-----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, Vh5YVRNKqPZwXPJdz9aexO8cwjx2cNXIepYdHIRsyT9MTfgc8dC/1t/jCKLR9Q+1 9WB7hN/eXflitL++Umwrug== 0000278041-99-000004.txt : 19990514 0000278041-99-000004.hdr.sgml : 19990514 ACCESSION NUMBER: 0000278041-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: SEC FILE NUMBER: 001-10852 FILM NUMBER: 99620111 BUSINESS ADDRESS: STREET 1: 650 POYDRAS ST STE 1700 CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5045295461 10-Q 1 FIRST QUARTER 1999 FORM 10-Q 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 31,1999 --------------- __ 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 6,498,637 shares (March 31, 1999) ------------------ 2 PART I - FINANCIAL INFORMATION ITEM 1-FINANCIAL STATEMENTS INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (All Amounts in Thousands Except Per Share Data) (Unaudited)
Three Months Ended March 31, 1999 1998 ------------- ------------ Revenues $ 84,789 $ 90,377 Subsidy Revenue 3,640 3,121 ------------- ------------ 88,429 93,498 ------------- ------------ Operating Expenses: Voyage Expenses 66,209 70,659 Vessel and Barge Depreciation 9,642 8,776 ------------- ------------ Gross Voyage Profit 12,578 14,063 ------------- ------------ Administrative and General Expenses 6,014 6,280 Gain on Sale of Land 2,408 - ------------- ------------ Operating Income 8,972 7,783 ------------- ----------- Interest: Interest Expense 7,569 6,987 Investment Income (375) (504) ------------- ------------ 7,194 6,483 ------------- ------------ Income Before Provision (Benefit) for Income Taxes and Extraordinary Item 1,778 1,300 ------------- ------------ Provision (Benefit) for Income Taxes: Current 450 1,431 Deferred 181 (966) State 124 67 ------------- ------------ 755 532 ------------- ------------ Income Before Extraordinary Item $ 1,023 $ 768 ------------- ------------ Extraordinary Loss on Early Extinguishment of Debt (Net of Income Tax Benefit of $554) - (1,029) ------------- ------------ Net Income (Loss) $ 1,023 $ (261) ============= ============ Basic and Diluted Earnings Per Share: Income Before Extraordinary Loss $ 0.16 $ 0.11 Extraordinary Loss - (0.15) ------------- ------------ Net Income (Loss) $ 0.16 $ (0.04) ============= ============ 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 1999 1998 ------------- ------------- Current Assets: Cash and Cash Equivalents $ 21,161 $ 32,008 Marketable Securities 12,802 12,136 Accounts Receivable, Net of Allowance for Doubtful Accounts of $487 and $334 in 1999 and 1998, Respectively: Traffic 38,797 40,543 Agents' 8,021 8,082 Claims and Other 5,388 5,243 Federal Income Taxes Receivable 873 1,325 Net Investment in Direct Financing Leases 2,437 2,532 Other Current Assets 7,352 4,215 Material and Supplies Inventory, at Cost 12,928 13,130 ------------- ------------- Total Current Assets 109,759 119,214 ------------- ------------- Marketable Equity Securities 294 205 ------------- ------------- Investment in Unconsolidated Entities 3,312 3,368 ------------- ------------- Net Investment in Direct Financing Leases 66,081 66,494 ------------- ------------- Vessels, Property, and Other Equipment, at Cost: Vessels and Barges 746,128 745,390 Other Marine Equipment 7,798 7,776 Terminal Facilities 18,517 18,494 Land 1,230 2,317 Furniture and Equipment 16,942 16,799 ------------- ------------- 790,615 790,776 Less - Accumulated Depreciation (366,488) (356,217) ------------- ------------- 424,127 434,559 ------------- ------------- Other Assets: Deferred Charges, Net of Accumulated Amortization of $65,512 and $59,310 in 1999 and 1998, Respectively 37,615 38,849 Acquired Contract Costs, Net of Accumulated Amortization of $14,518 and $14,154 in 1999 and 1998, Respectively 16,007 16,371 Due from Related Parties 333 296 Other 11,946 10,448 ------------- ------------- 65,901 65,964 ------------- ------------- $ 669,474 $ 689,804 ============= ============= The accompanying notes are an integral part of these statements.
4 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (All Amounts in Thousands) (Unaudited)
March 31, December 31, 1999 1998 -------------- -------------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Current Maturities of Long-Term Debt $ 19,272 $ 17,212 Current Maturities of Capital Lease Obligations 3,241 2,915 Accounts Payable and Accrued Liabilities 52,241 54,146 Current Deferred Income Tax Liability 27 27 -------------- ------------- Total Current Liabilities 74,781 74,300 -------------- ------------- Billings in Excess of Income Earned and Expenses Incurred 6,461 7,099 -------------- ------------- Long-Term Capital Lease Obligations, Less Current Maturities 9,092 12,085 -------------- ------------- Long-Term Debt, Less Current Maturities 334,621 349,340 -------------- ------------- Deferred Credits: Deferred Income Taxes 39,461 40,906 Claims and Other 30,155 28,966 -------------- ------------- 69,616 69,872 -------------- ------------- Commitments and Contingent Liabilities Stockholders' Investment: Common Stock 6,756 6,756 Additional Paid-In Capital 54,450 54,450 Retained Earnings 118,016 117,399 Less - Treasury Stock (4,041) (1,422) Accumulated Other Comprehensive Loss (278) (75) -------------- ------------- 174,903 177,108 -------------- ------------- $ 669,474 $ 689,804 ============== ============= 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, 1997 $ 6,756 $ 54,450 $112,794 ($1,133) ($62) $172,805 Comprehensive Income: Net Income for Year Ended December 31,1998 - - 6,276 - - 6,276 Other Comprehensive Income: Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($7) - - - - (13) (13) --------- Total Comprehensive Income 6,263 Treasury Stock - - - (289) - (289) Cash Dividends - - (1,671) - - (1,671) --------- --------- --------- --------- --------- -------- Balance at December 31, 1998 $ 6,756 $ 54,450 $117,399 ($1,422) ($75) $177,108 ========= ========= ========= ========= ========= ======== Comprehensive Income: Net Income for the Period Ended March 31, 1999 - - 1,023 - - 1,023 Other Comprehensive Income: Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($109) - - - - (203) (203) -------- Total Comprehensive Income 820 Treasury Stock - - - (2,619) - (2,619) Cash Dividends - - (406) - - (406) --------- --------- --------- --------- --------- -------- Balance at March 31, 1999 $6,756 $54,450 $118,016 ($4,041) ($278) $174,903 ========= ========= ========= ========= ========= ======== The accompanying notes are an integral part of these statements.
6 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (All Amounts in Thousands) (Unaudited)
For Three Months Ended March 31, 1999 1998 ------------ ------------ Cash Flows from Operating Activities: Net Income (Loss) $ 1,023 $ (261) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depreciation 10,491 9,442 Amortization of Deferred Charges and Other Assets 4,438 6,404 Provision (Benefit) for Deferred Income Taxes 181 (966) (Gain) Loss on Sale of Vessels and Other Property (2,405) 3 Extraordinary Loss - 1,029 Changes in: Accounts Receivable 578 (426) Net Investment in Direct Financing Leases 1,920 487 Inventories and Other Current Assets 544 468 Other Assets (112) 1,326 Accounts Payable and Accrued Liabilities (2,727) (825) Federal Income Taxes Payable 137 415 Unearned Income (2,193) (2,101) Deferred Credits 733 (1,093) ------------ ------------ Net Cash Provided by Operating Activities 12,608 13,902 ------------ ------------ Cash Flows from Investing Activities: Purchase of Vessels and Other Property (1,183) (9,901) Additions to Deferred Charges (2,863) (1,773) Proceeds from Sale of Vessels and Other Property 3 77 Purchase of and Proceeds from Short-Term Investments (1,078) (304) Other Investing Activities 19 18 ------------ ------------ Net Cash Used by Investing Activities (5,102) (11,883) ------------ ------------ Cash Flows from Financing Activities: Proceeds from Issuance of Debt 3,000 117,435 Reduction of Debt and Capital Lease Obligations (18,326) (119,875) Additions to Deferred Financing Charges (2) (2,874) Other Financing Activities - (432) Purchase of Treasury Stock (2,619) - Common Stock Dividends Paid (406) (417) ------------ ------------ Net Cash Used by Financing Activities (18,353) (6,163) ------------ ------------ Net Decrease in Cash and Cash Equivalents (10,847) (4,144) Cash and Cash Equivalents at Beginning of Period 32,008 32,002 ------------ ------------ Cash and Cash Equivalents at End of Period $ 21,161 $ 27,858 ============ ============ The accompanying notes are an integral part of these statements.
7 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MARCH 31, 1999 (Unaudited) Note 1. Basis of Preparation The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures required by generally accepted accounting principles for complete financial statements have been omitted. It is suggested that these interim statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K of International Shipholding Corporation for the year ended December 31, 1998. Certain reclassifications have been made to prior period financial information in order to conform to current year presentations. Interim statements are subject to possible adjustments in connection with the annual audit of the Company's accounts for the full year 1999. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information shown have been included. The foregoing 1999 interim results are not necessarily indicative of the results of operations for the full year 1999. The Company's policy is to consolidate all subsidiaries in which it holds greater than 50% voting interest. All significant intercompany accounts and transactions have been eliminated. Note 2. Operating Segments The Company's three operating segments, LINER SERVICES, TIME CHARTER CONTRACTS, and CONTRACTS OF AFFREIGHTMENT, are identified primarily based on the characteristics of the contracts and terms under which its fleet of vessels and barges are operated. The Company also reports an OTHER category that includes results of several of the Company's subsidiaries that provide ship charter brokerage, agency, barge fleeting and other specialized services primarily to the Company's operating segments described below. Each of the reportable segments is managed separately as each requires different resources depending on the nature of the contract or terms under which each vessel within the segment operates. 8 The following table presents information about segment profit for the three months ended March 31, 1999 and 1998. The Company does not allocate interest income, administrative and general expenses, or income taxes to its segments. Intersegment revenues are based on market prices and include revenues earned by subsidiaries of the Company that provided specialized services to the operating segments.
(All Amounts in Thousands) Time Liner Charter Contracts of Services Contracts Affreightment Other Total ---------- --------- ----------- --------- -------- 1999 Revenues from external customers $ 45,450 $ 31,370 $ 9,387 $ 2,222 $ 88,429 Intersegment revenues - - - 9,131 9,131 Gross voyage profit before depreciation 5,146 11,692 4,483 899 22,220 Depreciation 3,552 4,255 1,648 187 9,642 Interest expense 1,469 3,680 2,139 281 7,569 Gain on sale of land - - - 2,408 2,408 Segment profit before interest income, administrative and general expenses and taxes 125 3,757 696 2,839 7,417 - -------------------------------------------------------------------------------- 1998 Revenues from external customers $ 49,367 $ 29,278 $ 13,352 $ 1,501 $ 93,498 Intersegment revenues - - - 9,121 9,121 Gross voyage profit before depreciation 6,726 9,853 5,009 1,251 22,839 Depreciation 3,052 3,911 1,645 168 8,776 Interest expense 1,544 2,786 2,361 296 6,987 Segment profit before interest income, administrative and general expenses and taxes 2,130 3,156 1,003 787 7,076 - --------------------------------------------------------------------------------
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, 1999 1998 ------------- ------------- Total profit for reportable segments $ 7,417 $ 7,076 Unallocated amounts: Interest income 375 504 Administrative and general expenses 6,014 6,280 ------------- ------------- Income before income taxes and extraordinary items $ 1,778 $ 1,300 ============= ============= Note 3. Subsequent Events During the second quarter of this year, the Company entered into a contract to sell one of its Pure Car Carriers ("PCC"), the Cypress Trail, as part of the Company's plan to replace this older and smaller PCC with a newer and larger Pure Car/Truck Carrier ("PCTC"). The Company also contracted in the second quarter to purchase a newer PCTC, the Asian Emperor, a newbuilding high specification car/truck carrier with the capability of carrying large dimension and heavy-lift vehicles, as well as automobiles. The vessel is scheduled to deliver new from the 9 shipyard at the end of May of 1999 and will immediately enter a long-term time charter to a Far Eastern charterer. Long-term financing has been arranged with a bank syndicate. Also during the second quarter of 1999, the Company sold 7.5% of its 37.5% interest in four companies, three of which operate cement carrying vessels, and one which manages these vessels. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements made in this report or elsewhere by, or on behalf of, the Company 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 assumptions about future events and are therefore subject to risks and uncertainties. The Company cautions readers that certain important factors have affected and may affect in the future the Company's actual consolidated results of operations and may cause future results to differ materially from those expressed in or implied by any forward-looking statements made in this report or elsewhere by, or on behalf of, the Company. A description of certain of these important factors is contained in the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998. The Company's 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, the Company's 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 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. 11 FIRST QUARTER ENDED MARCH 31, 1999 COMPARED TO FIRST QUARTER ENDED MARCH 31, 1998 Gross Voyage Profit - ------------------- Gross voyage profit decreased from $14.1 Million in the first quarter of 1998 to $12.6 Million in the first quarter of 1999. The decrease occurred primarily in the Company's LINER SERVICES segment, where gross voyage profit before depreciation decreased 23.5% from $6.7 Million in the first quarter of 1998 to $5.1 Million for the first quarter of 1999 primarily due to reduced cargo volume in 1999. The decrease in gross voyage profit for the LINER SERVICES segment was partially offset by improved results for the TIME CHARTER CONTRACTS segment. The gross voyage profit before depreciation for the TIME CHARTER CONTRACTS segment increased 18.7% from $9.9 Million in the first quarter of 1998 to $11.7 Million for the same period in 1999 due to the acquisition and commencement of operations of the Company's U.S. Flag PCTC, the Green Point, in the second quarter of 1998. In addition, the Company sold one of its PCC's as part of the Company's plan to replace this older and smaller vessel with a newer and larger PCTC, the Asian King, that delivered to the Company and commenced operations in December of 1998. Vessel and barge depreciation for the first quarter of 1999 increased 9.9% to $9.6 Million as compared to $8.8 Million in the same period of 1998 primarily due to the commencement of operations of the Green Point. Additionally in the third quarter of 1998, the Company began depreciating the Hickory, a LASH vessel purchased early in 1998 now operating in the LINER SERVICES segment as a feeder vessel. Other Income and Expenses - ------------------------- Administrative and general expenses decreased from $6.3 Million in the first quarter of 1998 to $6.0 Million in the same period in 1999 due to a continuing cost reduction program. Earnings in 1999 included a gain of $2.4 Million recognized on the sale of a parcel of land no longer required in the Company's operations. Interest expense was $7.6 Million for the first quarter of 1999 as compared to $7.0 Million for the same period in 1998. The increase resulted primarily from the financing associated with the acquisition of the Green Point early in the second quarter of 1998 and the acquisition of the Asian King at the end of 1998. On January 22, 1998, the Company issued $110 Million of 7 3/4% Senior Notes due 2007 (the "Notes"), the proceeds of which were used to repay shorter-term amortizing bank debt. Interest expense on these Notes was substantially 12 offset by the aforementioned early repayment of debt and regularly scheduled principal payments. Investment income decreased from $504,000 for the first quarter of 1998 to $375,000 for the first quarter of 1999 due to a lower average balance of invested funds and less favorable interest rates. The Company incurred an extraordinary loss of approximately $1 Million during the first quarter of 1998 related to the early extinguishment of debt. This loss resulted primarily from the write-off of previously deferred financing costs related to the loans repaid early with the proceeds of the aforementioned Notes and a make-whole premium on one of those loans. Income Taxes - ------------ The Company provided $631,000 for Federal income taxes in the first quarter of 1999 and $465,000 in the first quarter of 1998 at the statutory rate of 35% for both periods. 13 LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased from $44.9 Million at December 31, 1998, to $35.0 Million at March 31, 1999, after provision for current maturities of long-term debt and capital lease obligations of $22.5 Million. Cash and cash equivalents decreased during the first three months of 1999 by $10.8 Million to a total of $21.2 Million. This decrease, which resulted from cash used for investing and financing activities of $5.1 Million and $18.4 Million, respectively, was partially offset by operating cash flows of $12.6 Million. The major source of cash from operations was net income adjusted for the gain on sale of land and non-cash provisions such as depreciation and amortization. Investing activities during the period included $2.9 Million in deferred vessel drydocking charges and investments in short-term marketable securities of $1.0 Million. The net cash used for financing activities of $18.4 Million included reductions of debt and capital lease obligations of $18.3 Million stemming from regularly scheduled principal payments and repayments of amounts drawn under lines of credit and $2.6 Million for the purchase of treasury stock. New draws under lines of credit totaled $3.0 Million during the quarter, which were repaid in the beginning of the second quarter. At December 31, 1997, the Company had available three lines of credit totaling $35 Million to meet short-term requirements when fluctuations occur in working capital. Early in the first quarter of 1998, the Company entered into a $25 Million revolving credit facility that replaced these lines of credit. At the end of the first quarter of 1998, the Company increased this revolving credit facility to $50 Million. At March 31, 1999, $20 Million was outstanding on this credit facility, of which $3 Million was repaid on April 1, 1999. Management believes that normal operations will provide sufficient working capital and cash flows to meet debt service and dividend requirements during the foreseeable future. The Company has not been notified that it is a potentially responsible party in connection with any environmental matters. At a regular meeting held April 21, 1999, the Board of Directors declared a quarterly dividend of 6.25 cents per Common Share payable on June 18, 1999, to shareholders of record on June 4, 1999. 14 STOCK REPURCHASE PROGRAM In October of 1998, the Company's Board of Directors approved a stock repurchase program to buy up to 500,000 shares of its common stock. The repurchases are made in the open market or in privately negotiated transactions at the discretion of the Company's management, depending upon financial and market conditions. As of March 31, 1999, 184,250 shares had been repurchased under this program for a total cost of $2.9 Million. COAL TRANSPORTATION CONTRACT As discussed in the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998, Seminole Electric Cooperative, Inc. ("Seminole") filed suit against the Company's wholly owned subsidiary, Central Gulf Lines, Inc. ("CGL"), on December 15, 1998, seeking a declaratory judgment that Seminole was entitled to terminate its performance under a long-term coal transportation agreement with CGL, subject to Seminole's obligation to pay "fair and lawful damages" to CGL. The contract commenced operation in the early 1980's and has approximately six more years to run. CGL has disputed Seminole's right to terminate performance and has served a demand for arbitration pursuant to the terms of the agreement in which CGL seeks specific performance of the agreement for its remaining six-year term, and in the alternative, damages. Because of Seminole's admitted obligation to reimburse CGL for its damages, including lost profits, the Company does not believe that this dispute will have a material adverse effect on its financial condition or results of operations, even if Seminole is successful in terminating its performance under the agreement. NEW ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal quarters of fiscal years beginning after June 15, 1999. The Company has not chosen early adoption and, as it is not possible to predict the Company's derivative position at the time this standard will be applied, it is unknown what effect, if any, SFAS No. 133 will have on its financial statements once adopted. 15 YEAR 2000 COMPLIANCE The Year 2000 ("Y2K") issue refers to the potential failure of information technology ("IT") systems, telecommunications, and other electronic devices before, on or after January 1, 2000. This problem is primarily due to the use of a 2-digit year indicator within software code including applications, operating systems, hardware, or microchips. Non-compliant systems will likely interpret the "00" in "2000" incorrectly as "1900." State of Readiness - ------------------ The Company has appointed a Y2K Project Manager who, along with department heads responsible for compliance in their respective areas, is addressing the Y2K issue. The Company's Y2K Plan is an overall corporate plan supported by lower-tier plans and schedules developed by each functional area. The phases in the Y2K Plan include inventory, assessment, remediation, testing, and contingency planning. During the inventory phase, all computer-based systems, components (such as systems developed in-house, purchased software, computers, and associated hardware), service providers, and hardware that contain microchips that support the functionality of the Company are being identified. Additionally, items that, in and of themselves, may not be impacted by the date change, but that interface with systems or equipment that are impacted by the date change are being identified. The assessment phase involves determining which systems are date-sensitive and prioritizing how critical each of these systems is to continuation of the Company's business activities. Once the assessment phase is complete, the remediation phase begins. During this phase, the strategies for addressing systems that are not Y2K compliant will be developed. Possible strategies include repairing, replacing, or retiring the system. The testing phase will verify that the repaired or replaced system will operate properly when the date changes, and that existing business functions will continue to operate as expected. Testing efforts will not be confined solely to IT systems. Non-IT systems such as building infrastructure and components with embedded microchips will also be evaluated. The inventory and assessment phases are complete for IT systems, and those identified as most critical were 90% remediated and tested by March 31, 1999. The remaining IT systems will be addressed by September of 1999. Vessel systems inspection and original equipment manufacturer ("OEM") testing are ongoing through April of 1999. Contingency plans for 16 vessels are in place. These contingency plans comprise both general contingencies which apply to all vessels and vessel specific contingencies, where necessary. The contingency plans for the vessels are based on the Company's existing emergency procedures. Periodic training is held on the Company's vessels to ensure that crew members are familiar with the contingency plans. The Company has contacted its key suppliers and customers to ensure they are addressing the Y2K issue. Y2K questionnaires have been issued to these suppliers and customers and their responses are being reviewed to determine what action by the Company, if any, is necessary. Costs to Address Y2K Issues - --------------------------- Expenditures related to evaluating and remediating any Y2K problems through March 31, 1999, have not had a material effect on the Company's financial position or results of operations. It is anticipated that the resources required to address Y2K issues during 1999 will be provided primarily by existing levels of personnel. While management does not expect Y2K compliance costs to have a material adverse effect on the Company, estimates of total expenditures for Y2K issues, including all phases of the Y2K Plan described above, as well as the cost of replacing or modifying any non-compliant systems have been submitted to the Company's management for review. Vessel Y2K budgets include OEM systems testing and replacement for previously identified non-compliant items. Risks of Y2K Issues - ------------------- A definitive assessment of the risk to the Company if systems that are not Y2K compliant were not identified, or identified but not successfully remediated, has been and continues to be undertaken. No Y2K issues have been identified that are unique to the Company or that otherwise would not be found in its industry. Contingency Plans - ----------------- Once the potential problems that could result from the Y2K issue have been identified, the steps required in the event any system fails will be determined. Vessel and Information Systems Contingency Plans are complete. Cost estimates to implement the contingency plans will be refined and analyzed against other options. MARKET-SENSITIVE INSTRUMENTS AND RISK MANGEMENT In the ordinary course of its business, the Company is exposed to foreign currency, interest rate, and commodity price risk. The Company utilizes derivative financial instruments 17 including forward exchange contracts and commodity swap agreements to manage certain of these exposures. The Company hedges only firm commitments or anticipated transactions and does not use derivatives for speculation. The Company neither holds nor issues financial instruments for trading purposes. There were no material changes in market risk exposure for the interest rate and foreign currency risks described in the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998. The fair value of the commodity swap agreement at March 31, 1999, as discussed in the Form 10-K, estimated based on the difference between first quarter price per ton of fuel and the contract delivery price per ton of fuel times the quantity applicable to the agreement, was an asset of $109,000. A hypothetical 10% decrease in fuel prices as of March 31, 1999, would have resulted in a liability of $239,000. 18 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held April 21, 1999. The matters voted upon and the results of the voting were as follows: (1) Election of Board of Directors: Shares Voted Nominee For Withheld Authority - ------------------------ --------------- ---------------------- Niels W. Johnsen 5,408,122 39,775 Erik F. Johnsen 5,408,122 39,775 Niels M. Johnsen 5,408,612 39,285 Erik L. Johnsen 5,408,612 39,285 Harold S. Grehan,Jr. 5,408,379 39,518 Raymond V. O'Brien, Jr. 5,408,566 39,331 Edwin Lupberger 5,408,566 39,331 Edward K. Trowbridge 5,408,566 39,331 (2) Ratification of Arthur Andersen LLP, certified public accountants, as independent auditors for the Corporation for the fiscal year ending December 31, 1999: Shares Voted For 5,423,843 Shares Voted Against 1,825 Abstentions 22,229 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBIT INDEX Exhibit Number Description ---------------- ---------------- Part I Exhibits: 27 Financial Data Schedule 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) (b) No reports on Form 8-K were filed for the three month period ended March 31, 1999. 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 13, 1999 ___________________________
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 MAR-31-1999 21,161 12,802 52,206 487 12,928 109,759 790,615 366,488 669,474 74,781 343,713 0 0 6,756 168,147 669,474 0 88,429 0 81,865 7,569 0 7,569 1,778 755 1,023 0 0 0 1,023 0.16 0.16 Amounts inapplicable or not disclosed as a separate line on the Balance Sheet or Statement of Income are reported as 0 herein. Notes and accounts receivable - trade are reported net of allowances for doubtful accounts in the Balance Sheet.
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