<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 June 30, 1999
--------------
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to___________
Commission file number 2-63322
------------------------------------------------------
INTERNATIONAL SHIPHOLDING CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2989662
___________________________ ________________________________________
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
650 Poydras Street New Orleans, Louisiana 70130
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(504) 529-5461
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing for the past 90 days. YES X NO
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $1 Par Value 6,498,637 shares (June 30, 1999)
--------------------
<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)
<CAPTION> (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 82,476 $ 91,402 $ 167,265 $ 181,779
Subsidy Revenue 3,359 3,586 6,999 6,707
---------- ---------- ---------- ----------
85,835 94,988 174,264 188,486
---------- ---------- ---------- ----------
Operating Expenses:
Voyage Expenses 59,950 69,088 126,159 139,747
Vessel and Barge Depreciation 9,640 9,345 19,282 18,121
---------- ---------- ---------- ----------
Gross Voyage Profit 16,245 16,555 28,823 30,618
---------- ---------- ---------- ----------
Administrative and General
Expenses 6,134 6,734 12,148 13,014
Gain on Sale of Land - - 2,408 -
Gain on Sale of Vessel 7,753 - 7,753 -
---------- ---------- ---------- ----------
Operating Income 17,864 9,821 26,836 17,604
---------- ---------- ---------- ----------
Interest:
Interest Expense 7,672 7,344 15,241 14,331
Investment Income (320) (392) (695) (896)
---------- ---------- ---------- ----------
7,352 6,952 14,546 13,435
---------- ---------- ---------- ----------
Equity in Net Income of
Unconsolidated Entities
(Net of Applicable Taxes) 65 - 65 -
---------- ---------- ---------- ----------
Income Before Provision
(Benefit) for Income Taxes
and Extraordinary Item 10,577 2,869 12,355 4,169
---------- ---------- ---------- ---------
Provision (Benefit) for
Income Taxes:
Current 193 (14) 643 1,417
Deferred 3,524 1,021 3,705 55
State 37 85 161 152
---------- ----------- ---------- ---------
3,754 1,092 4,509 1,624
---------- ----------- ---------- ---------
Income Before
Extraordinary Item $ 6,823 $ 1,777 $ 7,846 $ 2,545
---------- ----------- ---------- ---------
Extraordinary Loss on Early
Extinguishment of Debt
(Net of Income Tax
Benefit of $554) - - - (1,029)
---------- ----------- ---------- ----------
Net Income $ 6,823 $ 1,777 $ 7,846 $ 1,516
========== =========== ========== ==========
Basic and Diluted Earnings
Per Share:
Income Before
Extraordinary Loss $ 1.04 $ 0.27 $ 1.20 $ 0.38
Extraordinary Loss - - - (0.15)
---------- ----------- ---------- ---------
Net Income $ 1.04 $ 0.27 $ 1.20 $ 0.23
========== =========== ========== =========
Weighted Average Shares of
Common Stock Outstanding 6,538,721 6,682,887 6,538,721 6,682,887
<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>
June 30, December 31,
1999 1998
------------- -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 19,482 $ 32,008
Marketable Securities 13,465 12,136
Accounts Receivable, Net of
Allowance for Doubtful
Accounts of $518 and $334 in
1999 and 1998, Respectively:
Traffic 39,673 40,543
Agents' 9,044 8,082
Claims and Other 6,496 5,243
Federal Income Taxes Receivable 2,014 1,325
Net Investment in Direct Financing Leases 2,992 2,532
Other Current Assets 5,860 4,215
Material and Supplies Inventory, at Cost 12,505 13,130
------------- -------------
Total Current Assets 111,531 119,214
------------- -------------
Marketable Equity Securities 360 205
------------- -------------
Investment in Unconsolidated Entities 2,403 3,368
------------- -------------
Net Investment in Direct Financing Leases 114,151 66,494
------------- -------------
Vessels, Property, and Other Equipment, at
Cost:
Vessels and Barges 749,426 745,390
Other Marine Equipment 7,922 7,776
Terminal Facilities 18,545 18,494
Land 1,230 2,317
Furniture and Equipment 17,209 16,799
------------- -------------
794,332 790,776
Less - Accumulated Depreciation (376,760) (356,217)
------------- -------------
417,572 434,559
------------- -------------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $53,857 and $59,310 in
1999 and 1998, Respectively 37,902 38,849
Acquired Contract Costs, Net of Accumulated
Amortization of $14,882 and $14,154 in
1999 and 1998, Respectively 15,644 16,371
Due from Related Parties 616 296
Other 16,536 10,448
------------- -------------
70,698 65,964
------------- -------------
$ 716,715 $ 689,804
============= =============
<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> June 30, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' INVESTMENT ------------- -------------
<S> <C> <C>
Current Liabilities:
Current Maturities of Long-Term Debt $ 20,716 $ 17,212
Current Maturities of Capital
Lease Obligations 3,231 2,915
Accounts Payable and Accrued Liabilities 49,632 54,146
Current Deferred Income Tax Liability 27 27
------------- -------------
Total Current Liabilities 73,606 74,300
------------- -------------
Billings in Excess of Income Earned and
Expenses Incurred 4,066 7,099
------------- -------------
Long-Term Capital Lease Obligations, Less
Current Maturities 9,102 12,085
------------- -------------
Long-Term Debt, Less Current Maturities 375,700 349,340
------------- -------------
Deferred Credits:
Deferred Income Taxes 42,993 40,906
Claims and Other 29,825 28,966
------------- -------------
72,818 69,872
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 124,432 117,399
Less - Treasury Stock (4,046) (1,422)
Accumulated Other Comprehensive Loss (169) (75)
------------- -------------
181,423 177,108
------------- -------------
$ 716,715 $ 689,804
============= =============
<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 June 30,
1999 - - 7,846 - - 7,846
Other Comprehensive Income:
Unrealized Holding Loss
on Marketable Securities,
Net of Deferred Taxes of
($51) - - - - (94) (94)
---------
Total Comprehensive Income 7,752
Treasury Stock - - - (2,624) - (2,624)
Cash Dividends - - (813) - - (813)
--------- --------- ---------- ---------- ----------- --------
Balance at June
30,1999 $ 6,756 $ 54,450 $124,432 ($4,046) ($169) $181,423
========= ========= ========== ========== =========== ========
<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)
For Six Months Ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 7,846 $ 1,516
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation 20,772 19,403
Amortization of Deferred Charges and
Other Assets 8,866 12,290
Provision for Deferred Income Taxes 3,705 55
Equity in Net Income of Unconsolidated
Entities (65) -
(Gain) Loss on Sale of
Vessels and Other Property (10,296) 3
Extraordinary Loss - 1,029
Changes in:
Accounts Receivable (1,121) 101
Net Investment in Direct Financing
Leases 749 967
Inventories and Other Current Assets (908) 847
Other Assets (1,008) 1,094
Accounts Payable and Accrued
Liabilities (8,568) (1,264)
Federal Income Taxes Payable (1,089) (1,760)
Unearned Income (6,248) 2,439
Deferred Credits 1,183 (367)
------------- ------------
Net Cash Provided by Operating Activities 13,818 36,353
------------- ------------
Cash Flows from Investing Activities:
Investment in Direct Financing Lease (57,805) -
Purchase of Vessels and Other Property (3,539) (51,819)
Additions to Deferred Charges (6,622) (4,324)
Proceeds from Sale of Vessels
and Other Property 18,690 111
Purchase of and Proceeds from
Short-Term Investments (1,647) (306)
Investment in and Partial Sale
of Unconsolidated Entity 766 (650)
Purchase of Marketable Equity Securities (20) -
Other Investing Activities 94 37
------------- -------------
Net Cash Used by Investing Activities (50,083) (56,951)
------------- -------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 58,000 156,435
Reduction of Debt and Capital
Lease Obligations (30,803) (137,587)
Additions to Deferred Financing Charges (21) (2,889)
Purchase of Treasury Stock (2,624) -
Common Stock Dividends Paid (813) (835)
Other Financing Activities - (432)
------------- -------------
Net Cash Provided by Financing Activities 23,739 14,692
------------- -------------
Net Decrease in Cash and Cash Equivalents (12,526) (5,906)
Cash and Cash Equivalents at Beginning of
Period 32,008 32,002
------------- -------------
Cash and Cash Equivalents at End of Period $ 19,482 $ 26,096
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
Note 1. Basis of Preparation
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures required
by generally accepted accounting principles for complete financial statements
have been omitted. It is suggested that these interim statements be
read in conjunction with the financial statements and notes thereto
included in the Form 10-K of International Shipholding Corporation for the
year ended December 31, 1998. Certain reclassifications have been made
to prior period financial information in order to conform to current year
presentations.
Interim statements are subject to possible adjustments in connection
with the annual audit of the Company's accounts for the full year
1999. In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation of the
information shown have been included.
The foregoing 1999 interim results are not necessarily indicative of
the results of operations for the full year 1999.
The Company's policy is to consolidate all subsidiaries in which it
holds greater than 50% voting interest. All significant intercompany accounts
and transactions have been eliminated.
Note 2. Operating Segments
The Company's three operating segments, LINER SERVICES, TIME CHARTER
CONTRACTS, and CONTRACTS OF AFFREIGHTMENT, are identified primarily based on
the characteristics of the contracts and terms under which its fleet of
vessels and barges are operated. The Company also reports an OTHER
category that includes results of several of the Company's subsidiaries
that provide ship charter brokerage, agency, barge fleeting and other
specialized services primarily to the Company's operating segments described
below. Each of the reportable segments is managed separately as each
requires different resources depending on the nature of the contract or
terms under which each vessel within the segment operates.
<PAGE>8
The following table presents information about segment profit for the
six months ended June 30, 1999 and 1998. The Company does not allocate
interest income, administrative and general expenses, equity in unconsolidated
entities, or income taxes to its segments. Intersegment revenues are based
on market prices and include revenues earned by subsidiaries of the
Company that provided specialized services to the operating segments.
<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
customer $ 87,185 $ 63,214 $ 19,078 $ 4,787 $174,264
Intersegment revenues - - - 18,495 18,495
Gross voyage profit
before depreciation 11,425 24,669 9,376 2,635 48,105
Depreciation 7,111 8,521 3,296 354 19,282
Interest expense 2,869 7,652 4,168 552 15,241
Gain on sale of vessel
and land - 7,753 - 2,408 10,161
Segment profit before interest
income, administrative and
general expenses and taxes 1,445 16,249 1,912 4,137 23,743
- --------------------------------------------------------------------------------
1998
Revenues from external
customers $ 96,130 $ 61,583 $ 28,215 $ 2,558 $188,486
Intersegment revenues - - - 18,432 18,432
Gross voyage profit
before depreciation 15,206 21,374 9,638 2,521 48,739
Depreciation 6,269 8,208 3,292 352 18,121
Interest expense 3,136 5,741 4,831 623 14,331
Segment profit before interest
income, administrative and
general expenses and taxes 5,801 7,425 1,515 1,546 16,287
- --------------------------------------------------------------------------------
</TABLE>
The following table presents information about segment profit for the
second quarter ended June 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 $ 41,735 $ 31,844 $ 9,691 $ 2,565 $ 85,835
Intersegment revenues - - - 9,364 9,364
Gross voyage profit
before depreciation 6,279 12,977 4,893 1,736 25,885
Depreciation 3,559 4,266 1,648 167 9,640
Interest expense 1,400 3,972 2,029 271 7,672
Gain on sale of vessel - 7,753 - - 7,753
Segment profit before interest
income, administrative and
general expenses and taxes 1,320 12,492 1,216 1,298 16,326
- --------------------------------------------------------------------------------
1998
Revenues from external
customers $ 46,763 $ 32,305 $ 14,863 $ 1,057 $ 94,988
Intersegment revenues - - - 9,311 9,311
Gross voyage profit
before depreciation 8,480 11,521 4,629 1,270 25,900
Depreciation 3,217 4,297 1,647 184 9,345
Interest expense 1,592 2,955 2,470 327 7,344
Segment profit before interest
income, administrative and
general expenses and taxes 3,671 4,269 512 759 9,211
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>9
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 June 30, Six Months Ended June 30,
1999 1998 1999 1998
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Total profit for
reportable segments $ 16,326 $ 9,211 $ 23,743 $ 16,287
Unallocated amounts:
Interest income 320 392 695 896
Administrative and
general expenses 6,134 6,734 12,148 13,014
Equity in unconsolidated
entities 65 - 65 -
----------- ------------ ------------ ----------
Income before income taxes
and extraordinary items $ 10,577 $ 2,869 $ 12,355 $ 4,169
=========== ============ ============ ==========
</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 second quarter of 1999,
as the effect would have been antidilutive.
Note 4. Subsequent Events
Early in the third quarter of this year, the Company agreed to a letter
of intent to purchase a newbuilding car/truck carrier, to be renamed Green
Dale. The vessel is scheduled to deliver new from the shipyard in September
of 1999. During the third quarter of 1999, the Company settled its outstanding
contract litigation with Seminole Electric Cooperative, Inc. In the
settlement, Seminole has paid approximately $23 Million to Central Gulf
Lines, Inc., a wholly owned subsidiary of the Company, and all agreements
between Central Gulf and Seminole have been terminated. This settlement,
less related expenses, and after offsets and previously accrued contract
profits, will be reported in the Company's third quarter results.
<PAGE>10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements made in this report or elsewhere by, or on behalf of,
the Company that are not based on historical facts are intended to
be forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on assumptions about future events
and are therefore subject to risks and uncertainties. The Company
cautions readers that certain important factors have affected and may affect
in the future the Company's actual consolidated results of operations and
may cause future results to differ materially from those expressed in or
implied by any forward-looking statements made in this report or elsewhere
by, or on behalf of, the Company. A description of certain of these
important factors is contained in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1998.
The Company's vessels are operated under a variety of charters, liner
services, and contracts. The nature of these arrangements is such that,
without a material variation in gross voyage profits (total revenues
less voyage expenses and vessel and barge depreciation), the revenues and
expenses attributable to a vessel deployed under one type of charter or
contract can differ substantially from those attributable to the same
vessel if deployed under a different type of charter or contract.
Accordingly, depending on the mix of charters or contracts in place during
a particular accounting period, the Company's revenues and expenses can
fluctuate substantially from one period to another even though the number of
vessels deployed, the number of voyages completed, the amount of cargo
carried and the gross voyage profit derived from the vessels remain
relatively constant. As a result, fluctuations in voyage revenues
and expenses are not necessarily indicative of trends in profitability,
and management believes that gross voyage profit is a more appropriate
measure of performance than revenues. Accordingly, the discussion
below addresses variations in gross voyage profits rather than variations
in revenues.
<PAGE>11
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
Gross Voyage Profit
- -------------------
Gross voyage profit decreased from $30.6 Million in the first six months
of 1998 to $28.8 Million in the first six months of 1999. The decrease
occurred primarily in the Company's LINER SERVICES segment, where gross
voyage profit before depreciation decreased 24.9% from $15.2 Million in
the first six months of 1998 to $11.4 Million for the first six months of
1999 primarily due to reduced cargo volume in 1999.
The decrease in gross voyage profit for the LINER SERVICES segment
was partially offset by improved results for the TIME CHARTER CONTRACTS
segment. The gross voyage profit before depreciation for the TIME
CHARTER CONTRACTS segment increased 15.4% from $21.4 Million in the first
six months of 1998 to $24.7 Million for the same period in 1999 due, in part,
to the acquisition and the subsequent commencement of operations of the
Company's U.S. Flag Pure Car/Truck Carrier ("PCTC"), the Green Point, in the
second quarter of 1998. In addition, the Company sold two of its Pure Car
Carriers ("PCC's") as part of the Company's plan to replace these older and
smaller vessels with two newer and larger PCTC's, the Asian King and
Asian Emperor, that commenced operations upon delivery to the Company
in December of 1998 and May of 1999, respectively.
Vessel and barge depreciation for the first six months of 1999 increased
6.4% to $19.3 Million as compared to $18.1 Million in the same period of
1998 primarily due to the commencement of operations of the Green Point.
Additionally in the third quarter of 1998, the Company began depreciating the
Hickory, a LASH vessel purchased early in 1998 now operating in the LINER
SERVICES segment as a feeder vessel.
Other Income and Expenses
- -------------------------
Administrative and general expenses decreased from $13.0 Million in
the first six months of 1998 to $12.1 Million in the same period in 1999
due to a continuing cost reduction program.
Earnings in 1999 included a gain of $2.4 Million recognized on the
sale of a parcel of land no longer required in the Company's operations
and a gain of $7.8 Million recognized on the sale of a PCC in May of 1999.
<PAGE>12
Interest expense was $15.2 Million for the first six months of 1999
as compared to $14.3 Million for the same period in 1998. The increase
resulted primarily from the financing associated with the acquisition of
the Asian King at the end of 1998 and the acquisition of the Asian Emperor
in May of 1999. On January 22, 1998, the Company issued $110 Million of
7 3/4% Senior Notes due 2007 (the "Notes"), the proceeds of which were used
to repay shorter-term amortizing bank debt.
Investment income decreased from $896,000 for the first six months of
1998 to $695,000 for the first six months of 1999 due to less favorable
interest rates.
The Company incurred an extraordinary loss of approximately
$1 Million during the first quarter of 1998 related to the early
extinguishment of debt. This loss resulted primarily from the write-off of
previously deferred financing costs related to the loans repaid early with
the proceeds of the aforementioned Notes and a make-whole premium on
one of those loans.
Income Taxes
- -------------
The Company provided $4.3 Million for Federal income taxes in the
first six months of 1999 and $1.5 Million in the first six months of 1998 at
the statutory rate of 35% for both periods.
SECOND QUARTER ENDED JUNE 30, 1999
COMPARED TO SECOND QUARTER ENDED JUNE 30, 1998
Gross Voyage Profit
- -------------------
Gross voyage profit decreased from $16.6 Million in the second quarter of
1998 to $16.2 Million in the second quarter of 1999. The decrease occurred
primarily in the Company's LINER SERVICES segment, where gross voyage
profit before depreciation decreased 26% from $8.5 Million in the second
quarter of 1998 to $6.3 Million in the second quarter of 1999 primarily due
to reduced cargo volume in 1999.
The decrease in gross voyage profit for the LINER SERVICES segment
was partially offset by improved results for the TIME CHARTER CONTRACTS
segment. The gross voyage profit before depreciation for the TIME CHARTER
CONTRACTS segment increased 12.6% from $11.5 Million in the second quarter
of 1998 to $13.0 Million for the same period in 1999 due, in part, to the
acquisition and the subsequent commencement of operations of the Company's
U.S. Flag PCTC, the Green Point, in the middle of the second quarter of
1998. In addition, the Company sold two of its PCC's as part of the
Company's plan to replace these older and smaller vessels with two
<PAGE>13
newer and larger PCTC's, the Asian King and Asian Emperor, that commenced
operations upon delivery to the Company in December of 1998 and May of 1999,
respectively.
Vessel and barge depreciation for the second quarter of 1999 increased
3.2% to $9.6 Million as compared to $9.3 Million in the same period of
1998 primarily due to the commencement of operations in the middle of
the second quarter of 1998 of the Green Point. Additionally in the third
quarter of 1998, the Company began depreciating the Hickory, a LASH vessel
purchased early in 1998 now operating in the LINER SERVICES segment as a
feeder vessel.
Other Income and Expenses
- -------------------------
Administrative and general expenses decreased from $6.7 Million in the
second quarter of 1998 to $6.1 Million in the same period in 1999 due to a
continuing cost reduction program.
Earnings in the second quarter of 1999 included a gain of $7.8 Million
recognized on the sale of a PCC in May of 1999.
Interest expense was $7.7 Million for the second quarter of 1999 as
compared to $7.3 Million for the same period in 1998. The increase resulted
primarily from the financing associated with the acquisition of the Asian
King at the end of 1998 and the acquisition of the Asian Emperor in May of
1999.
Investment income decreased slightly from $392,000 for the second
quarter of 1998 to $320,000 for the second quarter of 1999 due to less
favorable interest rates.
Income Taxes
- ------------
The Company provided $3.7 Million for Federal income taxes in the second
quarter of 1999 and $1.0 Million in the second quarter of 1998 at the
statutory rate of 35% for both periods.
<PAGE>14
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $44.9 Million at December
31, 1998, to $37.9 Million at June 30, 1999, after provision for current
maturities of long-term debt and capital lease obligations of $23.9 Million.
Cash and cash equivalents decreased during the first six months of 1999 by
$12.5 Million to a total of $19.5 Million. This decrease, which resulted
from cash used for investing activities of $50.1 Million, was partially
offset by operating cash flows of $13.8 Million and financing cash flows of
$23.7 Million.
The major source of cash from operations was net income adjusted for the
gain on sale of land and vessel, as well as non-cash provisions such as
depreciation and amortization. Investing activities during the period
included the purchase of the Asian Emperor for $57.8 Million, $6.6
Million in deferred vessel drydocking charges, $3.5 Million in capitalized
upgrade work on the Green Island and Atlantic Forest, and investments in
short-term marketable securities of $1.6 Million, offset by the proceeds
received from the sale of the Cypress Trail and other assets of $18.7 Million.
The net cash provided by financing activities of $23.7 Million included
proceeds from the financing of the Asian Emperor for $47 Million and draws
against the Company's line of credit totaling $11 Million, offset by reductions
of debt and capital lease obligations of $30.8 Million stemming from regularly
scheduled principal payments and repayments of amounts drawn under lines
of credit and $2.6 Million for the purchase of treasury stock.
At December 31, 1997, the Company had available three lines of credit
totaling $35 Million to meet short-term requirements when fluctuations
occur in working capital. Early in the first quarter of 1998, the Company
entered into a $25 Million revolving credit facility that replaced these
lines of credit. Subsequently, the Company has increased this revolving
credit facility and as of June 30, 1999 it was $48 Million. At June 30,
1999, $22 Million was outstanding on this credit facility.
Management believes that normal operations will provide sufficient working
capital and cash flows to meet debt service and dividend requirements
during the foreseeable future.
The Company has not been notified that it is a potentially
responsible party in connection with any environmental matters.
At a regular meeting held July 21, 1999, the Board of Directors
declared a quarterly dividend of 6.25 cents per Common Share payable on
September 17, 1999, to shareholders of record on September 3, 1999.
<PAGE>15
STOCK REPURCHASE PROGRAM
In October of 1998, the Company's Board of Directors approved a
stock repurchase program to buy up to 500,000 shares of its common stock.
The repurchases are made in the open market or in privately negotiated
transactions at the discretion of the Company's management, depending
upon financial and market conditions. As of June 30, 1999, 184,250
shares had been repurchased under this program for a total cost of $2.9
Million at an average market price of $15.87 per share. Subsequent to
the end of the second quarter, as of July 20, 1999, the Company had
repurchased an additional 11,544 shares for a total cost of approximately
$170,000.
COAL TRANSPORTATION CONTRACT
Early in the third quarter of this year, the Company settled its
outstanding contract litigation with Seminole Electric Cooperative, Inc.
In the settlement, Seminole has paid approximately $23 Million to Central
Gulf Lines, Inc., a wholly owned subsidiary of the Company, and all agreements
between Central Gulf and Seminole have been terminated. This settlement,
less related expenses, and after offsets and previously accrued contract
profits, will be reported in the Company's third quarter results.
The settlement fully resolves all litigation among Central Gulf,
Seminole and their respective subsidiaries and affiliates. The litigation,
which involved three separate lawsuits in state and federal courts in
Florida, arose out of Seminole's unilateral termination of its contract
with Central Gulf for the transportation of coal by Central Gulf from Mt.
Vernon, Indiana to Gulf County, Florida. The contract, entered into in
1981, would have expired in 2004 according to its terms. Seminole notified
the Company and Central Gulf on December 15, 1998, that is was terminating
performance under the agreement, commencing alternative rail transportation
and commencing the litigation. Seminole's stated purpose in instituting
the litigation was to confirm Seminole's ability to terminate performance
under the agreement and establish the damages owed by Seminole to Central
Gulf as a result of the termination.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and
<PAGE>16
Hedging Activities." SFAS No. 133 is effective for fiscal quarters of fiscal
years beginning after June 15, 1999. In June of 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133." SFAS No. 137 is an
amendment of SFAS No. 133 and defers the effective date of SFAS No. 133 to
June 15, 2000. The Company has not chosen early adoption and, as it is not
possible to predict the Company's derivative position at the time this
standard will be applied, it is unknown what effect, if any, SFAS No. 137
will have on its financial statements once adopted.
YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") issue refers to the potential failure of
information technology ("IT") systems, telecommunications, and other
electronic devices before, on or after January 1, 2000. This problem is
primarily due to the use of a 2- digit year indicator within software code
including applications, operating systems, hardware, or microchips.
Non-compliant systems will likely interpret the "00" in "2000" incorrectly as
"1900."
State of Readiness
- ------------------
The Company has appointed a Y2K Project Manager who, along with
department heads responsible for compliance in their respective areas, is
addressing the Y2K issue. The Company's Y2K Plan is an overall corporate
plan supported by lower-tier plans and schedules developed by each functional
area. The phases in the Y2K Plan include inventory, assessment,
remediation, testing, and contingency planning.
During the inventory phase, all computer-based systems, components
(such as systems developed in-house, purchased software, computers, and
associated hardware), service providers, and hardware that contain
microchips that support the functionality of the Company are being
identified. Additionally, items that, in and of themselves, may not be
impacted by the date change, but that interface with systems or equipment
that are impacted by the date change are being identified.
The assessment phase involves determining which systems are date-sensitive
and prioritizing how critical each of these systems is to continuation of
the Company's business activities.
Once the assessment phase is complete, the remediation phase begins.
During this phase, the strategies for addressing systems that are not
Y2K compliant will be developed. Possible strategies include repairing,
replacing, or retiring the system.
<PAGE>17
The testing phase will verify that the repaired or replaced system
will operate properly when the date changes, and that existing business
functions will continue to operate as expected. Testing efforts will
not be confined solely to IT systems. Non-IT systems such as building
infrastructure and components with embedded microchips will also be evaluated.
The inventory and assessment phases are complete for IT systems, and those
identified as most critical were 95% remediated and tested by June 30, 1999.
The remaining IT systems are expected to be addressed by September of 1999.
Vessel systems inspection and original equipment manufacturer ("OEM")
testing are ongoing through July of 1999. Contingency plans for vessels
are in place. These contingency plans comprise both general contingencies
which apply to all vessels and vessel specific contingencies, where
necessary. The contingency plans for the vessels are based on the Company's
existing emergency procedures. Periodic training is held on the Company's
vessels to ensure that crew members are familiar with the contingency plans.
The Company has contacted its key suppliers and customers to
ensure they are addressing the Y2K issue. Y2K questionnaires have been
issued to these suppliers and customers and their responses are being
reviewed to determine what action by the Company, if any, is necessary.
Costs to Address Y2K Issues
- ---------------------------
Expenditures related to evaluating and remediating any Y2K problems
through June 30, 1999, have not had a material effect on the Company's
financial position or results of operations. It is anticipated that the
resources required to address Y2K issues during 1999 will be provided
primarily by existing levels of personnel. While management does not expect
Y2K compliance costs to have a material adverse effect on the Company,
estimates of total expenditures for Y2K issues, including all phases of the
Y2K Plan described above, as well as the cost of replacing or modifying any
noncompliant systems have been submitted to the Company's management
for review. Vessel Y2K budgets include OEM systems testing and
replacement for previously identified non-compliant items.
Risks of Y2K Issues
- -------------------
A definitive assessment of the risk to the Company if systems that are
not Y2K compliant were not identified, or identified but not successfully
remediated, has been and continues to be undertaken. No Y2K issues
have been identified that are unique to the Company or that otherwise would
not be found in its industry.
<PAGE>18
Contingency Plans
- ------------------
Once the potential problems that could result from the Y2K issue have
been identified, the steps required in the event any system fails will
be determined. Vessel and Information Systems Contingency Plans are
complete. Cost estimates to implement the contingency plans will be refined
and analyzed against other options.
MARKET-SENSITIVE INSTRUMENTS AND RISK MANGEMENT
In the ordinary course of its business, the Company is exposed to
foreign currency, interest rate, and commodity price risk. The Company
utilizes derivative financial instruments including forward currency
exchange contracts and commodity swap agreements to manage certain of
these exposures. The Company hedges only firm commitments or anticipated
transactions and does not use derivatives for speculation. The Company neither
holds nor issues financial instruments for trading purposes.
There were no material changes in market risk exposure for the interest
rate and foreign currency risks described in the Company's Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1998.
The fair value of the commodity swap agreement at June 30, 1999, as
discussed in the Form 10-K, estimated based on the difference between second
quarter price per ton of fuel and the contract delivery price per ton of fuel
times the quantity applicable to the agreement, was an asset of
$508,000. A hypothetical 10% decrease in fuel prices as of June 30, 1999,
would have resulted in a $276,000 decrease in the fair value of the asset.
<PAGE>19
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The matters voted upon and results of the voting at the Company's
annual meeting of shareholders held April 21, 1999, were reported in
response to Item 4 of the Company's Form 10-Q filed with the Securities and
Exchange Commission for the quarterly period ended March 31, 1999, and
are incorporated herein by reference.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
Exhibit Number Description
---------------------- -------------------------
Part I Exhibits: 27 Financial Data Schedule
Part II Exhibits: 3 Restated Certificate of
Incorporation, as amended,
and By-Laws of the
Registrant (filed with
the Securities and Exchange
Commission as Exhibit 3
to the Registrant's Form
10-Q for the quarterly
period ended June 30, 1996,
and incorporated herein by
reference)
(b) No reports on Form 8-K were filed for the three month period ended
June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INTERNATIONAL SHIPHOLDING CORPORATION
/s/ Gary L. Ferguson
_____________________________________________
Gary L. Ferguson
Vice President and Chief Financial Officer
Date August 12, 1999
___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 19,482
<SECURITIES> 13,465
<RECEIVABLES> 55,213
<ALLOWANCES> 518
<INVENTORY> 12,505
<CURRENT-ASSETS> 111,531
<PP&E> 794,332
<DEPRECIATION> 376,760
<TOTAL-ASSETS> 716,715
<CURRENT-LIABILITIES> 73,606
<BONDS> 384,802
0
0
<COMMON> 6,756
<OTHER-SE> 174,667
<TOTAL-LIABILITY-AND-EQUITY> 716,715
<SALES> 0
<TOTAL-REVENUES> 174,264
<CGS> 0
<TOTAL-COSTS> 157,589
<OTHER-EXPENSES> 15,241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,241
<INCOME-PRETAX> 12,355
<INCOME-TAX> 4,509
<INCOME-CONTINUING> 7,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,846
<EPS-BASIC> 1.20
<EPS-DILUTED> 1.20<F1><F2>
<FN>
<F1>Amounts inapplicable or not disclosed as a seperate line on the Balance
Sheet or Statement of Income are reported as 0 herein.
<F2>*Notes and accounts receivable- trade are reported net of allowances for
doubtful accounts in the Balance Sheet.
</FN>
</TABLE>
