<PAGE>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)
<PAGE>2
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(All Amounts in Thousands Except Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>3
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands)
(Unaudited)
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
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
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>4
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands)
(Unaudited)
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
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
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>5
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(All Amounts in Thousands)
(Unaudited)
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Treasury Comprehensive
Stock Capital Earnings Stock Income (Loss) Total
--------- --------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
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
========= ========= ========== ========= ========= ========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>6
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in Thousands)
(Unaudited)
<CAPTION>
For Nine Months Ended September 30,
1999 1998
--------------- ---------------
<S> <C> <C>
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
================ ===============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>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.
<PAGE>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.
<TABLE>
<CAPTION>
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>9
The following table presents information about segment profit for the
third quarter ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
Following is a reconciliation of the totals reported for the operating
segments to the applicable line items in the consolidated financial statements:
<TABLE>
<CAPTION>
(All Amounts in Thousands)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
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
<PAGE>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.
<PAGE>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.
<PAGE>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
<PAGE>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.
<PAGE>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
<PAGE>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.
<PAGE>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.
<PAGE>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
<PAGE>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
<PAGE>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
<PAGE>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.
<PAGE>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.
<PAGE>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
___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,721
<SECURITIES> 9,643
<RECEIVABLES> 51,653
<ALLOWANCES> 296
<INVENTORY> 12,605
<CURRENT-ASSETS> 110,101
<PP&E> 838,693
<DEPRECIATION> 385,819
<TOTAL-ASSETS> 748,140
<CURRENT-LIABILITIES> 78,900
<BONDS> 401,746
0
0
<COMMON> 6,756
<OTHER-SE> 179,778
<TOTAL-LIABILITY-AND-EQUITY> 748,140
<SALES> 0
<TOTAL-REVENUES> 275,999
<CGS> 0
<TOTAL-COSTS> 240,229
<OTHER-EXPENSES> 23,358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,358
<INCOME-PRETAX> 23,676
<INCOME-TAX> 8,593
<INCOME-CONTINUING> 15,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 15,083
<EPS-BASIC> 2.32
<EPS-DILUTED> 2.32<F1><F2>
<FN>
<F1>Amounts inapplicable or not disclosed as a separate line on the Balance
Sheet or Statement of Income are reported as 0 herein.
<F2>*Notes and accounts receivable - trade are reported net of allowance for
doubtful accounts in the Balance Sheet.
</FN>
</TABLE>
