-----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, GWncZkQo0oRCfU4AY/NLAcbJg7aYkHPpGGrBZBtHLgS2zVmND2RXV4b76d7501BQ QXvefDTO99tKybyHMEVgfA== 0000278041-99-000006.txt : 19990816 0000278041-99-000006.hdr.sgml : 19990816 ACCESSION NUMBER: 0000278041-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99686479 BUSINESS ADDRESS: STREET 1: 650 POYDRAS ST STE 1700 CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5045295461 10-Q 1 SECOND 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 June 30, 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 (June 30, 1999) -------------------- 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 Six Months Ended June 30, June 30, June 30, June 30, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenues $ 82,476 $ 91,402 $ 167,265 $ 181,779 Subsidy Revenue 3,359 3,586 6,999 6,707 ---------- ---------- ---------- ---------- 85,835 94,988 174,264 188,486 ---------- ---------- ---------- ---------- Operating Expenses: Voyage Expenses 59,950 69,088 126,159 139,747 Vessel and Barge Depreciation 9,640 9,345 19,282 18,121 ---------- ---------- ---------- ---------- Gross Voyage Profit 16,245 16,555 28,823 30,618 ---------- ---------- ---------- ---------- Administrative and General Expenses 6,134 6,734 12,148 13,014 Gain on Sale of Land - - 2,408 - Gain on Sale of Vessel 7,753 - 7,753 - ---------- ---------- ---------- ---------- Operating Income 17,864 9,821 26,836 17,604 ---------- ---------- ---------- ---------- Interest: Interest Expense 7,672 7,344 15,241 14,331 Investment Income (320) (392) (695) (896) ---------- ---------- ---------- ---------- 7,352 6,952 14,546 13,435 ---------- ---------- ---------- ---------- Equity in Net Income of Unconsolidated Entities (Net of Applicable Taxes) 65 - 65 - ---------- ---------- ---------- ---------- Income Before Provision (Benefit) for Income Taxes and Extraordinary Item 10,577 2,869 12,355 4,169 ---------- ---------- ---------- --------- Provision (Benefit) for Income Taxes: Current 193 (14) 643 1,417 Deferred 3,524 1,021 3,705 55 State 37 85 161 152 ---------- ----------- ---------- --------- 3,754 1,092 4,509 1,624 ---------- ----------- ---------- --------- Income Before Extraordinary Item $ 6,823 $ 1,777 $ 7,846 $ 2,545 ---------- ----------- ---------- --------- Extraordinary Loss on Early Extinguishment of Debt (Net of Income Tax Benefit of $554) - - - (1,029) ---------- ----------- ---------- ---------- Net Income $ 6,823 $ 1,777 $ 7,846 $ 1,516 ========== =========== ========== ========== Basic and Diluted Earnings Per Share: Income Before Extraordinary Loss $ 1.04 $ 0.27 $ 1.20 $ 0.38 Extraordinary Loss - - - (0.15) ---------- ----------- ---------- --------- Net Income $ 1.04 $ 0.27 $ 1.20 $ 0.23 ========== =========== ========== ========= Weighted Average Shares of Common Stock Outstanding 6,538,721 6,682,887 6,538,721 6,682,887 The accompanying notes are an integral part of these statements.
3 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (All Amounts in Thousands) (Unaudited)
June 30, December 31, 1999 1998 ------------- ------------- ASSETS Current Assets: Cash and Cash Equivalents $ 19,482 $ 32,008 Marketable Securities 13,465 12,136 Accounts Receivable, Net of Allowance for Doubtful Accounts of $518 and $334 in 1999 and 1998, Respectively: Traffic 39,673 40,543 Agents' 9,044 8,082 Claims and Other 6,496 5,243 Federal Income Taxes Receivable 2,014 1,325 Net Investment in Direct Financing Leases 2,992 2,532 Other Current Assets 5,860 4,215 Material and Supplies Inventory, at Cost 12,505 13,130 ------------- ------------- Total Current Assets 111,531 119,214 ------------- ------------- Marketable Equity Securities 360 205 ------------- ------------- Investment in Unconsolidated Entities 2,403 3,368 ------------- ------------- Net Investment in Direct Financing Leases 114,151 66,494 ------------- ------------- Vessels, Property, and Other Equipment, at Cost: Vessels and Barges 749,426 745,390 Other Marine Equipment 7,922 7,776 Terminal Facilities 18,545 18,494 Land 1,230 2,317 Furniture and Equipment 17,209 16,799 ------------- ------------- 794,332 790,776 Less - Accumulated Depreciation (376,760) (356,217) ------------- ------------- 417,572 434,559 ------------- ------------- Other Assets: Deferred Charges, Net of Accumulated Amortization of $53,857 and $59,310 in 1999 and 1998, Respectively 37,902 38,849 Acquired Contract Costs, Net of Accumulated Amortization of $14,882 and $14,154 in 1999 and 1998, Respectively 15,644 16,371 Due from Related Parties 616 296 Other 16,536 10,448 ------------- ------------- 70,698 65,964 ------------- ------------- $ 716,715 $ 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)
June 30, December 31, 1999 1998 LIABILITIES AND STOCKHOLDERS' INVESTMENT ------------- ------------- Current Liabilities: Current Maturities of Long-Term Debt $ 20,716 $ 17,212 Current Maturities of Capital Lease Obligations 3,231 2,915 Accounts Payable and Accrued Liabilities 49,632 54,146 Current Deferred Income Tax Liability 27 27 ------------- ------------- Total Current Liabilities 73,606 74,300 ------------- ------------- Billings in Excess of Income Earned and Expenses Incurred 4,066 7,099 ------------- ------------- Long-Term Capital Lease Obligations, Less Current Maturities 9,102 12,085 ------------- ------------- Long-Term Debt, Less Current Maturities 375,700 349,340 ------------- ------------- Deferred Credits: Deferred Income Taxes 42,993 40,906 Claims and Other 29,825 28,966 ------------- ------------- 72,818 69,872 ------------- ------------- Commitments and Contingent Liabilities Stockholders' Investment: Common Stock 6,756 6,756 Additional Paid-In Capital 54,450 54,450 Retained Earnings 124,432 117,399 Less - Treasury Stock (4,046) (1,422) Accumulated Other Comprehensive Loss (169) (75) ------------- ------------- 181,423 177,108 ------------- ------------- $ 716,715 $ 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 June 30, 1999 - - 7,846 - - 7,846 Other Comprehensive Income: Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($51) - - - - (94) (94) --------- Total Comprehensive Income 7,752 Treasury Stock - - - (2,624) - (2,624) Cash Dividends - - (813) - - (813) --------- --------- ---------- ---------- ----------- -------- Balance at June 30,1999 $ 6,756 $ 54,450 $124,432 ($4,046) ($169) $181,423 ========= ========= ========== ========== =========== ======== 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 Six Months Ended June 30, 1999 1998 ------------ ------------ Cash Flows from Operating Activities: Net Income $ 7,846 $ 1,516 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 20,772 19,403 Amortization of Deferred Charges and Other Assets 8,866 12,290 Provision for Deferred Income Taxes 3,705 55 Equity in Net Income of Unconsolidated Entities (65) - (Gain) Loss on Sale of Vessels and Other Property (10,296) 3 Extraordinary Loss - 1,029 Changes in: Accounts Receivable (1,121) 101 Net Investment in Direct Financing Leases 749 967 Inventories and Other Current Assets (908) 847 Other Assets (1,008) 1,094 Accounts Payable and Accrued Liabilities (8,568) (1,264) Federal Income Taxes Payable (1,089) (1,760) Unearned Income (6,248) 2,439 Deferred Credits 1,183 (367) ------------- ------------ Net Cash Provided by Operating Activities 13,818 36,353 ------------- ------------ Cash Flows from Investing Activities: Investment in Direct Financing Lease (57,805) - Purchase of Vessels and Other Property (3,539) (51,819) Additions to Deferred Charges (6,622) (4,324) Proceeds from Sale of Vessels and Other Property 18,690 111 Purchase of and Proceeds from Short-Term Investments (1,647) (306) Investment in and Partial Sale of Unconsolidated Entity 766 (650) Purchase of Marketable Equity Securities (20) - Other Investing Activities 94 37 ------------- ------------- Net Cash Used by Investing Activities (50,083) (56,951) ------------- ------------- Cash Flows from Financing Activities: Proceeds from Issuance of Debt 58,000 156,435 Reduction of Debt and Capital Lease Obligations (30,803) (137,587) Additions to Deferred Financing Charges (21) (2,889) Purchase of Treasury Stock (2,624) - Common Stock Dividends Paid (813) (835) Other Financing Activities - (432) ------------- ------------- Net Cash Provided by Financing Activities 23,739 14,692 ------------- ------------- Net Decrease in Cash and Cash Equivalents (12,526) (5,906) Cash and Cash Equivalents at Beginning of Period 32,008 32,002 ------------- ------------- Cash and Cash Equivalents at End of Period $ 19,482 $ 26,096 ============= ============= The accompanying notes are an integral part of these statements.
7 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JUNE 30, 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 six months ended June 30, 1999 and 1998. The Company does not allocate interest income, administrative and general expenses, equity in unconsolidated entities, 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.
Time Liner Charter Contracts of (All Amounts in Thousands) Services Contracts Affreightment Other Total - ------------------------------------------------------------------------------ 1999 Revenues from external customer $ 87,185 $ 63,214 $ 19,078 $ 4,787 $174,264 Intersegment revenues - - - 18,495 18,495 Gross voyage profit before depreciation 11,425 24,669 9,376 2,635 48,105 Depreciation 7,111 8,521 3,296 354 19,282 Interest expense 2,869 7,652 4,168 552 15,241 Gain on sale of vessel and land - 7,753 - 2,408 10,161 Segment profit before interest income, administrative and general expenses and taxes 1,445 16,249 1,912 4,137 23,743 - -------------------------------------------------------------------------------- 1998 Revenues from external customers $ 96,130 $ 61,583 $ 28,215 $ 2,558 $188,486 Intersegment revenues - - - 18,432 18,432 Gross voyage profit before depreciation 15,206 21,374 9,638 2,521 48,739 Depreciation 6,269 8,208 3,292 352 18,121 Interest expense 3,136 5,741 4,831 623 14,331 Segment profit before interest income, administrative and general expenses and taxes 5,801 7,425 1,515 1,546 16,287 - --------------------------------------------------------------------------------
The following table presents information about segment profit for the second quarter ended June 30, 1999 and 1998.
Time Liner Charter Contracts of (All Amounts in Thousands) Services Contracts Affreightment Other Total - ------------------------------------------------------------------------------ 1999 Revenues from external customers $ 41,735 $ 31,844 $ 9,691 $ 2,565 $ 85,835 Intersegment revenues - - - 9,364 9,364 Gross voyage profit before depreciation 6,279 12,977 4,893 1,736 25,885 Depreciation 3,559 4,266 1,648 167 9,640 Interest expense 1,400 3,972 2,029 271 7,672 Gain on sale of vessel - 7,753 - - 7,753 Segment profit before interest income, administrative and general expenses and taxes 1,320 12,492 1,216 1,298 16,326 - -------------------------------------------------------------------------------- 1998 Revenues from external customers $ 46,763 $ 32,305 $ 14,863 $ 1,057 $ 94,988 Intersegment revenues - - - 9,311 9,311 Gross voyage profit before depreciation 8,480 11,521 4,629 1,270 25,900 Depreciation 3,217 4,297 1,647 184 9,345 Interest expense 1,592 2,955 2,470 327 7,344 Segment profit before interest income, administrative and general expenses and taxes 3,671 4,269 512 759 9,211 - --------------------------------------------------------------------------------
9 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 June 30, Six Months Ended June 30, 1999 1998 1999 1998 ----------- ------------ ----------- ---------- Total profit for reportable segments $ 16,326 $ 9,211 $ 23,743 $ 16,287 Unallocated amounts: Interest income 320 392 695 896 Administrative and general expenses 6,134 6,734 12,148 13,014 Equity in unconsolidated entities 65 - 65 - ----------- ------------ ------------ ---------- Income before income taxes and extraordinary items $ 10,577 $ 2,869 $ 12,355 $ 4,169 =========== ============ ============ ==========
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. Certain stock options totaling 475,000 were excluded from the computation of diluted earnings per share in the second quarter of 1999, as the effect would have been antidilutive. Note 4. Subsequent Events Early in the third quarter of this year, the Company agreed to a letter of intent to purchase a newbuilding car/truck carrier, to be renamed Green Dale. The vessel is scheduled to deliver new from the shipyard in September of 1999. During the third quarter of 1999, the Company settled its outstanding contract litigation with Seminole Electric Cooperative, Inc. In the settlement, Seminole has paid approximately $23 Million to Central Gulf Lines, Inc., a wholly owned subsidiary of the Company, and all agreements between Central Gulf and Seminole have been terminated. This settlement, less related expenses, and after offsets and previously accrued contract profits, will be reported in the Company's third quarter results. 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 RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998 Gross Voyage Profit - ------------------- Gross voyage profit decreased from $30.6 Million in the first six months of 1998 to $28.8 Million in the first six months of 1999. The decrease occurred primarily in the Company's LINER SERVICES segment, where gross voyage profit before depreciation decreased 24.9% from $15.2 Million in the first six months of 1998 to $11.4 Million for the first six months 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 15.4% from $21.4 Million in the first six months of 1998 to $24.7 Million for the same period in 1999 due, in part, to the acquisition and the subsequent commencement of operations of the Company's U.S. Flag Pure Car/Truck Carrier ("PCTC"), the Green Point, in the second quarter of 1998. In addition, the Company sold two of its Pure Car Carriers ("PCC's") as part of the Company's plan to replace these older and smaller vessels with two newer and larger PCTC's, the Asian King and Asian Emperor, that commenced operations upon delivery to the Company in December of 1998 and May of 1999, respectively. Vessel and barge depreciation for the first six months of 1999 increased 6.4% to $19.3 Million as compared to $18.1 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 $13.0 Million in the first six months of 1998 to $12.1 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 and a gain of $7.8 Million recognized on the sale of a PCC in May of 1999. 12 Interest expense was $15.2 Million for the first six months of 1999 as compared to $14.3 Million for the same period in 1998. The increase resulted primarily from the financing associated with the acquisition of the Asian King at the end of 1998 and the acquisition of the Asian Emperor in May of 1999. 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. Investment income decreased from $896,000 for the first six months of 1998 to $695,000 for the first six months of 1999 due to 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 $4.3 Million for Federal income taxes in the first six months of 1999 and $1.5 Million in the first six months of 1998 at the statutory rate of 35% for both periods. SECOND QUARTER ENDED JUNE 30, 1999 COMPARED TO SECOND QUARTER ENDED JUNE 30, 1998 Gross Voyage Profit - ------------------- Gross voyage profit decreased from $16.6 Million in the second quarter of 1998 to $16.2 Million in the second quarter of 1999. The decrease occurred primarily in the Company's LINER SERVICES segment, where gross voyage profit before depreciation decreased 26% from $8.5 Million in the second quarter of 1998 to $6.3 Million in the second 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 12.6% from $11.5 Million in the second quarter of 1998 to $13.0 Million for the same period in 1999 due, in part, to the acquisition and the subsequent commencement of operations of the Company's U.S. Flag PCTC, the Green Point, in the middle of the second quarter of 1998. In addition, the Company sold two of its PCC's as part of the Company's plan to replace these older and smaller vessels with two 13 newer and larger PCTC's, the Asian King and Asian Emperor, that commenced operations upon delivery to the Company in December of 1998 and May of 1999, respectively. Vessel and barge depreciation for the second quarter of 1999 increased 3.2% to $9.6 Million as compared to $9.3 Million in the same period of 1998 primarily due to the commencement of operations in the middle of the second quarter of 1998 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 $6.7 Million in the second quarter of 1998 to $6.1 Million in the same period in 1999 due to a continuing cost reduction program. Earnings in the second quarter of 1999 included a gain of $7.8 Million recognized on the sale of a PCC in May of 1999. Interest expense was $7.7 Million for the second quarter of 1999 as compared to $7.3 Million for the same period in 1998. The increase resulted primarily from the financing associated with the acquisition of the Asian King at the end of 1998 and the acquisition of the Asian Emperor in May of 1999. Investment income decreased slightly from $392,000 for the second quarter of 1998 to $320,000 for the second quarter of 1999 due to less favorable interest rates. Income Taxes - ------------ The Company provided $3.7 Million for Federal income taxes in the second quarter of 1999 and $1.0 Million in the second quarter of 1998 at the statutory rate of 35% for both periods. 14 LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased from $44.9 Million at December 31, 1998, to $37.9 Million at June 30, 1999, after provision for current maturities of long-term debt and capital lease obligations of $23.9 Million. Cash and cash equivalents decreased during the first six months of 1999 by $12.5 Million to a total of $19.5 Million. This decrease, which resulted from cash used for investing activities of $50.1 Million, was partially offset by operating cash flows of $13.8 Million and financing cash flows of $23.7 Million. The major source of cash from operations was net income adjusted for the gain on sale of land and vessel, as well as non-cash provisions such as depreciation and amortization. Investing activities during the period included the purchase of the Asian Emperor for $57.8 Million, $6.6 Million in deferred vessel drydocking charges, $3.5 Million in capitalized upgrade work on the Green Island and Atlantic Forest, and investments in short-term marketable securities of $1.6 Million, offset by the proceeds received from the sale of the Cypress Trail and other assets of $18.7 Million. The net cash provided by financing activities of $23.7 Million included proceeds from the financing of the Asian Emperor for $47 Million and draws against the Company's line of credit totaling $11 Million, offset by reductions of debt and capital lease obligations of $30.8 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. 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. Subsequently, the Company has increased this revolving credit facility and as of June 30, 1999 it was $48 Million. At June 30, 1999, $22 Million was outstanding on this credit facility. 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 July 21, 1999, the Board of Directors declared a quarterly dividend of 6.25 cents per Common Share payable on September 17, 1999, to shareholders of record on September 3, 1999. 15 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 June 30, 1999, 184,250 shares had been repurchased under this program for a total cost of $2.9 Million at an average market price of $15.87 per share. Subsequent to the end of the second quarter, as of July 20, 1999, the Company had repurchased an additional 11,544 shares for a total cost of approximately $170,000. COAL TRANSPORTATION CONTRACT Early in the third quarter of this year, the Company settled its outstanding contract litigation with Seminole Electric Cooperative, Inc. In the settlement, Seminole has paid approximately $23 Million to Central Gulf Lines, Inc., a wholly owned subsidiary of the Company, and all agreements between Central Gulf and Seminole have been terminated. This settlement, less related expenses, and after offsets and previously accrued contract profits, will be reported in the Company's third quarter results. The settlement fully resolves all litigation among Central Gulf, Seminole and their respective subsidiaries and affiliates. The litigation, which involved three separate lawsuits in state and federal courts in Florida, arose out of Seminole's unilateral termination of its contract with Central Gulf for the transportation of coal by Central Gulf from Mt. Vernon, Indiana to Gulf County, Florida. The contract, entered into in 1981, would have expired in 2004 according to its terms. Seminole notified the Company and Central Gulf on December 15, 1998, that is was terminating performance under the agreement, commencing alternative rail transportation and commencing the litigation. Seminole's stated purpose in instituting the litigation was to confirm Seminole's ability to terminate performance under the agreement and establish the damages owed by Seminole to Central Gulf as a result of the termination. NEW ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and 16 Hedging Activities." SFAS No. 133 is effective for fiscal quarters of fiscal years beginning after June 15, 1999. In June of 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 is an amendment of SFAS No. 133 and defers the effective date of SFAS No. 133 to June 15, 2000. 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. 137 will have on its financial statements once adopted. 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. 17 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 95% remediated and tested by June 30, 1999. The remaining IT systems are expected to be addressed by September of 1999. Vessel systems inspection and original equipment manufacturer ("OEM") testing are ongoing through July of 1999. Contingency plans for 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 June 30, 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 noncompliant 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. 18 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 including forward currency 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 June 30, 1999, as discussed in the Form 10-K, estimated based on the difference between second 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 $508,000. A hypothetical 10% decrease in fuel prices as of June 30, 1999, would have resulted in a $276,000 decrease in the fair value of the asset. 19 PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The matters voted upon and results of the voting at the Company's annual meeting of shareholders held April 21, 1999, were reported in response to Item 4 of the Company's Form 10-Q filed with the Securities and Exchange Commission for the quarterly period ended March 31, 1999, and are incorporated herein by reference. 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 June 30, 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 August 12, 1999 ___________________________ EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JUN-30-1999 19,482 13,465 55,213 518 12,505 111,531 794,332 376,760 716,715 73,606 384,802 0 0 6,756 174,667 716,715 0 174,264 0 157,589 15,241 0 15,241 12,355 4,509 7,846 0 0 0 7,846 1.20 1.20 Amounts inapplicable or not disclosed as a seperate 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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