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, 2000
--------------------
__ 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
incorporation or organization) Number)
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 6,082,887 shares (September 30, 2000)
-------------------
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,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenues $ 82,640 $ 81,254 $ 253,254 $ 248,519
Subsidy Revenue 3,682 3,145 11,029 10,144
Net Revenue from Contract
Settlement - 17,336 - 17,336
---------- ---------- ---------- ----------
86,322 101,735 264,283 275,999
---------- ---------- ---------- ----------
Operating Expenses:
Voyage Expenses 63,388 66,962 199,092 193,121
Vessel and Barge Depreciation 9,635 9,744 29,418 29,026
---------- ---------- ---------- ----------
Gross Voyage Profit 13,299 25,029 35,773 53,852
---------- ---------- ---------- ----------
Administrative and General
Expenses 5,123 5,934 16,691 18,082
Gain on Sale of Land/Vessels - - 5,063 10,161
---------- ---------- ---------- ----------
Operating Income 8,176 19,095 24,145 45,931
---------- ---------- ---------- ----------
Interest:
Interest Expense 8,754 8,117 25,624 23,358
Investment Income (999) (367) (1,717) (1,062)
---------- ---------- ---------- ----------
7,755 7,750 23,907 22,296
---------- ---------- ---------- ----------
Income Before Provision (Benefit)
for Income Taxes, Equity in Net
(Loss) Income of Unconsolidated
Entities, and Extraordinary Item 421 11,345 238 23,635
---------- ---------- ---------- ----------
Provision (Benefit) for
Income Taxes:
Current 502 200 1,580 843
Deferred (264) 3,791 (1,294) 7,496
State - 93 140 254
---------- ---------- ---------- ----------
238 4,084 426 8,593
---------- ---------- ---------- ----------
Equity in Net (Loss) Income of
Unconsolidated Entities (Net
of Applicable Taxes) (7) (24) 7 41
---------- ---------- ---------- ----------
Income (Loss) Before
Extraordinary Item 176 7,237 (181) 15,083
---------- ---------- ---------- ----------
Extraordinary Gain on Early
Retirement of Bonds (Net
of Income Tax Provision of
$130) 242 - 242 -
---------- ---------- ---------- ----------
Net Income $ 418 $ 7,237 $ 61 $ 15,083
========== ========== ========== ==========
Basic and Diluted Earnings
Per Share:
Income (Loss) Before
Extraordinary Item $ 0.03 $ 1.12 $ (0.03) $ 2.32
Extraordinary Gain 0.04 - 0.04 -
---------- ---------- ---------- ----------
Net Income $ 0.07 $ 1.12 $ 0.01 $ 2.32
========== ========== ========== ==========
Weighted Average Shares of
Common Stock Outstanding 6,082,887 6,449,017 6,082,976 6,508,491
<FN>
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 2000 1999
------------- -------------
Current Assets:
Cash and Cash Equivalents $ 17,972 $ 18,661
Marketable Securities 7,525 11,337
Accounts Receivable, Net of Allowance for
Doubtful Accounts of $297 and $294 in
2000 and 1999, Respectively:
Traffic 39,364 47,855
Agents' 5,266 6,660
Claims and Other 11,043 7,174
Federal Income Taxes Receivable 579 583
Deferred Income Taxes 57 60
Net Investment in Direct Financing Leases 3,538 3,137
Other Current Assets 6,287 4,134
Material and Supplies Inventory, at Lower of
Cost or Market 11,655 12,726
------------- -------------
Total Current Assets 103,286 112,327
------------- -------------
Marketable Equity Securities 259 234
------------- -------------
Investment in Unconsolidated Entities 4,207 2,805
------------- -------------
Net Investment in Direct Financing Leases 109,005 112,032
------------- -------------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges 745,050 775,001
Other Marine Equipment 8,278 7,897
Terminal Facilities 18,425 18,470
Land 1,230 1,230
Furniture and Equipment 17,197 17,222
------------- -------------
790,180 819,820
Less - Accumulated Depreciation (365,270) (379,588)
------------- -------------
424,910 440,232
------------- -------------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $42,833 and $49,880
in 2000 and 1999, Respectively 31,725 39,692
Acquired Contract Costs, Net of
Accumulated Amortization of $16,701
and $15,609 in 2000 and 1999, Respectively 13,824 14,916
Due from Related Parties 813 580
Other 11,459 12,185
------------- -------------
57,821 67,373
------------- -------------
$ 699,488 $ 735,003
============= =============
<FN>
The accompanying notes are an integral part of these statements.
4
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands Except Share Data)
(Unaudited)
September 30, December 31,
2000 1999
------------- -------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt $ 24,294 $ 23,137
Current Maturities of Capital Lease
Obligations 8,004 3,231
Accounts Payable and Accrued Liabilities 45,238 50,388
------------- -------------
Total Current Liabilities 77,536 76,756
------------- -------------
Billings in Excess of Income Earned and
Expenses Incurred 6,165 5,083
------------- -------------
Long-Term Capital Lease Obligations, Less
Current Maturities 52,465 8,853
------------- -------------
Long-Term Debt, Less Current Maturities 312,978 391,589
------------- -------------
Other Long-Term Liabilities:
Deferred Income Taxes 43,727 45,124
Claims and Other 25,129 25,114
------------- -------------
68,856 70,238
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 129,360 130,440
Less - Treasury Stock (8,704) (8,654)
Accumulated Other Comprehensive Loss (374) (508)
------------- -------------
181,488 182,484
------------- -------------
$ 699,488 $ 735,003
============= =============
<FN>
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, 1998 $ 6,756 $ 54,450 $117,399 ($1,422) ($75) $177,108
Comprehensive Income:
Net Income for Year Ended
December 31, 1999 - - 14,623 - - 14,623
Other Comprehensive Income:
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes of
($233) - - - - (433) (433)
--------
Total Comprehensive Income 14,190
Treasury Stock - - - (7,232) - (7,232)
Cash Dividends - - (1,582) - - (1,582)
-------- --------- --------- -------- --------- --------
Balance at
December 31, 1999 $ 6,756 $ 54,450 $130,440 ($8,654) ($508) $182,484
======== ========= ========= ======== ========= ========
Comprehensive Income:
Net Income for the
Period Ended
September 30, 2000 - - 61 - - 61
Other Comprehensive Income:
Unrealized Holding Gain on
Marketable Securities,
Net of Deferred Taxes of
$72 - - - - 134 134
--------
Total Comprehensive Income 195
Treasury Stock - - - (50) - (50)
Cash Dividends - - (1,141) - - (1,141)
-------- --------- --------- --------- -------- --------
Balance at
September 30, 2000 $ 6,756 $ 54,450 $129,360 ($8,704) ($374) $181,488
======== ========= ========= ========= ======== ========
<FN>
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,
2000 1999
-------------- --------------
Cash Flows from Operating Activities:
Net Income $ 61 $ 15,083
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 31,687 31,182
Amortization of Deferred Charges and
Other Assets 14,588 13,311
(Benefit) Provision for Deferred Income
Taxes (1,294) 7,496
Equity in Net Income of Unconsolidated
Entities (7) (41)
Gain on Sale of Vessels and Other Property (5,345) (10,291)
Net Revenue from Contract Settlement - (20,552)
Proceeds from Contract Settlement - 22,327
Extraordinary Gain (242) -
Changes in:
Accounts Receivable 6,240 2,862
Inventories and Other Current Assets (1,135) (2,776)
Other Assets 3,773 (372)
Accounts Payable and Accrued Liabilities (6,933) (9,654)
Federal Income Taxes Payable (303) (884)
Unearned Income 1,082 (387)
Other Long-Term Liabilities (835) (1,320)
-------------- --------------
Net Cash Provided by Operating Activities 41,337 45,984
-------------- --------------
Cash Flows from Investing Activities:
Net Investment in Direct Financing Lease 2,666 (56,533)
Purchase of Vessels and Other Property (33,865) (51,104)
Additions to Deferred Charges (4,709) (11,249)
Proceeds from Sale of Vessels and Other
Property 20,988 19,336
Purchase of and Proceeds from Short-Term
Investments 3,990 1,797
Investment in and Partial Sale of
Unconsolidated Entities (1,391) 766
Purchase of Marketable Equity Securities - (20)
Other Investing Activities (233) 112
-------------- --------------
Net Cash Used by Investing Activities (12,554) (96,895)
-------------- --------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt and Capital
Lease Obligations 117,400 108,400
Reduction of Debt and Capital Lease
Obligations (146,254) (59,975)
Additions to Deferred Financing Charges (324) (513)
Purchase of Treasury Stock (50) (4,073)
Common Stock Dividends Paid (1,141) (1,215)
Other Financing Activities 897 -
-------------- --------------
Net Cash (Used) Provided by Financing Activities (29,472) 42,624
-------------- --------------
Net Decrease in Cash and Cash Equivalents (689) (8,287)
Cash and Cash Equivalents at Beginning of Period 18,661 32,008
-------------- --------------
Cash and Cash Equivalents at End of Period $ 17,972 $ 23,721
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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,
1999. 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
2000. 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 2000 interim results are not necessarily indicative of
the results of operations for the full year 2000.
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 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.
The Company does not allocate interest income, administrative
and general expenses, equity in unconsolidated entities, income taxes or
extraordinary items 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. The following table
8
presents information about segment profit and loss for the nine months
ended September 30, 2000 and 1999.
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- --------------------------------------------------------------------------------
2000
Revenues from external
customers $135,282 $102,265 $ 23,814 $ 2,922 $264,283
Intersegment revenues - - - 22,891 22,891
Gross voyage profit before
vessel and barge depreciation 8,669 44,421 9,753 2,348 65,191
Vessel and barge Depreciation 11,486 12,780 4,944 208 29,418
Interest expense 4,305 15,580 5,414 325 25,624
Gain on sale of vessels - 5,063 - - 5,063
Segment (loss) profit before
interest income, administrative
and general expenses, equity in
unconsolidated entities, taxes
and extraordinary item (7,122) 21,124 (605) 1,815 15,212
- --------------------------------------------------------------------------------
1999
Revenues from external
customers $132,334 $ 95,351 $ 26,455 $ 4,523 $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
vessel and barge depreciation 12,402 37,042 29,805 3,629 82,878
Vessel and barge 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 (loss) profit before
interest income, administrative
and general expenses, equity in
unconsolidated entities
and taxes (2,939) 19,819 18,824 4,951 40,655
- --------------------------------------------------------------------------------
9
The following table presents information about segment profit and loss
for the third quarter ended September 30, 2000 and 1999.
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- -------------------------------------------------------------------------------
2000
Revenues from external
customers $ 43,068 $ 34,645 $ 7,961 $ 648 $ 86,322
Intersegment revenues - - - 7,518 7,518
Gross voyage profit before
vessel and barge depreciation 2,963 15,975 3,193 803 22,934
Vessel and barge depreciation 3,794 4,122 1,648 71 9,635
Interest expense 1,520 5,225 1,909 100 8,754
Segment (loss) profit before
interest income, administrative
and general expenses, equity in
unconsolidated entities, taxes,
and extraordinary item (2,351) 6,628 (364) 632 4,545
- --------------------------------------------------------------------------------
1999
Revenues from external
customers $ 43,623 $ 32,137 $ 7,377 $ 1,262 $ 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
vessel and barge depreciation 1,467 12,373 20,429 504 34,773
Vessel and barge depreciation 3,697 4,245 1,648 154 9,744
Interest expense 1,664 4,558 1,869 26 8,117
Segment (loss) profit before
interest income, administrative
and general expenses, equity in
unconsolidated entities
and taxes (3,894) 3,570 16,912 324 16,912
- --------------------------------------------------------------------------------
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,
2000 1999 2000 1999
---------- ----------- ---------- ----------
Total profit for
reportable segments $ 4,545 $ 16,912 $ 15,212 $ 40,655
Unallocated amounts:
Interest income 999 367 1,717 1,062
Administrative and
general expenses 5,123 5,934 16,691 18,082
---------- ----------- ---------- ----------
Income before equity in
unconsolidated entities,
taxes and extraordinary
item $ 421 $ 11,345 $ 238 $ 23,635
========== =========== ========== ==========
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. Stock options covering 475,000 shares were excluded from
the computation of diluted earnings per share in the first nine months of
2000 and 1999, as the effect would have been antidilutive.
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
- --------------------------
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, 1999.
General
- -------
The Company's vessels are operated under a variety of charters, liner
services, and contracts. The nature of these arrangements is such that,
without a material variation in gross voyage profits (total revenues
less voyage expenses and vessel and barge depreciation), the revenues and
expenses attributable to a vessel deployed under one type of charter
or contract can differ substantially from those attributable to the same
vessel if deployed under a different type of charter or contract.
Accordingly, depending on the mix of charters or contracts in place during
a particular accounting period, the Company's revenues and expenses can
fluctuate substantially from one period to another even though the number of
vessels deployed, the number of voyages completed, the amount of cargo
carried and the gross voyage profit derived from the vessels remain relatively
constant. As a result, fluctuations in voyage revenues and expenses
are not necessarily indicative of trends in profitability, and management
believes that gross voyage profit is a more appropriate measure of
performance than revenues. Accordingly, the discussion below addresses
variations in gross voyage profits rather than variations in revenues.
11
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Gross Voyage Profit
- -------------------
Gross voyage profit decreased 33.6% from $53.9 Million in the
first nine months of 1999 to $35.8 Million in the first nine months of 2000.
The first nine months of 1999 included net revenue of $17.3 Million plus
first and second quarter accruals of $3.2 Million from a settlement for
the premature termination of a coal transportation contract as discussed
in the Company's December 31, 1999 Form 10-K. After excluding this reported
settlement from the 1999 results, gross voyage profit increased by 7.4% for
the first nine months of 2000 as compared to the same period in 1999. The
increase occurred primarily in the Company's TIME CHARTER CONTRACTS segment,
where gross voyage profit before depreciation increased 19.9% from $37.0
Million in the first nine months of 1999 to $44.4 Million for the same period
in 2000. The increase was due primarily to supplemental cargoes
carried in addition to the segment's charter agreements. In addition,
the acquisition and commencement of operations of the Company's U.S. Flag
Pure Car/Truck Carrier ("PCTC"), the GREEN DALE, in September of 1999
contributed to the increase. The Company's PCTC, the ASIAN EMPEROR, which
delivered to the Company and commenced operations in May of 1999, showed
improved results over the older and smaller vessel it replaced. The Company
also sold one of its U.S. Flag Pure Car Carriers ("PCCs"), the GREEN BAY,
in June of 2000, and replaced it with a newer and larger PCTC, the GREEN
COVE.
The CONTRACTS OF AFFREIGHTMENT segment's gross profit before depreciation
and after the aforementioned elimination of the 1999 settlement for the
contract termination, increased 5.4% from $9.3 Million in the first nine months
of 1999 to $9.8 Million for the same period in 2000 due to a slight increase
in revenue tons carried.
Effective in the fourth quarter of 2000, the Company's CONTRACTS OF
AFFREIGHTMENT segment's contract with a major mining company in Irian Jaya,
Indonesia, will be serviced by one multi-purpose vessel, a small tanker, and
two container ships. The two Float-On/Float-Off ships, BANDA SEA and BALI SEA,
previously employed in this trade are being modified to enable them to carry
standard gauge railroad cars. They will then be transferred to the U.S. Gulf
where they will be employed on a regular service, with sailings every four
days, carrying loaded rail cars, rolled on and rolled off the vessels,
between Mobile, Alabama, and Coatzacoalcos, Mexico. Each vessel has a
capacity for 60 standard rail cars. This new service, under the name of CGR,
12
Inc., will begin in January of 2001. With departures every four days
from Coatzacoalcos and Mobile, respectively, it will offer with each vessel
a three-day transit between these ports and provide a total of 90 trips per
year in each direction.
The increase in gross voyage profit after the aforementioned
elimination of the 1999 settlement for the contract termination was offset
by the Company's LINER SERVICES segment, where gross voyage profit
before depreciation decreased 30.1% from $12.4 Million for the first nine
months of 1999 to $8.7 Million for the first nine months of 2000. The
decrease resulted in part because one of the segment's LASH vessels, the
RHINE FOREST, was in a shipyard for over 76 days for planned maintenance
during the first quarter of 2000. Additionally, increased fuel oil cost
continues to negatively affect earnings even though partially offset by
hedging contracts entered into prior to the beginning of the year. After
adjusting for the hedging contracts in place through December of 2000, the
Company paid $8.9 Million more for fuel for its LINER SERVICES segment
during the first nine months of 2000 than in the same period in 1999. This
increased fuel cost was incurred even though fewer voyage days were incurred
in the first quarter of 2000 because of the out-of-service time for the
RHINE FOREST.
Vessel and barge depreciation for the first nine months of 2000 increased
1.4% to $29.4 Million as compared to $29.0 Million in the same period of 1999
primarily due to the commencement of operations of the GREEN DALE and GREEN
COVE as discussed above, partially offset by the sale of the GREEN BAY in
June of 2000.
Other Income and Expenses
- -------------------------
Administrative and general expenses decreased from $18.1 Million in
the first nine months of 1999 to $16.7 Million in the same period in 2000
due to a continuing cost reduction program.
Earnings in 2000 included a gain of $6.1 Million recognized on the
sale of a PCC in June of 2000, which was partially offset by a loss of $1.0
Million recognized on the sale of one of the Company's LASH vessels no longer
needed for operations. 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 $25.6 Million for the first nine months of 2000
as compared to $23.4 Million for the same period in 1999. The increase
resulted primarily from the financing associated with the acquisition of
the ASIAN EMPEROR early in the second quarter of 1999, the acquisition of the
GREEN DALE at the end of the third quarter of 1999, the acquisition of the
GREEN COVE at the end of the second quarter of 2000, and higher interest rates
in 2000.
13
Investment income increased from $1.1 Million for the first nine months
of 1999 to $1.7 Million for the first nine months of 2000 due to a higher
average balance of invested funds and more favorable interest rates.
The Company incurred an extraordinary gain of $242,000, net of taxes,
during the first nine months of 2000 related to the early retirement of bonds.
Income Taxes
- ------------
The Company provided $286,000 for Federal income taxes in the first
nine months of 2000 and $8.3 Million in the first nine months of 1999 at
the statutory rate of 35% for both periods.
THIRD QUARTER ENDED SEPTEMBER 30, 2000
COMPARED TO THIRD QUARTER ENDED SEPTEMBER 30, 1999
Gross Voyage Profit
- -------------------
Gross voyage profit decreased 46.9% from $25.0 Million in the third
quarter of 1999 to $13.3 Million in the third quarter of 2000. The third
quarter of 1999 included net revenues of $17.3 Million, which was net of
first and second quarter revenue accruals, for the premature termination of a
coal transportation contract as discussed in the Company's December 31,
1999 Form 10-K. After excluding the net revenue from the contract
settlement from 1999 results, gross voyage profit increased in the third
quarter of 2000 as compared to the same period in 1999 by 72.9%. The
increase occurred partially in the Company's TIME CHARTER CONTRACTS
segment, where gross voyage profit before depreciation increased 29.1%
from $12.4 Million in the third quarter of 1999 to $16.0 Million for the
same period in 2000. The increase was due primarily to supplemental
cargoes carried in addition to the segment's charter agreements. In
addition, the acquisition and commencement of operations of the Company's
U.S. Flag PCTC, the GREEN DALE, in September of 1999 contributed to the
increase. In June of 2000, the Company sold one of its PCC's, the GREEN
BAY, and replaced it with a newer and larger PCTC, the GREEN COVE.
The Company's LINER SERVICES segment also showed improved results,
where gross voyage profit before depreciation doubled from $1.5 Million
in the third quarter of 1999 to $3.0 Million for the third quarter of 2000.
The increase resulted from the GREEN ISLAND being out of service for 76 days
during the third quarter of 1999 for repairs related to a casualty. This
increase was partially offset by the cost of bunker fuel, which has risen
significantly in the past nine months. After adjusting for the hedging
contracts, the Company paid $2.0 Million more for
14
fuel for its LINER SERVICES segment during the third quarter of 2000 than in
the same period in 1999.
The CONTRACTS OF AFFREIGHTMENT segment's gross profit before
depreciation and after the aforementioned elimination of the 1999 net revenue
from contract settlement, increased 3.2% from $3.1 Million in the third quarter
of 1999 to $3.2 Million for the same period in 2000 due to a slight increase
in revenue tons carried.
Vessel and barge depreciation for the third quarter of 2000 was
approximately the same as the third quarter of 1999.
Other Income and Expenses
- -------------------------
Administrative and general expenses decreased from $5.9 Million in the
third quarter of 1999 to $5.1 Million in the same period in 2000 due to
a continuing cost reduction program.
Interest expense was $8.8 Million for the third quarter of 2000 as
compared to $8.1 Million for the same period in 1999. The increase resulted
primarily from the financing associated with the acquisition of the GREEN
DALE at the end of the third quarter of 1999, the acquisition of the GREEN
COVE at the end of the second quarter of 2000, and higher interest rates
in 2000.
Investment income increased from $367,000 for the third quarter of 1999
to $999,000 for the third quarter of 2000 due to a higher average balance
of invested funds and more favorable interest rates.
The Company incurred an extraordinary gain of $242,000, net of taxes,
during the third quarter of 2000 related to the early retirement of bonds.
Income Taxes
- ------------
The Company provided $238,000 for Federal income taxes in the third
quarter of 2000 and $4.0 Million in the third quarter of 1999 at the
statutory rate of 35% for both periods.
15
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $35.6 Million at
December 31, 1999, to $25.8 Million at September 30, 2000, after provision
for current maturities of long-term debt and capital lease obligations of
$32.3 Million. Cash and cash equivalents decreased during the first nine
months of 2000 by $689,000 to a total of $18.0 Million. This decrease,
which resulted from cash used for investing activities of $12.6 Million and
for financing activities of $29.5 Million, was offset by cash provided
by operating activities of $41.3 Million.
The major source of cash from operations was net income adjusted for the
gain on sale of vessels and other property, as well as non-cash provisions
such as depreciation and amortization. Investing activities during the
period included asset additions of $33.9 Million, substantially all of which
resulted from the purchase of the GREEN COVE and $4.7 Million in deferred
vessel drydocking charges. These additions were partially offset by $21.0
Million received from the sale of vessels and property, substantially all of
which resulted from the sale of the GREEN BAY, $4.0 Million from the sale
of short-term marketable securities, and returns from investments in direct
financing leases of $2.7 Million.
The net cash used for financing activities of $29.5 Million included
reductions of debt and capital lease obligations of $81.2 Million
stemming from regularly scheduled principal payments and repayments of
amounts drawn under lines of credit, and $65.0 Million from the early
retirement of bonds. These reductions were offset by proceeds received
from the financing of the GREEN COVE for $22.4 Million, a sale-leaseback
of two LASH vessels for $14.0 Million, a sale-leaseback of a PCTC for $38
Million, and draws against the Company's line of credit totaling 43.0 Million.
During the first nine months of 2000, the Company repurchased
$50.8 Million of its unsecured 9% Senior Notes due 2003 at a small call
premium, and $14.2 Million of its unsecured 7 3/4% Senior Notes due 2007 at a
discount. These repurchases were made primarily to reduce interest, since
the proceeds used to buy back the Notes came from financings entered into
during the year at lower interest rates. As of September 30, 2000, the
Company has outstanding $42.6 Million on its 9% Senior Notes and $94.2
Million on its 7 3/4% Senior Notes.
At September 30, 2000, $7.0 Million was outstanding on the Company's
$48.0 Million revolving credit facility. Subsequent to the quarter's
end, the Company reduced its available credit facility by $10.0 Million
in order to reduce the carrying cost for amounts considered excessive
for current operations.
16
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 October 18, 2000, the Board of Directors
declared a quarterly dividend of 6.25 cents per Common Share payable on
December 15, 2000, to shareholders of record on December 1, 2000.
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 completed the program and 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
market value of the Company's common stock did not adequately reflect the
Company's inherent value. 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, 2000, 600,000 shares had been repurchased under these
two programs for a total cost of $7,571,000 at an average market price of
$12.68 per share, of which 4,300 shares were repurchased during 2000.
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 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all 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
17
of SFAS No. 133 and defers
the effective date of SFAS No. 133 to fiscal years beginning after 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. While the Company has not yet
quantified the impact on its financial statements, the Company does not
believe adoption will have a material impact on net income, although adoption
is likely to increase volatility of comprehensive income and accumulated other
comprehensive income.
18
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 exchange
contracts, interest rate swap agreements 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.
At September 30, 2000, there were no material changes in market risk
exposure for the foreign currency risk described in the Company's Form
10-K filed with the Securities and Exchange Commission for the year
ended December 31, 1999.
The fair value of long-term debt at September 30, 2000, including current
maturities, was estimated to be $339.5 Million compared to a carrying value
of $337.3 Million. The potential increase in fair value resulting from
a hypothetical 10% increase in the average interest rates applicable to
the Company's long-term debt at September 30, 2000, would be approximately
$6.3 Million or 2.1% of the carrying value.
The estimated fair value of the interest rate swap agreements at
September 30, 2000, discussed in the Company's Form 10-K, based on the amount
that the banks would receive or pay to terminate the swap agreements taking
into account current market conditions and interest rates at the
reporting date, was an asset of $2.9 Million. A hypothetical 10%
decrease in interest rates at September 30, 2000, would have resulted in a
$1.8 Million decrease in the fair value of the asset.
The estimated fair value of the commodity swap agreements at
September 30, 2000, discussed in the Company's Form 10-K, based on the
difference between price per ton of fuel at the end of the third quarter
and the contract delivery price per ton of fuel times the quantity
applicable to the agreements, was an asset of $1.1 Million. A
hypothetical 10% decrease in the price per ton of fuel at September 30,
2000, would have resulted in a $348,000 decrease in the fair value of
the asset.
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PART II - OTHER INFORMATION
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
September 30, 2000.
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 13, 2000
___________________________