $248 - - - - 461 461 Unrealized Holding Gain on Derivatives, Net of Deferred Taxes of $193 - - - - 359 359 ------- Total Comprehensive Income 322 ------- ------- -------- -------- ----------- ------- Balance at December 31, 2002 $6,756 $54,450 $64,439 $(8,704) $(1,714) $115,227 ------- ------- -------- -------- ----------- ------- Comprehensive Income: Net Income for the Period Ended March 31, 2003 - - 2,994 - - 2,994 Other Comprehensive Income (Loss): Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($6) - - - - (11) (11) Unrealized Holding Gain on Derivatives, Net of Deferred Taxes of $242 - - - - 449 449 ------- Total Comprehensive Income 3,432 ------- ------- -------- -------- ----------- ------- Balance at March 31, 2003 $6,756 $54,450 $67,433 $(8,704) $(1,276) $118,659 ------- ------- -------- -------- ----------- ------- The accompanying notes are an integral part of these statements.
6 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (All Amounts in Thousands) (Unaudited)
Three Months Ended March 31, 2003 2002 ------------ ------------ Cash Flows from Operating Activities: Net Income (Loss) $ 2,994 $ (920) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depreciation 4,887 5,092 Amortization of Deferred Charges and Other Assets 1,861 1,924 Provision (Benefit) for Deferred Income Taxes 1,587 (576) Equity in Net Income of Unconsolidated Entities (67) (169) Gain on Sale of Other Assets (4) 20 Impairment Loss - 54 (Gain) Loss on Early Extinguishment of Debt (1,260) 48 Changes in: Accounts Receivable (2,407) 5,133 Inventories and Other Current Assets 1,722 472 Other Assets 392 1,269 Accounts Payable and Accrued Liabilities 2,735 1,491 Federal Income Taxes Payable (92) (406) Billings in Excess of Income Earned and Expenses Incurred (313) (1,293) Other Long-Term Liabilities (1,706) 2,184 ------------ ------------ Net Cash Provided by Operating Activities 10,329 14,323 ------------ ------------ Cash Flows from Investing Activities: Net Investment in Direct Financing Lease 462 422 Additions to Vessels and Other Property (1,912) (64) Additions to Deferred Charges (179) (531) Proceeds from Sale of Vessels and Other Property 50 5,573 Purchase of and Proceeds from Short Term Investments 61 (24) Investment in Unconsolidated Entities - (941) Net Increase in Restricted Cash Account (377) (161) Other Investing Activities (17) 71 ------------ ------------ Net Cash (Used) Provided by Investing Activities (1,912) 4,345 ------------ ------------ Cash Flows from Financing Activities: Proceeds from Issuance of Debt 10,000 7,500 Repayment of Debt and Capital Lease Obligations (16,951) (23,991) Additions to Deferred Financing Charges (61) (6) Other Financing Activities 1,380 - ------------ ------------ Net Cash Used by Financing Activities (5,632) (16,497) ------------ ------------ Net Increase in Cash and Cash Equivalents 2,785 2,171 Cash and Cash Equivalents at Beginning of Period 3,529 25,150 ------------ ------------ Cash and Cash Equivalents at End of Period $ 6,314 $ 27,321 ============ ============ The accompanying notes are an integral part of these statements.
7 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited) Note 1. Basis of Preparation We have prepared the accompanying unaudited interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission, and we have omitted certain information and footnote disclosures required by generally accepted accounting principles for complete financial statements. We suggest that you read these interim statements in conjunction with the financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2002. We have made certain reclassifications to prior period financial information in order to conform to current year presentations. The foregoing 2003 interim results are not necessarily indicative of the results of operations for the full year 2003. Interim statements are subject to possible adjustments in connection with the annual audit of our accounts for the full year 2003. Management believes that all adjustments necessary for a fair presentation of the information shown have been made. Our policy is to consolidate all subsidiaries in which we hold a greater than 50% voting interest and to use the equity method to account for investments in entities in which we hold a 20% to 50% voting interest. We use the cost method to account for investments in entities in which we hold less than 20% voting interest and in which we cannot exercise significant influence over operating and financial activities. We have eliminated all significant intercompany accounts and transactions. Note 2. Operating Segments Our four operating segments, LINER SERVICES, TIME CHARTER CONTRACTS, CONTRACTS OF AFFREIGHTMENT, and RAIL-FERRY SERVICE, are identified primarily by the characteristics of the contracts and terms under which our vessels and barges are operated. We report in the OTHER category results of several of our subsidiaries that provide ship charter brokerage, agency, and other specialized services primarily to our operating segments. We manage each reportable segment separately, as each requires different resources depending on the nature of the contract or terms under which each vessel within the segment operates. We do not allocate administrative and general expenses, investment income, other income, equity in net income of unconsolidated entities, or income taxes to our segments. Intersegment revenues are based on market prices and include revenues earned by subsidiaries that provide specialized services to the operating segments. The following table presents information about segment profit and loss for the three months ended March 31, 2003 and 2002:
(All Amounts in Thousands) Liner Charter Contracts of Rail-Ferry Services Contracts Affreightment Service Other Elim. Total - ------------------------------------------------------------------------------- 2003 Revenues from external customers $20,141 $32,732 $ 4,004 $ 3,171 $ 4,758 $ - $64,806 Intersegment revenues - - - - 3,497 (3,497) - Vessel and barge Depreciation 819 2,431 604 729 71 - 4,654 Gross voyage profit (loss) (9) 9,718 1,249 (733) 309 - 10,534 Interest expense 284 2,064 497 608 28 - 3,481 Gain on sale of vessels and other assets - - - - 4 - 4 Segment (loss) profit before interest income, other income, administrative and general expenses, equity in net income of unconsolidated entities, and taxes (293) 7,654 752 (1,341) 285 - 7,057 - ------------------------------------------------------------------------------- 2002 Revenues from external customers $23,513 $30,334 $ 3,628 $ 2,019 $ 958 $ - $60,452 Intersegment revenues - - - - 5,179 (5,179) - Vessel and barge depreciation 896 2,431 604 729 170 - 4,830 Impairment loss - (54) - - - - (54) Gross voyage profit (loss) (1,507) 7,429 1,544 (1,127) (464) - 5,875 Interest expense 578 2,721 570 718 33 - 4,620 (Loss) on sale of vessels and other assets - (20) - - - - (20) Segment (loss) profit before interest income, other income, administrative and general expenses, equity in net income of unconsolidated entities, and taxes (2,085) 4,688 974 (1,845) (497) - 1,235 - -------------------------------------------------------------------------------
Following is a reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements:
(All Amounts in Thousands) Three Months Ended March 31, 2003 2002 ------------- ------------- Total profit for reportable segments $ 7,057 $ 1,235 Unallocated amounts: Investment income 228 312 Other Income 22 1,282 Gain (loss) on early extinguishment of debt 1,260 (48) Administrative and general expenses (4,011) (4,446) ------------- ------------- Income (loss) before provision (benefit) for income taxes and equity in net income of unconsolidated entities $ 4,556 $ (1,665) ============= =============
Note 3. Earnings Per Share Basic and diluted earnings per share were computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Stock options covering 475,000 shares were excluded from the computation of diluted earnings per share in the first three months of 2003 and 2002, as the effect would have been antidilutive. 9 Note 4. Accounts Receivable - Claims and Other As of March 31, 2003, we had approximately $6 Million of receivables due from the U.S. government as a result of increases in military cargo revenues, which were paid in early April. Note 5. New Accounting Pronouncements In April of 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" which is effective for fiscal years beginning after May 15, 2002. This statement, among other matters, revises current guidance with respect to gains and losses on early extinguishment of debt. Under SFAS No. 145, gains and losses on early extinguishment of debt are no longer treated as extraordinary items unless they meet the criteria for extraordinary treatment in Accounting Principles Board ("APB") Opinion No. 30. We adopted SFAS No. 145 effective January 1, 2003, and reclassified gains and losses on early extinguishment of debt reported in prior period income statements, as those amounts no longer qualify for extraordinary treatment under SFAS No. 145. We reported gains (losses) related to the early extinguishment of debt of $1,260,000 and ($48,000) for the periods ended March 31, 2003, and 2002, respectively. In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit or disposal plan. The provisions of SFAS No. 146 are effective for exit and disposal activities that are initiated after December 31, 2002. We adopted SFAS No. 146 effective January 1, 2003, which had no material effect on our financial position. In December of 2002, the FASB issued SFAS No. 148, "Accounting for Stock- Based Compensation-Transition and Disclosure," which amends SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. We continue to apply Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," in accounting for our stock-based compensation. Therefore, the alternative methods of transition referred to above do not apply. We have adopted the disclosure requirements of SFAS No. 148. If compensation expense had been determined using the fair value method in SFAS No. 123, our net income (loss) and earnings (loss) per share for the three months ended March 31, 2003 and 2002 would have agreed to the actual amounts reported due to all outstanding stock options being fully vested and no options being granted during these periods. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements - --------------------------- Certain statements made by us or on our behalf in this report or elsewhere that are not based on historical facts are intended to be "forward- looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on beliefs and assumptions about future events that are inherently unpredictable and are therefore subject to significant risks and uncertainties. In this report, the terms "we," "us," "our," and "the Company" refer to International Shipholding Corporation and its subsidiaries. Such statements include, without limitation, statements regarding (1) estimated fair values of capital assets, the recoverability of the cost of those assets, the estimated future cash flows attributable to those assets, and the appropriate discounts to be applied in determining the net present values of those estimated cash flows; (2) estimated scrap values of assets held for disposal; (3) estimated fair values of financial instruments, such as interest rate and commodity swap agreements; (4) estimated losses (including independent actuarial estimates) under self-insurance arrangements, as well as estimated losses on certain contracts, trade routes, lines of business and asset dispositions; (5) estimated obligations, and the timing thereof, to U.S. Customs relating to foreign repair work; (6) the adequacy and availability of capital resources on commercially acceptable terms; (7) our ability to remain in compliance with our debt covenants; (8) anticipated trends in government sponsored cargoes; (9) our ability to maintain our government subsidies; and (10) the anticipated improvement in the results of our Mexican service. We caution readers that certain important factors have affected, and are likely in the future to affect, our ability to achieve our expectations in those areas and in others, including our actual consolidated results of operations. Such factors may, and in some cases are likely to, cause future results to differ materially from those expressed in or implied by any forward- looking statements made in this report or elsewhere by us or on our behalf. Such factors include, without limitation, (1) political events in the United States and abroad, including terrorism, and the U.S. military's response to those events; (2) election results, regulatory activities and the appropriation of funds by the U.S. Congress; (3) charter hire rates and vessel utilization rates; (4) unanticipated trends in operating expenses such as fuel and labor costs; (5) trends in interest rates, and the availability and cost of capital to us; (6) the frequency and severity of claims against us, and unanticipated court results and changes in laws and regulations; (7) our success in renewing existing contracts and securing new ones, in each case on favorable economic terms; (8) unplanned maintenance and out-of-service days; (9) the ability of customers to fulfill obligations with us; and (10) the performance of our unconsolidated subsidiaries. A more complete description of certain of these important factors is contained in our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2002. 11 General - ------- Our vessels are operated under a variety of charters, liner services, and contracts. The nature of these arrangements is such that, without a material variation in gross voyage profits (total revenues less voyage expenses and vessel and barge depreciation), the revenues and expenses attributable to a vessel deployed under one type of charter or contract can differ substantially from those attributable to the same vessel if deployed under a different type of charter or contract. Accordingly, depending on the mix of charters or contracts in place during a particular accounting period, our revenues and expenses can fluctuate substantially from one period to another even though the number of vessels deployed, the number of voyages completed, the amount of cargo carried and the gross voyage profit derived from the vessels remain relatively constant. As a result, fluctuations in voyage revenues and expenses are not necessarily indicative of trends in profitability, and our management believes that gross voyage profit is a more appropriate measure of performance than revenues. Accordingly, the discussion below addresses variations in gross voyage profits rather than variations in revenues. RESULTS OF OPERATIONS ----------------------- THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2002 Gross Voyage Profit - ------------------- Gross voyage profit increased 79.3% from $5.9 Million in the first quarter of 2002 as compared to $10.5 Million in the first quarter of 2003. The changes associated with each of our segments are discussed below. LINER SERVICES: Gross voyage loss for this segment improved from a loss of $1.5 Million in the first quarter of 2002 to a loss of $9,000 in the first quarter of 2003. The improvement was a result of the new U.S. Flag LASH Liner service, which commenced operations in November of 2002, and higher cargo volume on the Foreign Flag LASH Liner service in the current period. Included in the gross voyage loss for this segment was vessel and barge depreciation, which overall was comparable for the two periods reported. Included in vessel and barge depreciation in the first quarter of 2002 was depreciation on our Foreign Flag LASH vessel, which was sold and leased back in the fourth quarter of 2002. The lease qualified for treatment as an operating lease and the lease payments are included in voyage expenses in 2003. Offsetting this decrease in depreciation, in first quarter of 2003, is depreciation on capitalized costs associated with the upgrade work performed on one of our Foreign Flag LASH vessels in the fourth quarter of 2002. TIME CHARTER CONTRACTS: The increase in this segment's gross voyage profit from $7.4 Million in the first quarter of 2002 to $9.7 Million in the first quarter of 2003 was attributable primarily to the fact that our Coal Carrier operating in the coast-wise trade was utilized for the full quarter under its basic time charter contract as compared to the same quarter of the previous year when it was out of service fourteen days for repairs and during which it operated fifty-two days in the spot market at lower rates as compared to its base charter. The vessel's base charter covers about 67% of its operating days during the year 2003 with the balance of its time spent in the spot commercial market. 12 CONTRACTS OF AFFREIGHTMENT: The decrease in this segment's gross voyage profit from $1.5 Million in the first quarter of 2002 to $1.2 Million in the first quarter of 2003 resulted primarily from a payment received in 2002 for loss of hire from an insurance claim relating to pre-existing damages identified during a scheduled drydocking. RAIL-FERRY SERVICE: Gross voyage loss for this segment improved from a loss of $1.1 Million in the first quarter of 2002 to a loss of $733,000 in the first quarter of 2003. The improvement was a result of higher cargo volume. OTHER: Gross voyage profit for this segment improved from a loss of $464,000 in the first quarter of 2002 to a profit of $309,000 in the first quarter of 2003. Included in the first quarter of 2003 are the results of the bareboat charter agreements for two vessels currently under Maritime Security Program contracts, which were not on charter during the same period of 2002. Other Income and Expense - ------------------------- Administrative and general expenses decreased 9.8% from $4.4 Million in the first quarter of 2002 to $4 Million in the first quarter of 2003. The decrease in the current period is primarily a result of the first quarter of 2002 including severance payments related to non-recurring staff reductions. Interest expense decreased 24.7% from $4.6 Million in the first quarter of 2002 to $3.5 Million in the first quarter of 2003. Decreases due to regularly scheduled payments on outstanding debt and lower interest rates accounted for $365,000 of the total difference. Reduced cost from the early repayment of our 9% Senior Notes and 7.75% Senior Notes, which was partially offset by the cost of new financings used to repurchase the Notes, accounted for approximately $714,000 of the decrease. Investment income of $228,000 earned during the first quarter of 2003 was slightly lower than the $312,000 in the first quarter of 2002 primarily as a result of lower invested balances in the current period. Other income decreased from $1.3 Million in the first quarter of 2002 to $22,000 in the first quarter of 2003 primarily as a result of interest collected in 2002 on foreign tax refunds received in prior years. Gain on early extinguishment of debt of $1,260,000 in the first quarter of 2003 resulted from the retirement at a discount of approximately $7.9 Million of our 7.75% Senior Notes due in 2007. The loss of $48,000 reported in the first quarter of 2002 resulted primarily from the retirement at a slight premium of approximately $11.4 Million of our 9% Senior Notes due in 2003. The remaining amount of the 9% Senior Notes were retired by the end of December 2002. Income Taxes - ------------- We had a tax provision of $1.6 Million for the first quarter of 2003 and a tax benefit of $576,000 for the first quarter of 2002 at the statutory rate of 35% for both periods. 13 Equity in Net Income of Unconsolidated Entities - ------------------------------------------------ Equity in net income of unconsolidated entities, net of taxes, of $67,000 and $169,000 for the first quarter of 2003 and 2002, respectively, was primarily related to our minority interest in companies owning and operating cement carrying vessels. LIQUIDITY AND CAPITAL RESOURCES --------------------------------- The following discussion should be read with the more detailed Consolidated Condensed Balance Sheets and Consolidated Statements of Cash Flows included elsewhere herein as part of our Consolidated Financial Statements. Our working capital increased from $9.1 Million at December 31, 2002, to $15.3 Million at March 31, 2003. Of the $55.5 Million in current liabilities, $21 Million related to the current maturities of long-term debt at March 31, 2003. Cash and cash equivalents increased during the first quarter of 2003 by $2.8 Million from $3.5 Million at December 31, 2002, to $6.3 Million at March 31, 2003. The increase was due to cash provided by operating activities of $10.3 Million, partially offset by cash used for investing activities of $1.9 Million and financing activities of $5.6 Million. Operating activities generated a positive cash flow after adjusting the net income of $3 Million for non-cash provisions such as depreciation and amortization. Cash used for investing activities of $1.9 Million was primarily to cover payments for vessel upgrades. Cash used for financing activities of $5.6 Million included $6.5 Million used to repurchase $7.9 Million of our 7.75% Senior Notes at a discount, $3.1 Million used for regularly scheduled payments of debt, and $6 Million used to repay draws on our line of credit. These uses were partially offset by proceeds of $10 Million from draws on our line of credit. As of March 31, 2003, $5 Million was drawn on our $10 Million revolving credit facility, which expires in April of 2005. During the first quarter of 2003, we entered into an agreement for a $5 Million overline credit facility, which expires in December of 2003. This overline credit facility was fully available as of March 31, 2003. Debt and Lease Obligations - We have several vessels under operating leases, including three Pure Car/Truck Carriers, one LASH vessel, one Ice Strengthened Breakbulk/Multi Purpose vessel, a Container vessel and a Tanker vessel. Our obligations associated with these leases are disclosed in the table below. The following is a summary of our debt and lease obligations as of March 31, 2003:
Apr. 1- Debt and Lease Dec. 31, Obligations (000's) 2003 2004 2005 2006 2007 Thereafter - ------------------------------------------------------------------------------- Long-term debt $ 18,285 $ 19,043 $ 24,809 $ 18,496 $ 87,777 $ 38,500 Operating leases 17,496 23,329 17,941 17,856 17,856 124,150 ------------------------------------------------------ Total by period $ 35,781 $ 42,372 $ 42,750 $ 36,352 $105,633 $162,650 ======================================================
14 Debt Covenant Compliance Status - We have met all of the financial covenants under our various debt agreements, after they were amended for the full year 2002. We have met, as of March 31, 2003, the more restrictive financial covenants that became effective in 2003, and believe we will continue to meet them in 2003, although we cannot give assurances at this time. If our cash flow and capital resources are not sufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, obtain additional equity capital, enter into additional financings of our unencumbered vessels or restructure debt. Sale of Coal Transfer Terminal Facility - During the first quarter of 2003, we reached an agreement in principle to sell our previously idle coal transfer terminal facility and land for approximately book value. The agreement was finalized in May of 2003. Mexican Service Results - We expect the results of the Mexican Service to continue to improve and to contribute to our cash flows. If outside market conditions impact those projections, we believe we could find alternative placement for the two vessels supporting the service. Coal Carrier Contract - Our Coal Carrier's base charter covers about 67% of its operating days during the year 2003 with the balance of its time spent in the spot commercial market. In 2004 and thereafter, the base charter covers less operating days, approximately 58%. Although in the past we have been able to find commercial employment for this vessel, we cannot give any assurances that we will be able to continue finding employment for the remainder of the operating days during these periods. Dividend Payments - In view of the impairment loss recognized on Assets Held for Disposal during 2001, and to comply with certain financial covenants under our debt agreements, the suspension of quarterly dividend payments on our common shares of stock remains in effect. Environmental Issues - We have not been notified that we are a potentially responsible party in connection with any environmental matters. NEW ACCOUNTING PRONOUNCEMENTS ------------------------------- In April of 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" which is effective for fiscal years beginning after May 15, 2002. This statement, among other matters, revises current guidance with respect to gains and losses on early extinguishment of debt. Under SFAS No. 145, gains and losses on early extinguishment of debt are no longer treated as extraordinary items unless they meet the criteria for extraordinary treatment in Accounting Principles Board ("APB") Opinion No. 30. We adopted SFAS No. 145 effective January 1, 2003, and reclassified gains and losses on early extinguishment of debt reported in prior period income statements, as those amounts no longer qualify for extraordinary treatment under SFAS No. 145. We reported gains (losses) related to the early extinguishment of debt of $1,260,000 and ($48,000) for the periods ended March 31, 2003, and 2002, respectively. 15 In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit or disposal plan. The provisions of SFAS No. 146 are effective for exit and disposal activities that are initiated after December 31, 2002. We adopted SFAS No. 146 effective January 1, 2003, which had no material effect on our financial position. In December of 2002, the FASB issued SFAS No. 148, "Accounting for Stock- Based Compensation-Transition and Disclosure," which amends SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock- based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. We continue to apply Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," in accounting for our stock-based compensation. Therefore, the alternative methods of transition referred to above do not apply. We have adopted the disclosure requirements of SFAS No. 148. If compensation expense had been determined using the fair value method in SFAS No. 123, our net income (loss) and earnings (loss) per share for the three months ended March 31, 2003 and 2002 would have agreed to the actual amounts reported due to all outstanding stock options being fully vested and no options being granted during these periods. ITEM 3. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK In the ordinary course of our business, we are exposed to foreign currency, interest rate, and commodity price risk. We utilize derivative financial instruments including forward exchange contracts, interest rate swap agreements, and commodity swap agreements to manage certain of these exposures. We hedge only firm commitments or anticipated transactions and do not use derivatives for speculation. We neither hold nor issue financial instruments for trading purposes. INTEREST RATE RISK. The fair value of long-term debt at March 31, 2003, including current maturities, was estimated to be $209.1 Million compared to a carrying value of $206.7 Million. The potential increase in fair value resulting from a hypothetical 10% decrease in the average interest rates applicable to our long-term debt at March 31, 2002, would be approximately $2.7 Million or 1.3% of the carrying value. The fair value of the interest rate swap agreement discussed in our Form 10-K was a liability of $1.6 Million at March 31, 2003, estimated based on the amount that the banks would receive or pay to terminate the swap 16 agreements at the reporting date taking into account current market conditions and interest rates. A hypothetical 10% decrease in interest rates as of March 31, 2003, would have resulted in a $31,000 increase in the fair value of the liability. COMMODITY PRICE RISK. In addition to the commodity swap agreements discussed in our Form 10-K, we entered into three additional agreements in 2003 at various contract prices ranging from $124 to $158.75 per metric ton of fuel. The fair value of the commodity swap agreements was an asset of $825,000 at March 31, 2003, estimated based on the difference between price per ton of fuel and the contract delivery price per ton of fuel times the quantity applicable to the agreements. A hypothetical 10% decrease in the fuel price per ton of fuel as of March 31, 2003, would have resulted in a $825,000 decrease in the fair value of the asset. FOREIGN EXCHANGE RATE RISK. There were no material changes in market risk exposure for the foreign currency risk described in our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2002. ITEM 4. CONTROLS AND PROCEDURES (a) Within the 90-day period prior to filing this report, we conducted an evaluation of the effectiveness of our "disclosure controls and procedures," as that phrase is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934. The evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed in our periodic filings with the Securities and Exchange Commission ("SEC"), and in ensuring that the information required to be disclosed in those filings is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. (b) Subsequent to the date of the evaluation, there were no significant changes in our internal controls or in other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 17 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Our Annual Meeting of Shareholders was held April 23, 2003. The matters voted upon and the results of the voting were as follows: (1) Election of Board of Directors: Nominee Shares Voted For Withheld Authority ----------------- ---------------- ------------------ Niels W. Johnsen 5,921,965 10,466 Erik F. Johnsen 5,921,965 10,466 Niels M. Johnsen 5,922,222 10,209 Erik L. Johnsen 5,922,222 10,209 Harold S. Grehan, Jr. 5,921,977 10,454 Raymond V. O'Brien, Jr. 5,921,977 10,454 Edwin Lupberger 5,922,234 10,197 Edward K. Trowbridge 5,921,977 10,454 (2) Ratification of Ernst & Young LLP, certified public accountants, as our independent auditors for the fiscal year ending December 31, 2003: Shares Voted For 5,930,165 Shares Voted Against 97 Abstentions 2,168 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBIT INDEX Exhibit Number Description -------------- -------------------------- Part II Exhibits: 3 Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Form 10-Q for the quarterly period ended June 30, 1996, and incorporated herein by reference) 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) On April 24, 2003, we filed a current report on Form 8-K to furnish the public announcement of our first quarter 2003 earnings. 18 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL SHIPHOLDING CORPORATION /s/ Gary L. Ferguson _____________________________________________ Gary L. Ferguson Vice President and Chief Financial Officer Date May 14, 2003 ___________________________ 19 CERTIFICATION I, Erik F. Johnsen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of International Shipholding Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Erik F. Johnsen ______________________________ Erik F. Johnsen Chairman of the Board of Directors and Chief Executive Officer International Shipholding Corporation 20 CERTIFICATION I, Gary L. Ferguson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of International Shipholding Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Gary L. Ferguson ______________________________ Gary L. Ferguson Vice President and Chief Financial Officer International Shipholding Corporation EX-99.1 CEO CERTIF 2 exh99-1.txt Exhibit 99.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350 (Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) In connection with the Quarterly Report on Form 10-Q of International Shipholding Corporation (the "Company") for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Erik F. Johnsen, as Chairman and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 14, 2003 /s/ Erik F. Johnsen ---------------------------- Erik F. Johnsen Chairman of the Board and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99.2 CFO CERTIF 3 exh99-2.txt Exhibit 99.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350 (Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) In connection with the Quarterly Report on Form 10-Q of International Shipholding Corporation (the "Company") for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Gary L. Ferguson, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 14, 2003 /s/ Gary L. Ferguson ---------------------------- Gary L. Ferguson Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----