-----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, I0D9mbCWlY+XgdkjoY8GT9jLtZtyxCBXDaPftmS52AOwLb+aJqwE5ZlVf7w6b8ic MVE/v811t0qqYaWw6SG1Ag== 0000278041-99-000011.txt : 19991115 0000278041-99-000011.hdr.sgml : 19991115 ACCESSION NUMBER: 0000278041-99-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748711 BUSINESS ADDRESS: STREET 1: 650 POYDRAS ST STE 1700 CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5045295461 10-Q 1 THIRD 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 September 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 6,377,093 shares (September 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 Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenues $ 81,254 $ 94,912 $ 248,519 $ 276,691 Subsidy Revenue 3,145 3,693 10,144 10,400 Net Revenue from Contract Settlement (Less Prior Quarter's Accrual) 17,336 - 17,336 - ---------- ---------- ---------- ---------- 101,735 98,605 275,999 287,091 ---------- ---------- ---------- ---------- Operating Expenses: Voyage Expenses 66,962 72,188 193,121 211,935 Vessel and Barge Depreciation 9,744 9,647 29,026 27,768 ---------- ---------- ---------- ---------- Gross Voyage Profit 25,029 16,770 53,852 47,388 ---------- ---------- ---------- ---------- Administrative and General Expenses 5,934 6,730 18,082 19,744 Gain on Sale of Land - - 2,408 - Gain on Sale of Vessel - - 7,753 - ---------- ---------- ---------- ---------- Operating Income 19,095 10,040 45,931 27,644 ---------- ---------- ---------- ---------- Interest: Interest Expense 8,117 7,153 23,358 21,484 Investment Income (367) (365) (1,062) (1,261) ---------- ---------- ---------- ---------- 7,750 6,788 22,296 20,223 ---------- ---------- ---------- ---------- Equity in Net Income (Loss) of Unconsolidated Entities (Net of Applicable Taxes) (24) - 41 - ---------- ---------- ---------- ---------- Income Before Provision for Income Taxes and Extraordinary Item 11,321 3,252 23,676 7,421 ---------- ---------- ---------- ---------- Provision for Income Taxes: Current 200 603 843 2,020 Deferred 3,791 647 7,496 702 State 93 26 254 178 ---------- ---------- ---------- ---------- 4,084 1,276 8,593 2,900 ---------- ---------- ---------- ---------- Income Before Extraordinary Item $ 7,237 $ 1,976 $ 15,083 $ 4,521 ---------- ---------- ---------- ---------- Extraordinary Loss on Early Extinguishment of Debt (Net of Income Tax Benefit of $554) - - - (1,029) ---------- ---------- ---------- ---------- Net Income $ 7,237 $ 1,976 $ 15,083 $ 3,492 ========== ========== ========== ========== Basic and Diluted Earnings Per Share: Income Before Extraordinary Loss $ 1.11 $ 0.29 $ 2.32 $ 0.67 Extraordinary Loss - - - (0.15) ---------- ----------- ---------- ---------- Net Income $ 1.11 $ 0.29 $ 2.32 $ 0.52 ========== =========== ========== ========== Weighted Average Shares of Common Stock Outstanding 6,508,491 6,682,887 6,508,491 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)
September 30, December 31, ASSETS 1999 1998 ------------- ------------- Current Assets: Cash and Cash Equivalents $ 23,721 $ 32,008 Marketable Securities 9,643 12,136 Accounts Receivable, Net of Allowance for Doubtful Accounts of $296 and $334 in 1999 and 1998, Respectively: Traffic 38,526 40,543 Agents' 6,604 8,082 Claims and Other 6,523 5,243 Federal Income Taxes Receivable 1,744 1,325 Deferred Income Taxes 64 - Net Investment in Direct Financing Leases 3,064 2,532 Other Current Assets 7,607 4,215 Material and Supplies Inventory, at Cost 12,605 13,130 ------------- ------------- Total Current Assets 110,101 119,214 ------------- ------------- Marketable Equity Securities 286 205 ------------- ------------- Investment in Unconsolidated Entities 2,366 3,368 ------------- ------------- Net Investment in Direct Financing Leases 113,556 66,494 ------------- ------------- Vessels, Property, and Other Equipment, at Cost: Vessels and Barges 793,698 745,390 Other Marine Equipment 7,922 7,776 Terminal Facilities 18,545 18,494 Land 1,230 2,317 Furniture and Equipment 17,298 16,799 ------------- ------------- 838,693 790,776 Less - Accumulated Depreciation (385,819) (356,217) ------------- ------------- 452,874 434,559 ------------- ------------- Other Assets: Deferred Charges, Net of Accumulated Amortization of $45,510 and $59,310 in 1999 and 1998, Respectively 40,403 38,849 Acquired Contract Costs, Net of Accumulated Amortization of $15,245 and $14,154 in 1999 and 1998, Respectively 15,280 16,371 Due from Related Parties 598 296 Other 12,676 10,448 ------------- ------------- 68,957 65,964 ------------- ------------- $ 748,140 $ 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)
September 30, December 31, 1999 1998 ------------- ------------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Current Maturities of Long-Term Debt $ 25,000 $ 17,212 Current Maturities of Capital Lease Obligations 3,231 2,915 Accounts Payable and Accrued Liabilities 50,669 54,146 Current Deferred Income Tax Liability - 27 ------------- ------------- Total Current Liabilities 78,900 74,300 ------------- ------------- Billings in Excess of Income Earned and Expenses Incurred 6,712 7,099 ------------- ------------- Long-Term Capital Lease Obligations, Less Current Maturities 8,853 12,085 ------------- ------------- Long-Term Debt, Less Current Maturities 392,893 349,340 ------------- ------------- Deferred Credits: Deferred Income Taxes 46,648 40,906 Claims and Other 27,600 28,966 ------------- ------------- 74,248 69,872 ------------- ------------- Commitments and Contingent Liabilities Stockholders' Investment: Common Stock 6,756 6,756 Additional Paid-In Capital 54,450 54,450 Retained Earnings 131,267 117,399 Less - Treasury Stock (5,495) (1,422) Accumulated Other Comprehensive Loss (444) (75) ------------- ------------- 186,534 177,108 ------------- ------------- $ 748,140 $ 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 September 30, 1999 - - 15,083 - - 15,083 Other Comprehensive Income: Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($199) - - - - (369) (369) -------- Total Comprehensive Income 14,714 Treasury Stock - - - (4,073) - (4,073) Cash Dividends - - (1,215) - - (1,215) --------- --------- ---------- --------- --------- -------- Balance at September 30, 1999 $ 6,756 $ 54,450 $131,267 ($5,495) ($444) $186,534 ========= ========= ========== ========= ========= ======== 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 Nine Months Ended September 30, 1999 1998 --------------- --------------- Cash Flows from Operating Activities: Net Income $ 15,083 $ 3,492 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 31,182 29,716 Amortization of Deferred Charges and Other Assets 13,311 17,769 Provision for Deferred Income Taxes 7,496 703 Equity in Net Income of Unconsolidated Entities (41) - (Gain) Loss on Sale of Vessels and Other Property (10,291) (3) Net Revenue from Contract Settlement (Including Prior Quarter's Accrual) (20,552) - Proceeds from Contract Settlement 22,327 - Extraordinary Loss - 1,029 Changes in: Accounts Receivable 2,862 (5,293) Inventories and Other Current Assets (2,776) (654) Other Assets (372) 1,016 Accounts Payable and Accrued Liabilities (9,654) (2,020) Federal Income Taxes Payable (884) (1,437) Unearned Income (387) 3,368 Deferred Credits (1,320) 4,577 --------------- --------------- Net Cash Provided by Operating Activities 45,984 52,263 --------------- --------------- Cash Flows from Investing Activities: Net Investment in Direct Financing Lease (56,533) 1,442 Purchase of Vessels and Other Property (51,104) (54,266) Additions to Deferred Charges (11,249) (9,844) Proceeds from Sale of Vessels and Other Property 19,336 220 Purchase of and Proceeds from Short-Term Investments 1,797 (1,221) Investment in and Partial Sale of Unconsolidated Entity 766 (488) Purchase of Marketable Equity Securities (20) - Other Investing Activities 112 55 ---------------- --------------- Net Cash Used by Investing Activities (96,895) (64,102) ---------------- --------------- Cash Flows from Financing Activities: Proceeds from Issuance of Debt 108,400 156,435 Reduction of Debt and Capital Lease Obligations (59,975) (153,409) Additions to Deferred Financing Charges (513) (2,904) Purchase of Treasury Stock (4,073) - Common Stock Dividends Paid (1,215) (1,253) Other Financing Activities - (432) ---------------- --------------- Net Cash Provided by Financing Activities 42,624 (1,563) ---------------- --------------- Net Decrease in Cash and Cash Equivalents (8,287) (13,402) Cash and Cash Equivalents at Beginning of Period 32,008 32,002 ---------------- --------------- Cash and Cash Equivalents at End of Period $ 23,721 $ 18,600 ================ =============== The accompanying notes are an integral part of these statements.
7 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS SEPTEMBER 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 Company's CONTRACTS OF AFFREIGHTMENT segment has been impacted by a contract settlement in the third quarter of 1999 with Seminole Electric Cooperative, Inc. ("Seminole") for its premature termination of a Coal Transportation Contract. The Company received a settlement for $22.975 Million including proceeds from the sale of the Company's three super jumbo River Barges for approximately $648,000. The reported settlement of $17.336 Million was net of related expenses of approximately $1.8 Million and less first and second quarter 1999 revenue accruals of approximately $3.2 Million. The following table presents information about segment profit for the nine months ended September 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 customers $129,925 $ 95,351 $ 26,455 $ 6,932 $258,663 Net revenue from contract settlement (less prior quarter's accrual) - - 17,336 - 17,336 Intersegment revenues - - - 27,486 27,486 Gross voyage profit before depreciation 13,033 37,042 29,805 2,998 82,878 Depreciation 10,808 12,766 4,944 508 29,026 Interest expense 4,533 12,210 6,037 578 23,358 Gain on sale of vessel and Land - 7,753 - 2,408 10,161 Segment profit (loss) before interest income, administrative and general expenses and taxes (2,308) 19,819 18,824 4,320 40,655 - ------------------------------------------------------------------------------ 1998 Revenues from external customers $145,926 $ 93,542 $ 42,560 $ 5,063 $287,091 Intersegment revenues - - - 27,540 27,540 Gross voyage profit before depreciation 24,209 32,812 14,720 3,415 75,156 Depreciation 9,631 12,659 4,941 537 27,768 Interest expense 4,717 9,210 6,726 831 21,484 Segment profit before interest income, administrative and general expenses and taxes 9,861 10,943 3,053 2,047 25,904 - ------------------------------------------------------------------------------
9 The following table presents information about segment profit for the third quarter ended September 30, 1999 and 1998.
Time Liner Charter Contracts of (All Amounts in Thousands) Services Contracts Affreightment Other Total - ------------------------------------------------------------------------------ 1999 Revenues from external customers $ 42,740 $ 32,137 $ 7,377 $ 2,145 $ 84,399 Net revenue from contract settlement (less prior quarter's accrual) - - 17,336 - 17,336 Intersegment revenues - - - 8,991 8,991 Gross voyage profit before depreciation 1,608 12,373 20,429 363 34,773 Depreciation 3,697 4,245 1,648 154 9,744 Interest expense 1,664 4,558 1,869 26 8,117 Segment profit (loss) before interest income, administrative and general expenses and taxes (3,753) 3,570 16,912 183 16,912 - ------------------------------------------------------------------------------ 1998 Revenues from external customers $ 49,796 $ 31,959 $ 14,345 $ 2,505 $ 98,605 Intersegment revenues - - - 9,108 9,108 Gross voyage profit before depreciation 9,003 11,438 5,082 894 26,417 Depreciation 3,362 4,451 1,649 185 9,647 Interest expense 1,581 3,469 1,895 208 7,153 Segment profit before interest income, administrative and general expenses and taxes 4,060 3,518 1,538 501 9,617 - ------------------------------------------------------------------------------
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 Sept. 30, Nine Months Ended Sept. 30, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Total profit for reportable segments $ 16,912 $ 9,617 $ 40,655 $ 25,904 Unallocated amounts: Interest income 367 365 1,062 1,261 Administrative and general expenses 5,934 6,730 18,082 19,744 Equity in unconsolidated entities (24) - 41 - ----------- ----------- ----------- ----------- Income before income taxes and extraordinary items $ 11,321 $ 3,252 $ 23,676 $ 7,421 =========== =========== =========== ===========
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 third quarter of 1999, as the effect would have been antidilutive. Note 4. Subsequent Events Early in the fourth quarter of this year, the Company sold its oldest LASH vessel named Acadia Forest, which was built in 1969, at approximately book value to buyers for demolition in 10 India. In addition, the Company sold two of its FLASH vessels, the FLASH II and Pine Forest, at approximately book value which are both at the end of their economic lives and are no longer required in the Company's operations. 11 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. 12 RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Gross Voyage Profit - ------------------- Gross voyage profit increased from $47.4 Million in the first nine months of 1998 to $53.9 Million in the first nine months of 1999. The increase occurred primarily in the Company's CONTRACTS OF AFFREIGHTMENT segment, where gross voyage profit before depreciation increased from $14.7 Million in the first nine months of 1998 to $29.8 Million for the first nine months of 1999 due to the contract settlement in the third quarter of 1999 with Seminole for its premature termination of a Coal Transportation Contract. The settlement in the amount of $22.975 Million included proceeds from the sale of the Company's three super jumbo River Barges for approximately $648,000. The reported settlement of $17.336 Million was net of related expenses of approximately $1.8 Million and less first and second quarter 1999 revenue accruals of approximately $3.2 Million. The increase in gross voyage profit also resulted from improved results for the TIME CHARTER CONTRACTS segment. The gross voyage profit before depreciation for the TIME CHARTER CONTRACTS segment increased 12.9% from $32.8 Million in the first nine months of 1998 to $37.0 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 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"), one in December of 1998 and the other in May of 1999, 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, which commenced operations upon delivery to the Company in December of 1998 and May of 1999, respectively. Additionally, in September of 1999, the Company added another newly built U.S. Flag PCTC, the Green Dale, which upon delivery was chartered to a major Japanese ship operator for a multi-year term. The increase in gross voyage profit for the CONTRACTS OF AFFREIGHTMENT segment and the TIME CHARTER CONTRACTS segment was partially offset by the results for the LINER SERVICES segment. The gross voyage profit before depreciation for the LINER SERVICES segment decreased 46.2% from $24.2 Million in the first nine months of 1998 to $13.0 Million for the same period in 1999 primarily due to the Green Island being out of service for repairs related to a casualty 13 that occurred late in the first quarter of 1999 and extended into September of 1999, as well as an increase in fuel prices and reduced cargo volume on its Trans-Atlantic Service. Vessel and barge depreciation for the first nine months of 1999 increased 4.5% to $29.0 Million as compared to $27.8 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, placed into service in May of 1999, and now operating in the LINER SERVICES segment as a feeder vessel. During the third quarter of 1999, the upgrade work on the Atlantic Forest was completed and depreciation began on the additional cost beginning in August of 1999. Other Income and Expenses - ------------------------- Administrative and general expenses decreased from $19.7 Million in the first nine months of 1998 to $18.1 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. Interest expense was $23.4 Million for the first nine months of 1999 as compared to $21.5 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, the acquisition of the Asian Emperor in May of 1999 and the acquisition of the Green Dale in September of 1999. Investment income decreased from $1.3 Million for the first nine months of 1998 to $1.1 Million for the first nine months of 1999 due to less favorable interest rates. 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. 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. 14 Income Taxes - ------------ The Company provided $8.4 Million for Federal income taxes in the first nine months of 1999 and $2.7 Million in the first nine months of 1998 at the statutory rate of 35% for both periods. THIRD QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO THIRD QUARTER ENDED SEPTEMBER 30, 1998 Gross Voyage Profit - ------------------- Gross voyage profit increased from $16.8 Million in the third quarter of 1998 to $25.0 Million in the third quarter of 1999. The increase occurred primarily in the Company's CONTRACTS OF AFFREIGHTMENT segment, where gross voyage profit before depreciation increased from $5.1 Million in the third quarter of 1998 to $20.4 Million for the same period of 1999 due to the settlement in the third quarter of 1999 with Seminole for its premature termination of a Coal Transportation Contract. The settlement in the amount of $22.975 Million included proceeds from the sale of the Company's three super jumbo River Barges for approximately $648,000. The reported settlement of $17.336 Million was net of related expenses of approximately $1.8 Million and less first and second quarter 1999 revenue accruals of approximately $3.2 Million. The increase in gross voyage profit also resulted from improved results for the TIME CHARTER CONTRACTS segment. The gross voyage profit before depreciation for the TIME CHARTER CONTRACTS segment increased 8.2% from $11.4 Million in the third quarter of 1998 to $12.4 Million for the same period in 1999 due, in part, to the acquisition of two PCTC's, the Asian King and Asian Emperor, which commenced operations upon delivery to the Company in December of 1998 and May of 1999, respectively. Additionally, in September of 1999, the Company added another newly built U.S. Flag PCTC, the Green Dale, which upon delivery was chartered to a major Japanese ship operator for a multi-year term. The increase in gross voyage profit for the CONTRACTS OF AFFREIGHTMENT segment and the TIME CHARTER CONTRACTS segment was partially offset by the results for the LINER SERVICES segment. The gross voyage profit before depreciation for the LINER SERVICES segment decreased 82.1% from $9.0 Million in the third quarter of 1998 to $1.6 Million for the same period in 1999 due to the Green Island being out of service for repairs related to a casualty that occurred late in the first quarter of 1999 and extended into September of 1999, as well as an increase in fuel prices and reduced cargo volume. Vessel and barge depreciation for the third quarter of 1999 increased slightly 1.0% to $9.7 Million as compared to $9.6 Million in the same period of 1998 primarily due to the 15 completion of the upgrade work on the Atlantic Forest and depreciation beginning on the additional cost in August of 1999. Other Income and Expenses - ------------------------- Administrative and general expenses decreased from $6.7 Million in the third quarter of 1998 to $5.9 Million in the same period in 1999 due to a continuing cost reduction program. Interest expense was $8.1 Million for the third quarter of 1999 as compared to $7.2 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, the acquisition of the Asian Emperor in May of 1999 and the acquisition of the Green Dale in September of 1999. Investment income increased slightly from $365,000 for the third quarter of 1998 to $367,000 for the third quarter of 1999. Income Taxes - ------------ The Company provided $4.0 Million for Federal income taxes in the third quarter of 1999 and $1.3 Million in the third quarter of 1998 at the statutory rate of 35% for both periods. 16 LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased from $44.9 Million at December 31, 1998, to $31.2 Million at September 30, 1999, after provision for current maturities of long-term debt and capital lease obligations of $28.2 Million. Cash and cash equivalents decreased during the first nine months of 1999 by $8.3 Million to a total of $23.7 Million. This decrease, which resulted from cash used for investing activities of $96.9 Million, was partially offset by operating cash flows of $46.0 Million and financing cash flows of $42.6 Million. The major source of cash from operations was net income adjusted for the gain on sale of land and vessel, the net revenue and proceeds received (excluding proceeds from sale of super jumbo River Barges) from the Seminole contract settlement, as well as non-cash provisions such as depreciation and amortization. Investing activities during the period primarily included the purchase of the Asian Emperor for $57.8 Million, the purchase of the Green Dale for $40.7 Million, $11.2 Million in deferred vessel drydocking charges, $10.4 Million in capitalized upgrade work on the Atlantic Forest and Hickory, offset by the proceeds received from the sale of the Cypress Trail, land and other assets of $19.3 Million, and investments in short-term marketable securities of $1.8 Million. The net cash provided by financing activities of $42.6 Million included proceeds from the financing of the Asian Emperor for $47 Million, financing of the Green Dale for $32.4 Million and draws against the Company's line of credit totaling $29 Million, offset by reductions of debt and capital lease obligations of $60.0 Million stemming from regularly scheduled principal payments and repayments of amounts drawn under lines of credit, $4.1 Million for the purchase of treasury stock, $1.2 Million to meet common stock dividend requirements, and additions to deferred financing charges of $513,000. Early in the first quarter of 1998, the Company entered into a $25 Million revolving credit facility that replaced the lines of credit previously available. Subsequently, the Company increased this facility and as of September 30, 1999 it was $48 Million. At September 30, 1999, $17 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. 17 At a regular meeting held October 20, 1999, the Board of Directors declared a quarterly dividend of 6.25 cents per Common Share payable on December 17, 1999, to shareholders of record on December 3, 1999. 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. In October of 1999, the Company had completed the program. In October of 1999, the Company's Board of Directors approved another stock repurchase program to buy up to 1,000,000 shares of its common stock, based on the Board's belief that the current market value of the Company's common stock does not adequately reflect the Company's inherent value. The repurchases are expected to be 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 September 30, 1999, 305,794 shares had been repurchased under the original program for a total cost of $4.4 Million at an average market price of $14.32 per share. Subsequent to the end of the third quarter, as of November 9, 1999, the Company repurchased an additional 227,100 shares for a total cost of approximately $2.4 Million at an average market price of $10.42 per share. COAL TRANSPORTATION CONTRACT Early in the third quarter of this year, the Company settled its outstanding contract litigation with Seminole. In the settlement, Seminole paid $22.975 Million to Central Gulf Lines, Inc., a wholly owned subsidiary of the Company, and all agreements between Central Gulf and Seminole were terminated. This settlement, less related expenses, and after offsets and previously accrued contract profits, is reported in the Company's third quarter results net of prior quarter accruals. 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 it was 18 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 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. 133 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 19 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. After 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 98% remediated and tested by September 30, 1999. The remaining IT systems will continue to be tested through December of 1999. Vessel systems inspection and original equipment manufacturer ("OEM") testing are complete as of September 30, 1999. Contingency plans for the 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 is in continuous contact with its key suppliers and customers to exchange updated information on Y2K issues. As of September 30, 1999, the Company does not foresee replacement of any service providers based on Y2K noncompliance. Costs to Address Y2K Issues - --------------------------- Expenditures related to evaluating and remediating any Y2K problems through September 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 the remainder of 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 20 been submitted to the Company's management for review. The Company has incurred Y2K expenses of approximately $300,000 as of September 30, 1999. 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 - ----------------- Vessel and Information Systems Contingency Plans are complete. Cost estimates to implement the contingency plans will be refined and analyzed against other options as circumstances warrant. MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT 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 September 30, 1999, as discussed in the Form 10- K, estimated based on the difference between third 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 $808,000. A hypothetical 10% decrease in the third quarter price per ton of fuel as of September 30, 1999, would have resulted in a $193,000 decrease in the fair value of the asset. 21 PART II - OTHER INFORMATION Item 1. Legal Proceedings Early in the third quarter of this year, the Company settled its outstanding contract litigation with Seminole. In the settlement, Seminole paid $22.975 Million to Central Gulf Lines, Inc., a wholly owned subsidiary of the Company, and all agreements between Central Gulf and Seminole were terminated. This settlement, less related expenses, and after offsets and previously accrued contract profits, is reported in the Company's third quarter results net of prior quarter accruals. 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 it 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. 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) A report on Form 8-K was filed August 6, 1999, to report the settlement of the Company's outstanding contract litigation with Seminole Electric Cooperative, Inc. 22 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 November 12, 1999 ___________________________ EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 SEP-30-1999 23,721 9,643 51,653 296 12,605 110,101 838,693 385,819 748,140 78,900 401,746 0 0 6,756 179,778 748,140 0 275,999 0 240,229 23,358 0 23,358 23,676 8,593 15,083 0 0 0 15,083 2.32 2.32 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 allowance for doubtful accounts in the Balance Sheet.
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